FEDERAL COURT OF AUSTRALIA
Moody Kiddell & Partners Pty Ltd v Arkell [2013] FCA 1066
Citation: Moody Kiddell & Partners Pty Ltd v Arkell [2013] FCA 1066 Parties: MOODY KIDDELL & PARTNERS PTY LTD v BENJAMIN JOHN ARKELL, DAVID ANDREW BROOKE and BROOLEND PTY LTD (ACN 125 742 225) T/A BROOKE FINANCIAL SOLUTIONS File number(s): NSD 2323 of 2011 Judge(s): JAGOT J Date of judgment: 22 October 2013 Catchwords: DISCOVERY – application to strike out defence – deletion of emails – destruction of evidence Legislation: Federal Court Rules 2011 Cases cited: Arrow Nominees Inc v Blackledge [2000] EWCA Civ 200
British American Tobacco Australia Services Ltd v Cowell (2002) 7 VR 524; [2002] VSCA 197
Clark v State of New South Wales (2006) 66 NSWLR 640; [2006] NSWSC 673
Clark v State of New South Wales [2012] NSWCA 139
Palavi v Radio 2UE Sydney Pty Ltd [2011] NSWCA 264Date of hearing: 25 September 2013 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 40 Counsel for the Applicant: A Moses SC with M P Cleary Solicitor for the Applicant: HWL Ebsworth Lawyers Counsel for the Respondents: M Condon SC Solicitor for the Respondents: Thurlow Fisher Lawyers
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 2323 of 2011
BETWEEN: MOODY KIDDELL & PARTNERS PTY LTD
ApplicantAND: BENJAMIN JOHN ARKELL
First RespondentDAVID ANDREW BROOKE
Second RespondentBROOLEND PTY LTD (ACN 125 742 225) T/A BROOKE FINANCIAL SOLUTIONS
Third Respondent
JUDGE:
JAGOT J
DATE OF ORDER:
22 OCTOBER 2013
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
1.The proceeding be listed for further hearing as necessary and the making of orders in respect of the interlocutory application filed 2 August 2013 on a date to be determined in consultation with the parties.
Note:Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 2323 of 2011
BETWEEN: MOODY KIDDELL & PARTNERS PTY LTD
ApplicantAND: BENJAMIN JOHN ARKELL
First RespondentDAVID ANDREW BROOKE
Second RespondentBROOLEND PTY LTD (ACN 125 742 225) T/A BROOKE FINANCIAL SOLUTIONS
Third Respondent
JUDGE:
JAGOT J
DATE:
22 OCTOBER 2013
PLACE:
SYDNEY
REASONS FOR JUDGMENT
1. INTERLOCUTORY APPLICATION
The applicant, Moody Kiddell & Partners Pty Ltd (MKP), by an interlocutory application filed on 2 August 2013, seeks an order pursuant to r 16.21(f) of the Federal Court Rules 2011 that the amended defence of the second and third respondents (David Brooke and Broolend Pty Ltd trading as Brooke Financial Solutions) be struck out as an abuse of process of the Court. The abuse of process is said to arise from the alleged conduct of the second and third respondents’, being deliberate destruction of documents relevant to the issues in dispute and which otherwise ought to have been discovered by those respondents.
In order to understand the interlocutory application, and the evidentiary foundation for it, it is…
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Details
- Case
- [2013] FCA 1066
- Decision Date
CaseChat Overview and Summary
Moody Kiddell & Partners Pty Ltd (MKP) brought an interlocutory application against Mr. Brooke and others, seeking relief from the consequences of non-compliance with discovery obligations. The dispute revolves around allegations that Mr. Brooke, a former employee of MKP, breached confidentiality agreements by retaining client information and using it to establish a competing business. MKP claims that Mr. Brooke's actions included copying and retaining confidential client lists and other internal documents, which he then used to solicit MKP's clients to switch to his new business. Mr. Brooke denies these allegations and disputes the enforceability of the restraints imposed by the confidentiality deed.
The primary legal issue before the court was whether Mr. Brooke's non-compliance with the discovery orders, specifically the use of file shredding software post-proceeding commencement, warranted a striking out of his defence under the inherent jurisdiction of the court. The court considered whether Mr. Brooke's actions constituted an abuse of process and whether they significantly prejudiced MKP's ability to conduct a fair trial. The court had to balance the need to ensure justice and the proper administration of the judicial process against the potential harshness of striking out a party's pleadings.
The court concluded that Mr. Brooke's use of file shredding software post-proceeding commencement was deliberate and improper. This conduct led to the irretrievability of numerous emails and attachments, which could have otherwise been recovered through forensic examination. The court found that the prejudice to MKP was significant, as it prevented them from fully assessing Mr. Brooke's defence and preparing a counter-argument. Given the exceptional nature of the remedy of striking out pleadings, the court exercised this power sparingly but deemed it necessary in this instance to ensure the proper administration of justice. The court also noted that the remedy had to be proportionate to the prejudice caused.
The final orders included granting MKP's application to strike out Mr. Brooke's defence, with the option to re-plead within a specified timeframe. This decision effectively barred Mr. Brooke from relying on his defence in the proceeding, barring any further re-pleading unless exceptional circumstances were presented.
The primary legal issue before the court was whether Mr. Brooke's non-compliance with the discovery orders, specifically the use of file shredding software post-proceeding commencement, warranted a striking out of his defence under the inherent jurisdiction of the court. The court considered whether Mr. Brooke's actions constituted an abuse of process and whether they significantly prejudiced MKP's ability to conduct a fair trial. The court had to balance the need to ensure justice and the proper administration of the judicial process against the potential harshness of striking out a party's pleadings.
The court concluded that Mr. Brooke's use of file shredding software post-proceeding commencement was deliberate and improper. This conduct led to the irretrievability of numerous emails and attachments, which could have otherwise been recovered through forensic examination. The court found that the prejudice to MKP was significant, as it prevented them from fully assessing Mr. Brooke's defence and preparing a counter-argument. Given the exceptional nature of the remedy of striking out pleadings, the court exercised this power sparingly but deemed it necessary in this instance to ensure the proper administration of justice. The court also noted that the remedy had to be proportionate to the prejudice caused.
The final orders included granting MKP's application to strike out Mr. Brooke's defence, with the option to re-plead within a specified timeframe. This decision effectively barred Mr. Brooke from relying on his defence in the proceeding, barring any further re-pleading unless exceptional circumstances were presented.
Orders
Orders of the court
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Background
Background to the litigation
In order to understand the interlocutory application, and the evidentiary foundation for it, it is necessary to explain the circumstances leading up to the making of the application.2. BACKGROUND2.1 The four discovery affidavits MKP commenced this proceeding on 21 December 2011. Because of the issues about discovery, the proceeding has not progressed beyond pleadings. The second respondent, Mr Brooke, is a former employee of MKP. MKP specialises in brokerage services for equipment finance. MKP employed Mr Brooke in early 2002. He had no prior experience in brokerage services for equipment finance having previously been employed as a police officer. MKP employed Mr Brooke as a broker. Mr Brooke worked with the first respondent, another broker employed by MKP, Benjamin Arkell. Mr Brooke rose in MKP’s ranks over time. By 2006 he was part of MKP’s management committee. This committee comprised senior employees entitled to a profit share in MKP’s business and directed MKP’s business. In his capacity as a senior employee and member of the management committee Mr Brooke had access to all of MKP’s confidential information (or, at the least, information alleged by MKP to be confidential) including all accounting records, terms of trade, client lists, business plans, and human resources records. Mr Brooke was also responsible for managing a large number of MKP clients. In addition to his contract of employment, Mr Brooke was subject to a confidentiality deed which included obligations not to publish, disclose or otherwise communicate MKP’s confidential information either during or after his employment, not to compete with or solicit any customer from MKP for 12 months after ceasing employment, and to return to MKP all intellectual property, confidential information and other documents belonging to MKP on ceasing employment. Mr Brooke resigned from MKP on 17 March 2010. MKP alleges that in breach of his various obligations Mr Brooke: (i) copied and retained a list of all of the clients of MKP with whom he had dealt on behalf of MKP, (ii) copied and retained a number of other internal documents belonging to MKP including the forms by which MKP dealt with client applications for finance, (iii) used and disclosed this information to and caused the third respondent to use this information in establishing a business providing brokerage services for equipment finance in competition with MKP, and (iv) used this information to compete with MKP and solicit clients of MKP to transfer their business from MKP to the third respondent. Amongst other breaches of his obligations, MKP alleges in paragraph 105 of its amended statement of claim that during his employment and the period of 12 months after he ceased employment Mr Brooke used the list of his clients when he worked at MKP to approach those clients for the purpose of enticing them to give their business to him and the third respondent and assisted Mr Arkell, who also left the employ of MKP and went to work for the third respondent at Mr Brooke’s instigation, to do the same. The particulars to paragraph 105 list numerous entities which MKP alleges were clients of MKP, managed by Mr Brooke when he was employed by MKP and listed as his clients on the MKP document Mr Brooke wrongfully copied and retained, which Mr Brooke is said to have approached and enticed to give their business to the third respondent and Mr Brooke instead of MKP. In his defence Mr Brooke denies the allegations of wrongful conduct against him and, in particular, denies paragraph 105. Amongst other things he also does not admit that the various restraints to which he was subject by reason of the confidentiality deed were valid and enforceable restraints of trade.
Evidence
Evidence Before The Court
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Decision
Reasons for decision
The principles include the following:(1)Non-compliance with an order for discovery enlivens the power to strike out the pleadings of a party (British American Tobacco at [178]).(2)The power to deny a person the right to rely on their pleading, in whole or part, is exceptional and to be exercised sparingly given the drastic nature of the remedy (Clark at [63] and [147]; see also Palavi at [93]-[95]).(3)The power exists not to punish the party in default but to ensure the proper administration of justice, in particular to ensure the capacity for a fair trial to be held (British American Tobacco at [178]).(4)The power exists whether or not the conduct of the party in default was blameworthy or delinquent (Clark at [86]), but the intention of the party in default is relevant both to a finding of abuse of process and to the drawing of inferences about the potential significance of the destroyed material to the issues in the case (Clark at [76]-[81]).(5)A fair trial does not mean one that is ideal or perfect as trials may be fair even if documents are missing (Clark at [64]).(6)The key consideration to the fairness of the trial in this context requires an assessment of the nature and extent of the prejudice to other parties by reason of the default (British American Tobacco at [178]).(7)The question of prejudice involves an assessment of the significance of the destroyed material to the proceeding even allowing for the capacity to draw adverse inferences against the party in default (Clark at [104]).(8)The remedy must be responsive and proportional to the prejudice of the non-defaulting parties (British American Tobacco at [188]). Judicial indignation at the affront to justice involved must not be given effect (Clark at [89]).3.2 Conclusions Insofar as the submissions for Mr Brooke and the third respondent are concerned, I should record the following. Although I accept that Mr Brooke might have deleted emails in the ordinary course of business from time to time before the commencement of the proceeding and I cannot know which missing emails were the subject of this form of deletion and the use of the file shredding software after the commencement of the proceeding, the submission misses the real point. The real point is that if Mr Brooke had merely deleted emails in the ordinary course then those emails, even though deleted and indeed permanently deleted by their removal from the “trash” folder of the computer, most likely would have been recoverable on forensic examination of Mr Brooke’s computers. It is only the use of the file shredding software which had ensured that numerous emails and attachments are not only deleted, but irretrievable. The file shredding software was installed and used after the commencement of the proceeding and after Mr Brooke knew that he had discovery obligations and had been told by his solicitors not to destroy any documents. Accordingly, I reject the notion that emails might be “properly” missing. But for Mr Brooke’s deliberate and improper conduct in running the file shredding software any email deleted innocently before the proceeding commenced, in all likelihood, should have been retrievable by forensic computer analysis.
Ratio Decidendi
Legal Principle Established
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