Oswal v Carson & Ors
[2011] VSC 70
•8 March 2011
| Do Not Send for Reporting | ||
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMON LAW DIVISION
S CI 2011 00785
| RADHIKA PANKAJ OSWAL | Plaintiff |
| v | |
| IAN MENZIES CARSON, DAVID LAURENCE McEVOY, SIMON GUY THEOBALD AND BURRUP FERTILISERS PTY LTD (ACN 095 441 151) | Defendants |
---
JUDGE: | ALMOND J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 24 February 2011 | |
DATE OF RULING: | 8 March 2011 | |
CASE MAY BE CITED AS: | Oswal v Carson and ors | |
MEDIUM NEUTRAL CITATION: | [2011] VSC 70 | Revised 15 March 2011 |
---
INJUNCTION – Interlocutory injunction – Receivers appointed under the terms of a fixed and floating charge – Restraint to prevent receivers from having access to or dealing with the plaintiff’s email communications – Whether there was a serious question to be tried – Balance of convenience – Whether an undertaking as to damages was adequate – Lower risk of injustice – Expedited trial of preliminary question
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Ms K Williams | Jones Day |
| For the Defendants | Mr J W S Peters SC Mr D R Luxton | Freehills |
HIS HONOUR:
This proceeding was commenced by writ filed on 22 February 2011. The plaintiff is the wife of the former Managing Director of the fourth defendant Burrup Fertilisers Pty Ltd (“BFPL”) and was permitted to use BFPL email servers for sending and receiving emails. On 17 December 2010, the first to third defendants, Ian Menzies Carson, David Laurence McEvoy and Simon Guy Theobald, were appointed receivers and managers of the assets and undertaking of BFPL.[1]
[1]The validity of that appointment is not conceded by the Plaintiff.
In her statement of claim, the plaintiff alleges that at various times since 2006 she used the following email addresses (“the email addresses”) to send and receive emails: [2]
[2]Statement of Claim [1].
The plaintiff alleges that the emails sent to the email addresses and copies of the emails sent from the email addresses were at all material times, and are, hosted or stored on the server or servers or other computer equipment owned and operated by BFPL save to the extent that any of them were not saved or have been deleted.
The plaintiff alleges that these emails:
(a)were and are emails relating to the plaintiff’s private, personal or business affairs;
(b)were and are not emails relating to the business or affairs of BFPL;
(c)were sent or received in circumstances where the plaintiff was entitled to and did expect that they would not be disclosed to or accessed by any person other than the plaintiff without her express or implied authority; and
(d)were and are documents which belong to the plaintiff.[3]
[3]Statement of Claim [4].
The plaintiff further alleges that since 17 December 2010, the first, second and third defendants (“the receivers”) have acted as receivers and managers of the undertaking and assets of BFPL and they or those acting under their direction have control of the servers or other computer equipment of BFPL on which the plaintiff’s emails are stored or hosted.
The plaintiff alleges that the receivers refuse to acknowledge that the plaintiff’s emails are documents that belong to her, that the receivers have wrongly asserted that BFPL is the owner of the emails and that BFPL is entitled to access them as it or they see fit.
The plaintiff alleges that the receivers have threatened and intend to access, inspect and/or use the emails without her consent.
By application commenced by summons dated 22 February 2011 the plaintiff seeks an interlocutory injunction to restrain the defendants until the trial of the action from accessing, viewing, copying, forwarding or in any way dealing with emails sent to and from the email addresses.
The plaintiff’s application is principally supported by affidavits of
Phillip Jacob Hoser affirmed 22 February 2011 and 23 February 2011 respectively, which among other things, verify the allegations made in the statement of claim.
The first, second and third defendants were appointed under the terms of a fixed and floating charge (“the Deed”) dated 18 December 2002 between BFPL and ANZ Fiduciary Services Pty Ltd.[4] Relevantly for present purposes, under the terms of the Deed the receivers have power to manage, enter into possession or assume control of any of the Charged Property (clause 6.3(a)) and to have access to any of the Charged Property (clause 6.3(j)).
[4]The Deed, Appointment of a Controller, clause 6.
In the definition in the Deed
Charged Property means all of the present and future undertaking, assets and rights of the Issuer including all real and personal property, choses in action, goodwill, uncalled and called but unpaid capital excluding the Offtake Escrow Account;
Furthermore, section 420 of the Corporations Act2001 (Cth) sets out powers of a receiver of property of a corporation. Section 420(1) provides that a receiver of property of a corporation has power to do all things necessary or convenient to be done for, or in connection with, or incidental to, the attainment of the objectives for which the receiver was appointed. Section 420(4) provides that a reference, in relation to a receiver, to the property of a corporation is, unless the contrary intention appears, a reference to the property of the corporation in relation to which the receiver was appointed.
Applicable Principles
The principles applicable to the granting of interlocutory relief are well established. It is necessary to consider whether or not there is a serious question to be tried and whether the balance of convenience favours the grant of interlocutory relief.
In Australian Broadcasting Corporation v O’Neill the relevant principles are set out as follows (citations omitted):
The relevant principles in Australia are those explained in Beecham Group Ltd v Bristol Laboratories Pty Ltd. This court (Kitto, Taylor, Menzies and Owen JJ) said that on such applications the court addresses itself to two main inquiries and continued:
"The first is whether the plaintiff has made out a prima facie case, in the sense that if the evidence remains as it is there is a probability that at the trial of the action the plaintiff will be held entitled to relief ... The second inquiry is ... whether the inconvenience or injury which the plaintiff would be likely to suffer if an injunction were refused outweighs or is outweighed by the injury which the defendant would suffer if an injunction were granted."
By using the phrase "prima facie case", their Honours did not mean that the plaintiff must show that it is more probable than not that at trial the plaintiff will succeed; it is sufficient that the plaintiff show a sufficient likelihood of success to justify in the circumstances the preservation of the status quo pending the trial. [5]
[5](2006) 227 CLR 57, 81-82 [65].
In applying these principles I am guided by the decision in Bradto Pty Ltd v State of Victoria where the Court of Appeal states:
… [T]he Court should take whichever course appears to carry the lower risk of injustice if it should turn out to be “wrong” in the sense of granting an injunction to a party who fails to establish his right at the trial, or in failing to grant an injunction to a party who succeeds at trial.[6]
[6](2006) 15 VR 65, 73 [35].
As senior counsel for the defendants correctly submitted, the consideration of whether there is a serious question to be tried and the weighing of the balance of convenience are not separate and independent of each other, but must ultimately be examined together. The weaker the arguable claim, the greater the balance of convenience must be in the plaintiff’s favour in order to sustain the relief claimed.[7]
[7]Nicholas John Holdings Pty Ltd v Australia and New Zealand Banking Corporation Limited [1992] 2 VR 715, 723.
Is there a serious question to be tried?
It was submitted on behalf of the plaintiff that clauses 6.3(a) and 6.3(j) of the Deed limit the power of the receivers to manage, enter into possession, assume control of, or to have access to any of the Charged Property.
Further, it was submitted on behalf of the plaintiff that the powers of the receivers pursuant to s 420 of the Corporations Act 2001 (Cth) are powers that may be exercised to attain the objectives for which the receivers were appointed and do not extend beyond the Charged Property.
The plaintiff submitted that there is a serious question to be tried on the question of whether the plaintiff’s emails sent and received were documents which were owned by her. Merely because the data was stored on the company’s servers or on other computer equipment did not mean that the company owned the data. It was submitted that the emails are not Charged Property and therefore cannot be managed, controlled, possessed or accessed by the receivers.
In support of the plaintiff’s contention, counsel for the plaintiff relied upon Returned Services League of Australia (Queensland Branch) v Comprite Pty Ltd in which the Queensland Court of Appeal drew a distinction between the ownership of data on a database and ownership of the database. [8]
[8][2006] QCA 377, 5 [26]-[27] (Dutney J).
Senior counsel for the defendants submitted that there was no serious question to be tried, alternatively, that if there was a triable issue it was weak and reflected on the balance of convenience. First, senior counsel for the defendant did not concede that the “zeros and ones” (using his words) on the database comprising the emails constitute property or property of the plaintiff. In particular, senior counsel directed my attention to the plaintiff’s statement of claim, specifically paragraphs 4(a) to 4(c) inclusive in which the plaintiff seeks to make out a claim to protect allegedly confidential information without specifying the content of the confidential information. It was submitted on behalf of the defendants that it is not open to make a global claim of confidentiality. In this regard I was referred to Smith Kline and French Laboratories (Aust) Limited and Others v Secretary, Department of Community Services and Health where Gummow J said:
A general formulation apt for the present case of an equitable obligation of confidence has four elements: (i) the plaintiff must be able to identify with specificity, and not merely in global terms, that which is said to be the information in question, and must be able to show that; (ii) the information has the necessary quality of confidentiality (and is not, for example, common or public knowledge); (iii) the information was received by the defendant in such circumstances as to import an obligation of confidence, and (iv) there is actual or threatened misuse of that information, without the consent of the plaintiff.[9]
[9](1990) 22 FCR 73, 87.
I was also referred to O’Brien v Komesaroff, in particular to the judgment of Mason J who said:
… the respondent has consistently failed to identify the particular contents of the documents which he asserts constitute information the confidentiality of which he is entitled to protect. The consequence is that he has failed to formulate a basis on which the court could grant him relief on the assumption that some part or parts of the documents constitute confidential information.[10]
[10](1982) 150 CLR 310, 326.
Senior counsel for the defendants relied on an exchange of correspondence between the parties and the pleadings and affidavit material filed by the plaintiff to submit, by analogy, that the plaintiff had failed to formulate a basis on which the Court could grant relief on the assumption that some part or parts of the documents constitute confidential information. It was argued that the plaintiff had failed to raise a triable issue.
In particular, I was referred to correspondence passing between the parties from December 2010 to February 2011, which I shall briefly summarise.
By letter dated 21 December 2010, the solicitors for the plaintiff first asserted the plaintiff’s claims of confidentiality, legal professional and/or litigation privilege and ownership of the email communications. It was proposed that arrangements be agreed between the solicitors for the plaintiff and the solicitors for the defendants concerning the safekeeping of a copy of the relevant documents by an independent third party pending any dispute as to their ownership or accessibility.
In response by letter dated 22 December 2010, the solicitors for the defendants acknowledged the assertion of the claims and advised that until the receivers were in a position to respond in more detail to the proposal in relation to protecting the documents, the receivers would be conscious of the personal privilege and confidentiality claims and would seek to avoid inadvertent inspection of the relevant materials. The solicitors for the defendants advised that they would be in further contact to arrange a mechanism for the identification of privileged and confidential material to ensure that it was separated from the company’s records.
By further letter dated 14 January 2011, the solicitors for the defendants set out a proposal for the resolution of the claims of confidentiality and legal professional privilege over the documents. In relation to the claimed confidential communications, the receivers requested details of the specific basis for the plaintiff’s claim that particular documents or categories of documents held by BFPL were confidential to the plaintiff. With respect to claimed privileged communications it was suggested that the parties agree on a regime for the review of emails to ensure that communications properly the subject of a claim of legal professional privilege were not reviewed as part of the business records of BFPL.
By letter dated 25 January 2011, the solicitors for the plaintiff set out, among other things, the plaintiff’s position in relation to “Our client’s electronic documents in general”. In substance, the solicitors for the plaintiff asserted that each of the documents belonged to the plaintiff despite the fact that the emails were “located” on the company’s server, just as would be the case if they were letters located on the property of another person. It was asserted that the plaintiff is entitled to access them and entitled to prevent others from doing so, irrespective of their contents.
It was submitted by senior counsel on behalf of the receivers that in this letter the plaintiff shifts ground to focus on the issue of ownership of documents rather than whether they were confidential to the plaintiff or privileged. There is force in this submission. There does appear to be a shift in emphasis. However, the plaintiff has consistently maintained her claim to ownership of the documents and her right to deny the receivers access to them based on asserted proprietary rights.
By letter dated 11 February 2011, the solicitors for the receivers advised the solicitors for the plaintiff that the receivers did not concede that the emails were owned by the plaintiff and asserted that the company had a right of access to the emails. It was noted that the email addresses had been created and administered by the company, that the company IT Policy made it clear that all messages created and sent over the company owned networks were the property of the company and should be considered company information and that the company reserved the right to access and disclose messages sent over its electronic mail systems.
In this letter it was further asserted that the interest of the receivers in the relevant documents was simply to discharge their obligations as receivers which extended to familiarising themselves with all relevant books and records of the company including information stored electronically by the company. The receivers expressly reserved the right to review all emails and other records to identify content which may be relevant to the discharge of their role. It was also observed that the plaintiff, having been invited to provide details of the specific basis for her claim that particular documents or categories of documents held by the company were confidential to her, had not taken up that invitation.
Further, the receivers indicated their preparedness to facilitate the identification of which of the relevant documents were properly subject to a claim of legal professional privilege by the plaintiff and suggested an amended form of protocol to facilitate engagement in that process.
By letter dated 18 February 2011, the solicitors for the plaintiff asserted that the plaintiff was the lawful owner of the documents held on the email addresses and that accordingly the receivers were not entitled to access such documents.
BFPL IT Policy
By letter dated 18 February 2011, the solicitors for the receivers sent a copy of the company Information and Technology (IT) Policy (“IT Policy”) dated 28 April 2008 to the solicitors for the plaintiff. Material clauses include the following:
Clause 2 Scope
This policy applies to all newly appointed and existing BFPL employees, contractors and authorised BFPL users both internally and externally.
Clause 9 Compliance
All users of the BFPL computing facilities are obliged to sign an acceptance form to indicate that they have understood and agreed to abide by the outlined conditions of use.
Clause 11 Email
Electronic mail facilities are provided to enable company personnel to carry out the requirements of their roles.
…
Clause 13 Monitoring
All messages created and sent over company owned networks are the property of the company, and should be considered company information.
BFPL reserves the right to monitor all messaging activity including all electronic messaging as deemed necessary and appropriate.
BFPL reserves the right to access and disclose messages sent over its Electronic Mail systems.
…
In his affidavit affirmed 22 February 2011, Mr Hoser deposes that the plaintiff was not an employee, officer,[11] agent or contractor of the company; that she never signed any acceptance of the IT Policy, nor was she ever aware of it; that the emails the subject of the proceedings were not received or sent by her on behalf of the company or in connection with the carrying on of any business on the company’s behalf and that she never understood and never agreed that the company or anyone else would be able to access the emails without her consent.
[11]Save for one month between May and June 2006.
Having regard to the foregoing material and the submissions of the respective parties, and putting to one side issues as to confidentiality and privilege, in my view the plaintiff has established several interrelated serious questions to be tried. These include the following:
(a)Is the plaintiff the lawful owner of the emails on the BFPL database?
(b)Do the emails on the BFPL database fall within the definition of “Charged Property”?
(c)Are the emails on the BFPL database books and records of the company?
(d)Was the plaintiff bound by the IT Policy and if so, what is the consequence?
It therefore becomes necessary to consider the balance of convenience.
Balance of convenience
The plaintiff submits that:
(a)if an interlocutory injunction is not granted the receivers have stated that they intend to inspect the emails with the result that it would become pointless for the plaintiff to pursue her claim for permanent injunctive relief;
(b)damages are a wholly inadequate remedy having regard to the fact that the emails represent approximately ten years of personal and private communications unrelated to the business of the company and a monetary remedy would be inadequate to compensate for the injury to the plaintiff;
(c)the inability of the receivers to access the emails between now and a final hearing would not prejudice the proper functions of the receivers; and
(d)an interlocutory injunction would preserve the status quo for a reasonably short period of time.
The plaintiff through her counsel indicated a willingness to co‑operate with an expedited timetable and gave the usual undertaking as to damages.
On the balance of convenience issues senior counsel for the defendants submitted there was no utility in the application as each party needed to have access to the material to be able to represent their respective interests; there was no evidence of prejudice to the plaintiff if the relief she seeks is not granted, and that the plaintiff will suffer no prejudice from the defendants’ inspection of the emails; there is no evidence upon which it could be concluded that it would be unjust if the plaintiff’s remedy were limited to damages; and that the first to third defendants would suffer substantial prejudice if they are prevented from reviewing information in discharge of their duties as receivers.
As to the first of these matters, I disagree that there is no utility in the application. If the issues of ownership, confidentiality and privilege were to be tried concurrently it would be necessary for the parties to have access to the documents to be able to represent their respective interests. But if there was a separate trial of the question of ownership the parties would not need to have access or at least the same level of access to the documents to ensure a fair trial.
In its submissions the defendants submit that it was open to the plaintiff to seek an injunction to restrain the use of any such material pending trial (other than for the legitimate purposes of the receivership). Relief in this form begs the question and would defeat the plaintiff’s primary claim that the receivers were not entitled to have access to the material for any purpose, let alone the legitimate purposes of the receivership.
On the question of prejudice, senior counsel for the defendants submitted that any hurt or loss from disclosure of private material could be compensated for by an award of damages for any loss or damage which might result to the plaintiff personally or to the plaintiff’s restaurant business. Whilst courts are equipped to make assessments of loss and damage of this kind, this would not be a complete remedy in this case. If the receivers were to have access to the emails, the plaintiff would, for practical purposes, be denied the right to assert that they are not properly part of the Charged Property and should not be accessed at all. In my view, this would constitute significant prejudice and would cause injustice to the plaintiff.
In the affidavit of Malcolm Andrew Cooke sworn 23 February 2011 and the affidavit of Kenneth Alexander Adams sworn 24 February 2011 each filed in opposition to the application, Mr Cooke and Mr Adams depose to investigations by the receivers currently underway into the financial records of BFPL, which show that the plaintiff may have received payments directly or indirectly from BFPL exceeding $80 million.
It is in this context that senior counsel for the defendants submitted that the first, second and third defendants would suffer substantial prejudice if they are prevented from reviewing information in discharge of their duties as receivers. However this submission assumes that reviewing the information in the emails would be in discharge of these duties. Only if the information in the emails is properly characterised as Charged Property, would reviewing the information in the emails be in discharge of the duties. Furthermore, although there is potential for prejudice if the receivers are prevented from reviewing the emails, it is not possible for the receivers, without knowing the content of the emails, to establish that there is substantial prejudice or indeed any prejudice.
Breadth of the restraint
Senior counsel for the defendants submitted that the proposed restraint is excessively wide and would cover emails sent to the company employees and officers. The plaintiff’s counsel denied this was so and for the avoidance of doubt said that it was not intended that any restraint would cover such emails. It was argued that the relief sought was limited to emails received or sent by Mrs Oswal. An example was given to the effect that if a company employee or officer such as Mr Oswal sent an email to Mrs Oswal to one of the email addresses, the restraint would prevent access to the email received in her inbox but would not prevent access to the email in Mr Oswal’s sent box.
Undertaking as to damages
One of the factors which enters into the balance of convenience is the risk that an undertaking as to damages might be inadequate.[12]
[12]See, for example, Varley v Varley [2006] NSWSC 1025, [56].
In the second affidavit of Phillip Jacob Hoser, Mr Hoser deposes that the plaintiff is the owner of 385,014,497 shares in Burrup Holdings Limited (“BHL”), which represents 35% of the total issued shares of the company. A share mortgage has been granted in favour of Australian New Zealand Banking Group Limited (“ANZ”) over 7.5% of the 35% shareholding. In relation to the undertaking, counsel for the plaintiff submitted that the plaintiff had a 27.5% shareholding in BHL subject to escrow arrangements which are confidential to the parties.
Senior counsel for the defendants objected to the admissibility of certain paragraphs of the first affidavit of Phillip Jacob Hoser to the effect that the plaintiff had valuable assets within the jurisdiction of the Court as the basis of the deponent’s belief was not set out. I uphold this objection. Further, senior counsel for the defendants objected to the admissibility of paragraph 6 of the second affidavit of Phillip Jacob Hoser to the effect that the 27.5% shareholding in BHL is unencumbered, again on the basis that the basis of the deponent’s belief was not set out. I also uphold this objection.
In the circumstances I granted leave to the plaintiff to file further submissions as to the utility of the plaintiff’s undertaking as to damages.
On the issue of the undertaking as to damages, senior counsel for the defendants submitted (and it was not disputed) that the plaintiff no longer resides in Australia and has property interests in Western Australia that had mortgages registered over them shortly after the appointment of the receivers. There is no evidence as to the extent to which these properties are encumbered.
It is common ground that the plaintiff has a 35% shareholding in BHL which is the parent company of the fourth defendant and that 7.5% of the BHL shareholding is mortgaged to ANZ with the remaining 27.5% BHL shareholding subject to confidential escrow arrangements which support the plaintiff’s obligation to ANZ pursuant to a guarantee. In his affidavit sworn 24 February 2011, Mr Adams deposes that the 27.5% parcel of BHL shares may be sold to discharge indebtedness to various companies and trusts associated with Mr and Mrs Oswal to ANZ exceeding US$500 million and that ANZ has a personal guarantee from the plaintiff which guarantees the repayment of US$568 million (less the aggregate proceeds of sale by ANZ of Mr Oswal’s BHL shares).
The matter which causes me most concern is the fact that there is no evidence of the current value of the plaintiff’s BHL shareholding.
Having regard to the confidentiality which attaches to the escrow arrangements with regard to the shares, I will not refer in any detail to the confidential exhibits save to say there is nothing I can discern in those exhibits which evidences the current value of BHL shares. In addition, since the oral hearing and with the consent of the defendant, the solicitors for the plaintiff have filed a third affidavit of
Phillip Jacob Hoser affirmed 27 February 2011 which exhibits a “garnishee notice” under the Taxation Administration Act 1953 (Cth) dated 24 February 2011 in respect of a tax debt of approximately $140 million said to be owed by the plaintiff.[13] This notice came to the attention of the solicitors for the plaintiff after the hearing and was properly brought to the attention of the Court in the interests of making full disclosure of relevant matters.
[13]Notice under Schedule 1, s 260-5 of the Taxation Administration Act 1953.
The plaintiff currently resides at Building 99, Jebel Ali, Dubai, United Arab Emirates. The solicitors for the plaintiff have advised the solicitors for the defendants that the Dubai address is rented accommodation. Clearly it does not represent an asset of the plaintiff.
I am left with no basis upon which to conclude that the plaintiff’s substantial shareholding in BHL could support her undertaking as to damages or indeed that this asset exceeds her liabilities. As a result, I am unable to form a view on the worth of the plaintiff’s undertaking as to damages. As a corollary, I am unable to conclude that the undertaking is worthless. Although I accept that an undertaking has been given to the Court, in the circumstances I give it minimal weight in weighing the balance of convenience.
Conclusion
In my view, in this finely poised matter, the course which appears to carry the lower risk of injustice is to grant an interlocutory injunction to maintain the status quo for a very limited period to enable the plaintiff to have an expedited trial on the preliminary question of ownership of the emails. The injunction will last only until the trial of that preliminary question or further order. I ask counsel for the respective parties to formulate a restraint of appropriate breadth to reflect the discussion above. I will then formally pronounce orders. I have made enquiries of the Judge in Charge of the Corporations List. An expedited trial on the question of ownership of the emails can be accommodated in the near future. I propose to order that the matter be referred forthwith to Ferguson J for the purposes of fixing a trial date. The matter will be listed for appropriate pre‑trial directions before Ferguson J on 11 March 2011. The parties will be required to formulate the preliminary question(s) and to facilitate an expedited trial on the question(s). I will reserve the question of costs.
---
3