Paperlinx Limited v McConnell

Case [2016] FCA 450

FEDERAL COURT OF AUSTRALIA

Paperlinx Limited v McConnell [2016] FCA 450

File number: VID 429 of 2015
Judge: MIDDLETON J
Date of judgment: 29 April 2016
Catchwords: PRACTICE AND PROCEDURE – preliminary discovery – rule 7.23 of the Federal Court Rules 2011 (Cth) – whether prospective applicant holds reasonable belief prospective respondent has control of documents – whether prospective applicant lacks sufficient information to decide as to whether to commence proceedings – whether documents “directly relevant” – discretion to
refuse relief.
Legislation:

Corporations Act 2001 (Cth)

Federal Court Rules 2011 (Cth)

Federal Court Rules 1979 (Cth)
Cases cited:

Alphapharm Pty Limited v Eli Lilly Australia Pty Limited [1996] FCA 1500

ObjectiVision Pty Ltd v Visionsearch Pty Ltd (2014) 108 IPR 244

Optiver Australia Pty Ltd v Tibra Trading Pty Ltd (2008) 169 FCR 435

Optiver Australia Pty Ltd v Tibra Trading Pty Ltd [2007] FCA 1348

Paxus Services Ltd v People Bank Pty Ltd (1990) 99 ALR 728

Reeve v Aqualast Pty Ltd [2012] FCA 679

Sandhurst Trustees Ltd v Clarke (2015) 321 ALR 1

St George Bank Ltd v Rabo Australia Ltd (2004) 211 ALR 147

United Voice v Accolade Wines Australia Limited [2013] FCA 285
Date of hearing: 5 February 2016
Registry: Victoria
Division: General Division
National Practice Area: Commercial and Corporations
Sub-area: Commercial Contracts, Banking, Finance and Insurance
Category: Catchwords
Number of paragraphs: 44
Counsel for the Prospective Applicant: Dr C Button
Solicitor for the Prospective Applicant: Arnold Bloch Leibler
Counsel for the Prospective Second Respondents: Mr TRO Boston
Solicitor for the Prospective Second Respondents: Shanahan Tudhope Lawyers

ORDERS

VID 429 of 2015
BETWEEN:

PAPERLINX LIMITED (ACN 005 146 350)

Prospective Applicant
AND:

MICHAEL JOSEPH MCCONNELL

Prospective First Respondent

ANDREW JOHN PRICE

Prospective Second Respondent

JUDGE:

MIDDLETON J

DATE OF ORDER:

29 APRIL 2016

THE COURT ORDERS THAT:

1.The parties confer, and provide joint proposed minutes of order, and if in disagreement, short written submissions with separate proposed orders by 4.00pm on 6 May 2016.

Note:   Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.


REASONS FOR JUDGMENT

MIDDLETON J:

INTRODUCTION

  1. On 16 October 2015, I made orders relating to categories of preliminary discovery sought by PaperlinX Limited (‘PaperlinX’) against the Prospective First and Second Respondents (‘Mr McConnell’ and ‘Mr Price’, respectively) (the ‘October Orders’). 

  2. On 9 December 2015, PaperlinX filed an interlocutory application seeking leave to file and serve a Further Amended Originating Application (‘FAOA’) which amended the categories of preliminary discovery and, pursuant to r 7.23 of the Federal Court Rules 2011 (Cth) (the ‘Rules’), for Mr Price to give preliminary discovery to PaperlinX of any document falling in his control within the categories set out in the FAOA.

  3. The new orders sought by PaperlinX, as amendments to the categories of preliminary discovery in the October Orders, are underlined below:

    Orders sought

    …

    (3)Pursuant to Rule 7.23 of the Federal Court Rules 2011 (Cth), within 28…

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AGLC
Paperlinx Limited v McConnell [2016] FCA 450
Case
[2016] FCA 450
Decision Date

CaseChat Overview and Summary

In the case of Paperlinx Limited v McConnell, the plaintiff sought preliminary discovery of documents held by the defendant, Mr McConnell, and his associate, Mr Price. The plaintiff, Paperlinx, alleged that Mr McConnell and Mr Price had improperly used confidential information and breached their contractual obligations. The dispute centred on whether the plaintiff had a reasonable belief that the defendant had control of documents that were directly relevant to the potential proceedings. The court was required to determine if the plaintiff's application met the criteria set out in rule 7.23 of the Federal Court Rules 2011 (Cth) and if the documents were directly relevant to the potential proceedings.

The court found that the plaintiff's application met the criteria of rule 7.23 of the Federal Court Rules 2011 (Cth), as it had a reasonable belief that the defendant held documents directly relevant to the potential proceedings. The court considered that the documents sought were relatively confined in their nature and went beyond the original orders sought. While the plaintiff had already complied with the original orders, the court found that the limited discovery sought was not too burdensome on the defendant and related to possibly significant documents relevant to the plaintiff's decision to bring proceedings. The court concluded that the utility of making the preliminary discovery orders outweighed the potential prejudice to the defendant.

The court granted the plaintiff's application for preliminary discovery and ordered the defendant to give discovery of specific documents to the plaintiff within 28 days. The court also granted the plaintiff leave to file and serve a further amended originating application and ordered the plaintiff to pay the defendant's costs of making the discovery. The court varied the original order regarding the time for issuing any proceedings to provide the plaintiff with further time to consider its position. The court proposed to give the parties time to consider the proposed orders and requested that they confer and provide joint proposed minutes of order or, if in disagreement, short written submissions with separate proposed orders by 4.00pm on 6 May 2016.

Orders

Orders of the court

1. The parties confer, and provide joint proposed minutes of order, and if in disagreement, short written submissions with separate proposed orders by 4.00pm on 6 May 2016.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

The Court has an ultimate discretion to refuse an application for preliminary discovery, even if the other requirements of r 7.23 of the Rules are satisfied. In relation to the documents I propose to order be discovered, I consider that there is a utility in making the preliminary discovery orders. The documents are relatively confined in their nature, and go beyond the original orders sought. While this Interlocutory Application is the second seeking preliminary discovery, and while Mr Price has complied with the original orders, the further limited discovery I now order is not too burdensome on Mr Price and relates to possibly significant documents relevant to PaperlinX’s decision as to bringing a proceeding. CONCLUSION In view of the above, I tentatively consider that the following orders should be made:(1)Pursuant to r 7.23 of the Rules, within 28 days of the date of this order, Mr Price give discovery to PaperlinX of any document in his control that falls within any of the following categories:any document created or dated on or after 18 January 2015 being, or referring to, a communication between Mr Price on the one hand, and any SPS Unitholder(s) (including, but not limited to Coastal or Blue Pacific) in relation to:(i)the Consultancy Services Agreement marked ‘Confidential Exhibit WKJ-65’ and exhibited to the affidavit of Wayne Kenneth Johnston dated 8 December 2015 (‘Consultancy Services Agreement’)(ii)the ‘Incentive Agreement’ referred to in the Consultancy Services Agreement (‘Incentive Agreement’);(iii)the services provided under, or in performance of, the Consultancy Services Agreement or the Incentive Agreement, including in relation to the proposed class action contemplated in the Consultancy Services Agreement; and(iv)the sale, divestment, restructure or disposal of any of PaperlinX’s business(es) or assets, including its Northern American business(es);(2)Pursuant to r 8.21(1)(g)(i) of the Rules, PaperlinX is granted leave to file and serve a Further Amended Originating Application in the form exhibited to the fourth affidavit of Wayne Kenneth Johnston dated 8 December 2015 and marked ‘WKJ-67’; and(3)Pursuant to r 7.29(b) of the Rules, PaperlinX pay Mr Price’s costs and expenses of making discovery pursuant order 1. In relation to the time for issuing any proceeding made in order 7 of the orders made on 16 October 2015, as I said during the hearing, it would be unfair not to allow PaperlinX further time to consider its position in light of these reasons. I consider it appropriate to vary the original order, and there is no real prejudice to Mr Price in so doing. Therefore, in addition to the above orders, it would be appropriate to make an order that the reference to ‘on or before 10 December 2015’ in paragraph 7 of the October Orders be amended to read ‘on or before 23 June 2016.’ I propose to give the parties time to consider these proposed orders. I will order that the parties confer, and provide minutes of joint proposed order, and if in disagreement, a short written submission with separate proposed orders by 4.00pm on 6 May 2016.

Ratio Decidendi

Legal Principle Established

It has been accepted that a preliminary discovery application necessarily involves an element of ‘fishing’: see ObjectiVision at [104] per Perry J; Paxus Services Ltd v People Bank Pty Ltd (1990) 99 ALR 728 per Burchett J.CONSIDERATION As I have previously noted, with respect to the Interlocutory Application, the new orders must satisfy the three relevant criteria of r 7.23 of the Rules: ‘reasonable belief’, ‘sufficiency’ and ‘direct relevance’. I note the following aspects of the parties’ arguments in relation to the following two criteria, as they inform my findings further below in relation to each of the new orders.Sufficiency In resisting PaperlinX’s application, Mr Price made broad submissions, outlining the information already in PaperlinX’s possession, to demonstrate that PaperlinX had sufficient material with which to decide whether to commence proceedings. Such information includes:·evidence that Mr Price has possession of PaperlinX’s confidential information;·information disclosing Mr Price’s confidentiality obligations;·market announcements and product disclosure statements from which publicly available information (viz a viz the intercompany loans) can be determined;·evidence that Mr Price had expressed a willingness to divulge confidential information if a recipient were to agree to make payments to him;·the CSA;·PaperlinX’s apprehension that Mr Price used the confidential information in providing services under the CSA; and ·evidence of meetings between Mr Price and SPS Unitholders, and that such unitholders are now in possession of information confidential to PaperlinX. While PaperlinX did not dispute that it possesses such information, it contended that such information only grounds the suspicions and does not show use of the information that would demonstrate it to be improper. Directly relevant As identified in ObjectiVision, the scope of the documents that can be ordered to be discovered in a preliminary discovery application is tied to the right to relief that may potentially be claimed. PaperlinX submitted that it believes it may have a right to obtain the following relief against Mr McConnell and Mr Price:(a)injunctions to restrain breach of duties under s 183 of the Corporations Act 2001 (Cth) (the ‘Act’) and the analogous duty at general law; (b)declaratory relief for breach of their contractual confidentiality obligations; (c)injunctions to restrain further breaches of their contractual and statutory duties of confidentiality; and(d)relief, both against Mr McConnell and Mr Price and possible third parties, under s 1043O of the Act for orders regulating future or past acquisitions or disposals of financial products (being PaperlinX Step Up Preferences Securities which are units in the PaperlinX SPS Trust (‘SPS Units’)) on the basis that Mr McConnell and Mr Price may have procured trading in SPS Units in contravention of s 1043A of the Act. As noted above, one aspect of PaperlinX’s claim relates to possible relief available under s 183 of the Act which relevantly provides:Section 183 Use of Information – civil obligations(1) A person who obtains information because they are, or have been, a director or other officer or employee of a corporation must not improperly use the information to: (a) gain an advantage for themselves or someone else; or(b) cause detriment to the corporation.