Paxus Services Ltd v People Bank Pty Ltd

[1990] FCA 723

Re: PAXUS SERVICES LIMITED
And: PEOPLE BANK PTY LIMITED; ALAN BELL; GEOFFREY MULLINS and LEON LAU
No. N G670 of 1990
FED No. 723
Practice and Procedure
99 ALR 728/20 IPR 79

COURT

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Burchett J.(1)

CATCHWORDS

Practice and Procedure - discovery before action - order analogous to Anton Piller order to ensure preservation of information in computer data base - construction of Order 15A rule 6 - rule is designed to facilitate what has been called "fishing" - rule beneficial and to be given fullest scope its language reasonably allows - discretion of court - case where not reasonable to require further inquiry to be made.

Federal Court Rules 1976, Order 15A rule 6 and Order 1 rule 4

Evidence Act 1905, s. 7A

HEARING

SYDNEY

#DATE 12:12:1990

Counsel for the applicant: Mr D.K. Catterns

Solicitors for the applicant: Messrs Abbott Tout Russell Kennedy

Counsel for the respondents: Mr R.M. Smith

Solicitors for the respondents: Messrs Baker and McKenzie

ORDER

The court orders that the applicant be directed to bring in short minutes of orders in conformity with the reasons of the court.

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

JUDGE1

Paxus Services Limited ("Paxus") conducts a business of supplying computer analysts and programmers to meet the particular needs of client organisations. Paxus has been established for some years and is the market leader. The information it has acquired, upon which its business is dependent, was maintained, during the period relevant to this case, in two computer data bases, known as the contractor data base and the client data base. In the former, were recorded the name, address and details concerning expertise and experience of each contractor with whom Paxus dealt, together with a log of communications between Paxus and the contractor and a notation of the date at which the contractor would next be available for work. In the latter, information was recorded concerning organisations with which Paxus placed contractors.

1. At the end of May 1990, the respondents, Messrs Bell, Mullins and Lau, resigned from Paxus, where Messrs Bell and Mullins had been employed as account managers, and Mr Lau as the manager of the contracting division. It is plain from the letter of resignation of Mr Lau, who signed himself as "General Manager", that his departure could not be described as friendly, while Mr Bell's resignation struck a note of sarcasm, concluding with the words: "I have enjoyed laying the golden egg but I can only endure being plucked so often." All three, together with some other ex-employees of Paxus, were promptly involved in the launching of a rival business, that of the respondent People Bank Pty Limited ("People Bank"), which opened within days of their departure. Steps had been taken to incorporate People Bank, with Messrs Bell, Mullins and Lau as directors, before the resignations were finalized.

2. After the three men had left, difficulty was experienced at Paxus in the location of some confidential records of contracts. This, standing alone, may have been readily explicable as a consequence of the loss of several senior personnel at the one time, but whether it may rather have had some other significance must be judged in the light of later events. One very curious event was the denouement of efforts by Paxus to obtain Mr Mullins's business diary kept while he was employed by Paxus. There was correspondence about whether the diary, which Mr Mullins had taken with him, would be returned, or whether he would supply a copy of relevant entries. However, the correspondence was cut short when Mr Mullins, on the pretext that his previous letter had been answered about a week later than he had expected or required, wrote to say he had "discarded" (as he euphemistically described it) the diary in question. This action must be regarded as indefensible, since he had not attempted to deny that the diary contained a record relating to his activities as an employee, made during his employment.

3. There were further occurrences of concern to Paxus. In September, two contractors, who had registered their details with Paxus, telephoned to enquire why they had not been considered for certain work Paxus was arranging. In each case, the contractor's address and telephone number was found to have been deleted from Paxus's contractor data base, and in each case the last account manager to have been in contact with that contractor had been Mr Bell. No action appears to have been taken by Paxus in respect of these matters until it learned of an event, which occurred in October, involving a contract analyst programmer, Miss Susan Berry.

4. Miss Berry had learned what, in the technical jargon of computers, is referred to as a fourth generation programming language called ZIM. In 1987, when she was working with ZIM, she was one of very few programmers able to do so. In about September 1988, she provided her curriculum vitae to a Mr Peddar of Paxus, with whom she had previously dealt. She has never had any business dealings with Mr Lau, but she met him once, at a function organised by Paxus, when she had "only a very brief conversation with him prior to everybody being seated" - a conversation which amounted merely to an introduction. About August 1989, Miss Berry advised Paxus that she would be unavailable for work for about one year because she was going to have a baby. In August 1990 she had still not returned to work, and she advised Paxus, in response to an enquiry in that month, that she was not yet available. Also in August, she received a telephone call from Mr Lau, who asked whether she would be interested in doing a job with ZIM. Being unaware that he had left Paxus, she referred to the fact that she had already discussed her situation with the company, whereupon he told her he was no longer with Paxus, and suggested he send her his card so that she could provide him with her resume with a view to business in future. She replied: "I'm not really interested in working with that application any more, but you can send me your card if you like". But then, on 18 October 1990, Miss Berry received a telephone call from People Bank. The caller said to her: "We're just updating your details on our data base". This must have produced some reaction from Miss Berry, who seems to have advised Paxus. For she did not know her details were recorded in People Bank's data base, and did not want them to be recorded there.

5. On 23 November 1990, an application was filed in the court for an order, pursuant to Order 15A rule 6, for discovery by the respondents to the applicant. Rule 6 provides as follows:
   "6. Where -
   

(a) there is reasonable cause to believe that the

applicant has or may have the right to obtain relief in the Court from a person whose description has been

ascertained;

(b) after making all reasonable inquiries, the

applicant has not sufficient information to enable a

decision to be made 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 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 (c)."

1. The question which Paxus propounds is whether these facts do not suggest that the respondents may have obtained details about Miss Berry, including her telephone number, from Paxus's contractor data base. Miss Berry was cross examined, and it was not suggested that she had had at any time any closer contact with People Bank, or any of those associated with it, than the casual conversation with Mr Lau to which I have referred. Of course, in the light of Miss Berry's evidence, Paxus also claims the other matters I have related may now be regarded as significant. No evidence was led from any of the individual respondents to dispel the conclusion for which Paxus contends.

2. Mr Catterns, who appeared for Paxus, commenced the matter with an ex parte application for an order analogous to an Anton Piller order. The basis for this was evidence that it is technically possible to reproduce and then remove from a computer all trace of particular data within a matter of at most hours. If, therefore, the concerns of Paxus are indeed a reflection of an actual taking of its confidential information, the starting of proceedings in the normal way, or the making of a normal demand, might merely have ensured that the proceedings would be fruitless. I made the following ex parte orders:
   "1. It be noted that the Applicant gives the usual
   

undertaking as to damages.

2. The Applicant be at liberty to move ex parte for

the orders in this Notice of Motion and that the

requirement of service in Order 15A Rule 9 of the

Federal Court Rules be dispensed with so far as is

necessary to enable these orders to be made.

3. Upon service of this order upon it by a member

or employed solicitor of the Applicant's solicitors the

First Respondent shall forthwith produce a copy of the

whole of its client and contractor register in the form

of one or more floppy disks and shall seal the copies

in an envelope in the presence of the said solicitor

and permit the said solicitor to take away the envelope

on the undertaking referred to in paragraph 4.

4. It be noted that the Applicant's solicitors

undertake to the Court:

(a) that on service of these orders they will

explain to the First Respondent the nature and effect

of the order; and

(b) that they will as soon as possible and not later

than one working day after delivery to them of the

envelope referred to in paragraph 3 lodge the unopened envelope with the Sydney Registry of the Court.

5. The application be stood over to 28 November

1990 at 10.15 am.

6. The Respondents have liberty to move to vacate

these orders on oral notice."

1. The ex parte order to produce a copy of the client and contractor register of People Bank was carried out, and sealed floppy disks are now in the custody of the court. An application has been made by the respondents to vacate the orders, while the applicant applies to have the disks made available to enable the information recorded in them to be examined.

2. I have already set out in these reasons rule 6. In rule 6, "document" is to be understood in the light of the definition in Order 1 rule 4, by virtue of which, unless the contrary intention appears, "`document' includes any record of information, which is a document within the definition contained in s. 7A of the Evidence Act 1905". By s. 7A(1), the word "includes:
   

(a) a book, plan, paper, parchment, film or other

material on which there is writing or printing, or on

which there are marks, symbols or perforations having a meaning for persons qualified to interpret them;

(b) a disc, tape, paper, film or other device from which

sounds or images are capable of being reproduced; and

(c) any other record of information".

I think it is plain that the enlarged meaning of rule 6, by virtue of these provisions, reaches the computer record here in question, and the contrary was not argued.

1. The first matter which was argued for the respondents was a contention that the applicant had lacked candour in the presentation of the matter to me upon the ex parte application. On that basis, I was urged to discharge the ex parte orders. I do not think this point requires prolonged discussion. It is true, as was urged for the respondents, that not all the correspondence was placed before me, but what was disclosed plainly revealed that there were other letters, to which reference was made. I do not think anything of significance was omitted. Then it was said the security system to prevent unauthorized copying, which was in place at the premises of Paxus, was not revealed. It is true the full details were not set out in the affidavits, but it was plainly indicated that a security system existed. In this case, no precise taking or means of taking of the confidential information of Paxus is suggested. What is suggested is that some confidential information may have been taken in some manner, and discovery is sought in order to find out both the fact and, if it occurred, how it occurred. Once it is apparent that some form of taking of information was possible, it is rather beside the point to speculate how the breach could have been achieved; the question is whether it was achieved. Of course, if only one way of breaching the security of the data bases had been suggested, a failure to indicate difficulties making such a breach improbable would have been very serious. Here, it is beyond argument that some forms of access to the information were available to the individual respondents, while Mr Lau's senior position opens all sorts of possibilities. The argument really depended on the assumption that the applicant's case was in effect limited to electronic copying or printing out by one of the procedures guarded against by a specific security check. This is not so, but the existence of security checks was disclosed. Although I would be most loath to say anything to encourage laxity in the discharge of the duty of candour in relation to ex parte applications, I do not think it would be realistic to hold that the applicant failed in its duty in the presentation of this matter to me. In any case, in the exercise of my discretion, I would not under the circumstances of this case discharge the order.

2. In my opinion, the evidence does suggest the inference that confidential information has been improperly taken by the respondents from the applicant. If the matter were fully explored, this inference might be rebutted. However, the matter has not been fully explored, nor is the question posed by the language of rule 6 whether any cause of action has actually been established. In raising an inference on the more limited question which the rule does pose, the applicant has not been met by any denial from those best able to throw light on whether the inference is just, who are the respondents. The principle of Jones v. Dunkel (1959) 101 CLR 298 is therefore applicable. In my opinion it has at least been shown that there is reasonable cause to believe the applicant may have a cause of action against the respondents arising out of the misuse of confidential information.

3. It is no answer to the applicant's application under rule 6 to say that the proceeding is in the nature of a fishing expedition (cf. Meth v. Norbert Steinhardt and Son Ltd (1959) 33 ALJR 78 at 81). Rule 6 is designed to enable an applicant, in a situation where his proof can rise no higher than the level the rule describes, to ascertain whether he has a case against the prospective respondent - i.e. to "fish" in the old sense. See Caltex Refining Co Pty Limited v. The Amalgamated Metal Workers Union (full court, Lockhart, Burchett and Gummow JJ., unreported, 6 December 1990); Williams, Civil Procedure Victoria (1987), vol. 1, 3,928 - 3,929. Cf. Richardson Pacific Limited v. Fielding (Burchett J., unreported, 22 August 1990), which was concerned with another rule in Order 15A.

4. It would be unfortunate if a rule designed to amplify the court's power to penetrate obscurities and uncertainties in the interests of justice were to be weakened by restrictive and unnecessary glosses. I think the rule is of a beneficial kind within the meaning of the well known principle of interpretation, and should be given the fullest scope its language will reasonably allow. The proper brake on any excesses in its use is the discretion of the court, which is required to be exercised in the particular circumstances of each case. One guide for that discretion is provided by the reference in rule 6(b) to "all reasonable enquiries", as to which see WR Pateman Pty Limited v. Walker Corporation Pty Limited (1990) ATPR 51,295 at 51,299.

5. I have referred to the terms of the rule as indicating that it is unnecessary (indeed it would put his case outside the rule) for the applicant to show a good cause of action against the respondent. That also follows from the purpose the rule is designed to serve, as was pointed out by Lord Denning M.R., in relation to the comparable, though considerably narrower, English rule, in Dunning v. Board of Governors of the United Liverpool Hospitals (1973) 2 All ER 454 at 457. See also the remarks of James L.J. at 460. What is required, as the language of the rule shows, is "reasonable cause to believe that the applicant ... may have the right to obtain relief ... ." I have already stated that this condition is fulfilled in the present case.

6. The next requirement is that contained in subrule (b). In the present case, I do not think it would be reasonable to ask the applicant to make further enquiries than those which it has already made. There was a peculiar risk inherent in the situation and in the nature of a computer data base. Without the discovery sought, the applicant plainly has not sufficient information within the meaning of the rule. It cannot see into People Bank's data base.

7. Subrule (c) is also satisfied. I did not understand the contrary to be suggested.

8. However, a question remains as to the appropriate exercise of my discretion. The confidentiality of People Bank's data base must be as important to it as are, to the applicant, the issues of confidentiality upon which its own case depends. This matter was discussed at the hearing, and it was agreed that if I should determine to make an order in favour of the applicant, the parties would confer with a view to the making of arrangements for the appointment of an independent expert who could be given access both to the relevant data bases of the applicant and also to the material contained in the floppy disks now held by the court. The object, of course, is to enable the applicant to ascertain, through an expert, the information to which I have held it to be entitled, while at the same time, preserving the confidentiality of People Bank's records. Accordingly, I shall make no order at this stage other than to direct the applicant to bring in appropriate short minutes of orders in conformity with these reasons. Upon the bringing in of short minutes, I shall make an order dismissing the respondents' application to discharge the ex parte orders made by me, and I shall make an order designed to enable access to be obtained, under conditions of confidentiality, to the information recorded on the disks held by the court. As well, I shall make an order for discovery of documents by the respondents. The respondents should pay the applicant's costs of the contested hearing, but all other costs of and incidental to the application should be reserved.