Quatius Logistics Pty Ltd v Frederick's Transport Logistics Pty Ltd and Mike Gammans
[2017] VCC 122
•28 February 2017
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
Case No. CI-17-00121
| Quatius Logistics Pty Ltd | Plaintiff |
| v | |
| Frederick's Transport Logistics Pty Ltd and Mike Gammans | Defendant |
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JUDGE: | Lewitan | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 13 February 2017 | |
DATE OF JUDGMENT: | 28 February 2017 | |
CASE MAY BE CITED AS: | Quatius Logistics Pty Ltd v Frederick's Transport Logistics Pty Ltd and Mike Gammans | |
MEDIUM NEUTRAL CITATION: | [2017] VCC 122. | |
REASONS FOR JUDGMENT
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Subject: Preliminary Discovery
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr S Rubenstein | M & K Lawyers Group Pty Ltd |
| For the Defendant | Mr E Moon | Belleli King & Associates |
HER HONOUR:
1 Quatius Logistics Pty Ltd (Quatius) operates a logistics, freight management and transport business. On 15 May 2013 Quatius engaged Frederick’s Transport Logistics Pty Ltd (Frederick’s) to provide it with strategic advice. A consultancy agreement dated 15 May 2013 provides that Frederick’s would provide the services through Mike Gammans (Gammans).
2 Gammans was appointed the general manager of the new logistics division of Quatius.[1]
[1] Gammans affidavit, paragraph 9.
3 A Consultancy Agreement (the consultancy agreement) dated 15 May 2013 between Quatius and Frederick’s was signed by Gammans. Under clause 2(a)(x) of the consultancy agreement Frederick’s warrants that it will not approach any of the potential clients or clients of Quatius without obtaining Quatius’ express approval in writing.
4 The definition of confidential information in the consultancy agreement includes any information which, by its nature, places or potentially places Quatius at an advantage over its business competitors but does not include information which is already in or becomes part of the public domain (subclauses 11(a)(iv) and (vii) of the consultancy agreement). The definition of intellectual property includes the confidential information of Quatius.
5 The parties to the agreement agreed to keep the confidential information confidential and not to make any written notes, copy, reproduce, retain, store, record, computerise, document or duplicate any part of the confidential information (subclauses 11(b) and (c) of the consultancy agreement). Subclause 11(c) provides that each party will be liable for any breach of the clause by their employees, agents or contractors. The consultancy agreement provides that Frederick’s must not at any time during the term of the agreement or after termination, use deal with or take advantage of the intellectual property.
6 Clause 16 of the consultancy agreement permitted Frederick’s to seek additional work with other persons and in doing so perform services which were similar to those listed in item 2 of the schedule to the consultancy agreement. Clause 16 of the consultancy agreement also contained two restrictions. These restrictions were:
(a) any engagement must not prejudice or limit Frederick’s ability to fulfil its obligations under the Agreement; and
(b) any engagement must not be in direct competition with Quatius.
7 The commencement date of the consultancy agreement was 20 May 2013. The consultancy agreement provides for payment of a monthly service fee of $10,416.67 plus GST.
8 By email dated 12 September 2016 Gammans submitted his resignation effective as of 14 September 2016.[2]
[2] Exhibit NJHA 3 to Allen’s affidavit.
9 Mr Song Su, the group general manager of Quatius, advised that Gammans attended the Quatius offices to drop off his laptop on or about 16 September 2016 and at the same time removed a box of client files from the office of Mr Peter Puts. Gammans returned the box of documents on or about 22 September 2016.
10 An affidavit in support of the plaintiff’s application was made by the plaintiff’s solicitor, Nicholas John Hardie Allen (Allen’s affidavit). Mr Allen stated that the box of documents removed from Quatius’ office contained client files for numerous clients of Quatius and included documents which contained information including the various rates which Quatius charges its clients for freight and logistic services and contracts Quatius has with its clients.
11 Mr Allen stated that he was informed by Mr Su that, on the recommendation of Gammans, Quatius utilised the services of Global Freight Pty Ltd (Global Freight) for some freight and customs clearance work in the period from August 2014 until March 2016. A dispute arose between Quatius and Global Freight in March or April 2016. Global Freight commenced proceedings in the County Court of Victoria on 29 April 2016 alleging that Quatius owes it money.[3] Quatius ceased using the services of Global Freight in March 2016.
[3] Exhibit NJHA-5 to Allen’s affidavit.
12 The plaintiff alleges that in or about September 2016 Quatius sought to enter into a joint venture with Global Freight (Qld) Pty Ltd (Global Freight Qld). Global Freight Qld is a different company from Global Freight (although it has some common shareholders). As part of entering into this joint venture Craig Fox, Managing Director of Global Freight Qld provided documents to Quatius which indicate that Frederick’s had been receiving payments from Global Freight Qld and/or Global Freight from May 2015 to September 2016.[4] The plaintiff alleges that Gammans’ relationship with Global Freight, and the payments he received from either Global Freight or Global Freight Qld were never disclosed to any person at Quatius.
[4] Exhibit NJHA-6 to Allen’s affidavit.
13 After Garmans’ departure and after Quatius became aware of the payments made by Global Freight and Global Freight QLD to Frederick’s, Quatius commenced a review of the email inbox of Gammans.
14 The review of Gammans emails produced an email dated 9 September 2016 from Neil Erbs of Stay in Bed Milk & Bread Pty Ltd (trading as Aussie Farmers Direct) (AFD). AFD is a company which previously engaged Quatius to provide logistic services. The email from Mr Erbs (of AFD) to Gammans states:
Understanding the change in entity from Quatius to Frederick’s Transport Logistics that is about to take place, please confirm that the terms and conditions for the AFD/Quatius contract transition to Frederick’s.[5]
[5] Exhibit NJHA-8 to Allen’s affidavit.
15 AFD has since ceased using the services of Quatius.
16 Quatius seeks discovery of documents within the following categories pursuant to rule 32.05 of the County Court Civil Procedure Rules 2008 (the Civil Procedure Rules):
(a) Documents recording any communications between Frederick’s and Gammans or any other entity in which it or he provides consultancy services including Intercentral Pty Ltd and Stay In Bed Milk & Bread Pty Ltd (ACN 115 166 982)(trading as Aussie Farmers Direct)(AFD) in the period 15 May 2013 to 14 September 2016 (inclusive) including but not limited to any agreement for AFD to use the services of Frederick’s, the terms of those arrangements, and the costs of the services to be provided by Frederick’s.
(b) Any communications between Frederick’s and any other client of the plaintiff (Quatius) in the period 15 May 2013 to 14 September 2016 (inclusive) relating to the performance of services for those clients by Frederick’s and/or Gammans;
(c) Documents evidencing the consultancy services (including payment for services) between Frederick’s and/or Gammans and the companies referred to in paragraph 22 of the affidavit of Gammans sworn 9 February 2017 (Gammans affidavit) being:
(i) Inter Freight;
(ii) Australian Freight Management; and/or
(iii) Global Freight Queensland
In the period 15 May 2013 to 14 September 2016 (inclusive).
(d) Quatius’ client files or any part thereof; and
(e) Documents obtained by Frederick’s and/or Gammans in the period 15 May 2013 to 14 September 2016 (inclusive) relating to any business and financial information, sales and supply details, marketing strategies, customer and supplier listings, business listings, information concerning the business or customers of Quatius.
Relevant legal principles
17 Rule 32.05 of the Civil Procedure Rules is headed “Discovery from prospective defendant” and provides:
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 the applicant has ascertained;
(b) after making all reasonable inquiries, the applicant has not sufficient information to enable the applicant to decide 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 in that person’s possession 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 the applicant to make the decision-
The Court may order that that person shall make discovery to the applicant of any document of the kind prescribed in paragraph (c).
18 The rule should be construed benevolently because it is intended to assist an applicant who does not have sufficient, precise information to commence a proceeding, and to prevent the bringing of speculative suits. It must be given the fullest scope its language will reasonably allow.[6]
[6]Beston Parks Management Pty Ltd v Sexton [2008] VSC 392, [52] (Beston Parks).
19 Each of the requirements described in paragraphs (a) to (c) of rule 32.05 must be made out by the plaintiff in order to establish the basis for an order for preliminary discovery.[7]
Does Quatius have reasonable cause to believe that it may have a right to relief in the Court from Frederick’s and Gammans?
[7] Australian Gift and Homewares Association Limited v Melbourne Convention and Exhibition Trust (Ruling No.1) [2014] VSC 481.
20 The “reasonable cause to believe” requirement is primarily concerned with whether, as an objective fact, an applicant has sufficient information to decide whether to commence proceedings. An application cannot succeed if the applicant has sufficient information (assessed objectively), “but where the inability to determine whether to commence proceedings arises, for example, due to an overly indecisive or cautious nature.[8]
[8]Beston Parks [55].
21 In Australian Gift and Homewares Association Limited v Melbourne Convention and Exhibition Trust (Ruling No.1)[9] Derham AsJ stated that the following principles are relevant relevant to the first question.
[9] [2014] VSC 481.
(a) The plaintiff is not required to show that it has a prima facie case that it has a right to relief; [10]
[10]Plzen Pty Ltd v P & O Wharf Management Pty Ltd [2007] VSC 38, [17(e)].
(b) It is not necessary to show precisely what cause of action the plaintiff may have; such a requirement would defeat the object of the rule;[11]
[11]Beston Parks at [53].
(c) Rather, it need only be shown that the facts are such that it may reasonably be believed that the plaintiff may have a right to obtain relief;[12] and
(d) The test for determining whether the plaintiff has ‘reasonable cause to believe’ is an objective test.[13]
[12]Beston Parks at [53].
[13]Plzen Pty Ltd v P & O Wharf Management Pty Ltd [2007] VSC 38, [17(e)].
22 The defendants submit that, on an objective basis, the plaintiff does not have a reasonable cause to believe that it may have a right to relief against Frederick’s and Gammans. The defendants refer to the consultancy agreement dated 15 May 2013. Although the consultancy agreement is between Quatius and Frederick’s, Frederick’s did not sign the consultancy agreement. The defendant submits that there is no consultancy agreement between Quatius and Frederick’s because Frederick’s did not sign it.
23 The defence submitted that although the consultancy agreement was signed by Gammans, he is only referred to in clauses 1(b), 1(d), 5 and 6. The defence submitted that the confidentiality clauses contained in clauses 11, 12 and 16 do not impose any obligation on Gammans.
24 Under clause 1(b) Frederick’s agrees to engage Gammans. Clause 1(d) requires Frederick’s to provide the services through Gammans. Gammans is also referred to in clauses 5 and 6 which deal with the reimbursement of expenses.
25 In my view Quatius had reasonable cause to believe that it may have a right to relief in the Court from Frederick’s and Gammans.
(1) Gammans states in paragraph 8 of his affidavit that he is informed by his wife (the sole director of Frederick’s) that to the best of her recollection that whilst a consultancy agreement was prepared, Frederick’s did not execute such an agreement. However there is no dispute that Frederick’s provided services to Quatius. In an affidavit made by Gammans dated 9 February 2017 (Gammans’ affidavit) Gammans states that from about May 2013 Frederick’s entered into an agreement with Quatius to provide his services. The agreement is dated 13 May 2013. In paragraph 9 of his affidavit Gammans exhibits his business card and states that Quatius gave him the title of General Manager of its new logistics division. A letter dated 27 September 2016 by Belleli King & Associates (the solicitors for Frederick’s and Gammans)[14] states:
[14] Exhibit MJG6 to Gammans affidavit.
Our client has emailed your client with respect to the mobile phone previously is already aware that he has lost it. There is no basis for seeking an undertaking from our client. Notwithstanding same, our client acknowledges to be continuing to be bound by the Consultancy Agreement.
We note that your client has outstanding obligations to our client pursuant to the Agreement as follows:
1he has not been paid the last two (2) months fees in the sum of $21,666.66 plus GST;
2annual 5% after tax net profit for the Quatius Business Division for the period 15 May 2013 to date.
We look forward to payment of our client’s outstanding entitlements.
(2) Clause 9(c) of the consultancy agreement provides that Fredrick’s will be liable for any breach of the agreement by Gammans. Clause 11(c) of the consultancy agreement provides that Frederick’s will be liable for any breach of the confidentiality clause by their employees, agents or contractors.
(3) In PRA Electrical Pty Ltd v Perseverance Exploration Pty Ltd[15] the Court of Appeal held that where, subsequent to the preparation of an unexecuted document which the parties intended should constitute a contract between them, (and that) those parties acted consistently with the document’s provisions, it might be concluded, from the standpoint of an objective bystander, looking at all the facts, that they had entered into an informal or implied contract in the terms of that document and from a date identified by particular conduct. In Empirnall Holdings Pty Ltd v Machon Paull Partners Pt Ltd[16] Kirby P (as he then was) stated:
[15] [2007] 20 VR 487.
[16] (1988) 14 NSWLR 523, 530.
The relationship between the parties is also important. The law might less readily infer assent to an arrangement to be bound to a printed contract between individuals involved in a personal association than it would in circumstances of a contract allegedly arising out of an apparently regular business or professional association. Here, the relationship between the parties was a continuing one for commercial purposes. Work was done and accepted within that relationship. Progress payments were claimed and made.
(4) The consultancy agreement was not exclusive. However Frederick’s and Gammans could not provide services in direct competition with those of Quatius.[17] Further, Frederick’s and Gammans could not misuse the the intellectual property and confidential information of Quatius. This was a continuing obligation which operated both during and after termination of the consultancy agreement.[18]
[17] Clause 16 of the consultancy agreement.
[18] Clauses 12(a) and 11(a) and 11(a)(iii) and 12(f) of the consultancy agreement.
(5) Following termination, Gammans removed a box of client files from the premises of Quatius and returned those files after demand was made.[19] Gammans stated that he took the box by mistake believing that it contained his personal belongings. The documents were in Gammans’ possession for around 6 days. Gammans states that he is informed by his wife and believes that Frederick’s does not have any of the plaintiff’s client files in its possession, custody or power. Frederick’s does not state whether it has had any of those files in its possession, custody or power.
[19] Allen’s affidavit, paragraphs 8 – 11.
(6) Quatius is concerned that Frederick’s and Gammans may have competed with Quatius by providing services to Global Freight Pty Ltd (Global Freight), Aussie Farmers Direct (AFD) and/or others. In his affidavit Gammans deposed that during the term of the consultancy agreement, he provided services for other logistics businesses including Inter Freight, AFD and Global Freight Qld.[20] Gammans’ affidavit is silent on whether he entered into an arrangement to provide services to AFD before the termination of the consultancy agreement.[21]
[20] Gammans’ affidavit, paragraph 22.
[21] Gammans’ affidavit, paragraph 23.
(7) Quatius received a document from Craig Fox, managing director of Global Freight Qld. The document exhibited NJHA6 indicates that Frederick’s may have been receiving payments of $1100 from Global Freight Qld and Global Freight from at least May 2015 to September 2016. The plaintiff submits that this raises a prima facie suspicion that Frederick’s had a relationship with an entity who was one of Quatius’ customers. The plaintiff alleges that Gammans’ relationship with Global Freight and the payments he received from either Global Freight or Global Freight Qld were never disclosed to any person at Quatius.
(8) After Quatius became aware of the payments made by Global Freight and Global Freight Qld, Quatius commenced a review of the email inbox of Gammans. Stay In Bed Milk & Bread Pty Ltd (trading as Aussie Farmers Direct)(AFD) is a company which previously engaged Quatius to provide logistic services. On 9 September 2016 Mr Erbs (of AFD) forwarded to Mike Gammans (mike@Frederick’s.net.au.), subject Quatius to Frederick’s, the email referred to in the above paragraph 14.
26 The plaintiff submits that it has reasonable cause to believe that Frederick’s and/or Gammans were putting in place arrangements to take one of the existing customers of Quatius in breach of the consultancy agreement and the fiduciary obligations of Gammans to Quatius. Quatius wrote directly to AFD in relation to the email forwarded 9 September 2015 and received no response.
27 Having considered the affidavit material and the submissions made by counsel and in particular the matters referred to in the above paragraph 29, I have formed the view that Quatius has reasonable cause to believe that it may have a right to relief in the Court from Frederick’s and Gammans for breach of the consultancy agreement and for breach of Gammans’ fiduciary duty to Quatius.
2. Has Quatius made all reasonable enquiries?
28 Quatius has made a number of enquiries to ascertain whether or not to commence proceedings against Frederick’s and Gammans. The enquiries including searching and reviewing emails held on the servers of Quatius including the email inbox of Gammans. Further Macpherson Kelley sent a letter by registered post to AFD on 23 November 2016 requesting documents which would likely be in the possession custody or control of AFD.[22] AFD has not responded to the request for documents.[23]
3. Does Quatius have sufficient information to enable it to decide whether to commence proceedings?
[22] Exhibit NJHA9 to Allens’ affidavit
[23] Allen’s affidavit, paragraph 30.
29 It is for the Court to determine whether Quatius has sufficient information available to it.
30 I do not accept the defendants’ submissions that Quatius has sufficient information to enable it to decide whether to commence proceedings.
31 An applicant does not have to prove that there will be, only that there may be, a real benefit from making the order. The benefit may be the drawing of an appropriate pleading with proper particulars and the avoidance of substantial amendment after discovery, or, alternatively the possible avoidance of unnecessary and fruitless litigation.[24]
[24]Beston Parks [53].
32 The benefit may be to determine the extent of the respondent’s breach and the likely quantum of any damages award.[25] In St George Bank Ltd v Rabo Australia Ltd[26] Hely J stated:
The question posed by subpara(b) of the rule is not whether the applicant has sufficient information to decide if a cause of action is available against the prospective respondent. The question is whether the applicant has sufficient information to make a decision whether to commence proceedings in the Court: Quanta Software at ALR 543 [33]-[34]; IPR 32-3, Alphapharm at 24-6. Accordingly, an applicant for preliminary discovery may be entitled to discovery in order to determine what defences are available to the respondent and the possible strength of those defences, or to determine the extent of the respondent’s breach and the likely quantum of any damages award: CGU Insurance Ltd v Malaysia International Shipping Corp Berhad (2001) 187 ALR 279 at 285; Quanta Software at ALR 543 [33]-[34]; Airservices Australia at FCR 202-3; ALR 332.
[25]Orora Ltd v Asahi Holdings (Australia) Pty Ltd [2015] VSC 749.
[26] [2004] FCA 1360, [26].
33 Quatius does not have sufficient information to enable it to decide whether to commence proceedings. Gammans states that he has lost his mobile telephone. Quatius did not receive answers to the request for documents bearing on the relationship between AFD and Frederick’s (see above paragraph 26). Quatius has not obtained information concerning the relationship between Frederick’s, Gammans, Global Freight and Global Freight Qld in the period from 15 May 2013 to 14 September 2016. In paragraph 22 of Gammans affidavit, Gammans deposes that there are a number of “one off’ minor consultancy jobs for Interfreight management and AFD. Quatius does not have the documents relating to the consultancy jobs referred to in paragraph 22 of Gammans’ affidavit.
34 In these circumstances Quatius does not have sufficient information to determine whether a claim should be commenced, the relief that might be sought, and the measure of loss and damage.
4.Is it reasonable for Quatius to believe that Frederick’s and/or Gammans have or have had or are likely to have had possession of the documents sought?
35 Gammans submitted that he has already made an affidavit stating that he does not have the documents sought in the original application. Frederick’s had not made an affidavit. The plaintiff submits that it is not an answer to say that Gammans and Frederick’s do not have the documents in his or its possession in circumstances where another entity has been interposed to manage the relationship between Frederick’s and Gammans. In paragraph 4 of Gammans’ affidavit, Gammans states that Frederick’s presently provides his services to Intercentral Pty Ltd as a consultant. Intercentral Pty Ltd conducts a freight management business from premises at 129 Williams Road, Dandenong South. Accordingly there may be documents which Frederick’s has had but no longer has in its possession. The plaintiff states that it is entitled to know what those documents are before it is in a position to ascertain whether it should issue proceedings.
36 Taking each of the categories of the documents in turn:
(a)Stay in Bed Milk & Bread Pty Ltd trading as Aussie Farmers Direct (AFD) documents and (b) communications between Frederick’s and any other clients
In paragraphs 12 -17 of Gammans affidavit , Gammans states that other than the email sent by Mr Erbs to his mike@Frederick’s.net.au account on 9 September 2016, he does not have any documents in his possession, custody or control which fall within the first category set out in the summons.
However the evidence is that Fredrick’s presently provides Gammans’ services to Intercentral Pty Ltd who conducts a freight management business. The affidavit does not state whether the documents which fall within the category have been in his or its possession, custody or control.
(c)Documents evidencing the consultancy services between Frederick’s and/or Gammans and InterFreight, Australian Freight Management and/or Global Freight Queensland in the period 15 May 2014 to 14 September 2016.
Gammans has deposed that he did undertake other consultancy jobs for InterFreight, Australian Freight Management and Global Freight Qld in the course of the Consultancy Agreement.
Frederick’s and Gammans would in the normal course of business have had documents relating to those jobs. Those documents would enable Quatius to consider the scope of the works undertaken and how much was paid.
(d) Quatius client files or any part thereof
In his affidavit Gammans states that he no longer has any of the plaintiff’s client files in his possession, custody or power. [27] This does not answer the question whether Frederick’s has had in its possession documents recording communications between Frederick’s and any other client of Quatius after the termination of the consultancy agreement on 14 September 2016.
[27] Gammans affidavit, para 33.
(e)Documents obtained by Frederick’s and/or Gammans relating to any business and financial information, sales and supply details, marketing strategies, customer and supplier listings, business listings, information concerning the business or customers of Quatius.
The defence submits that there has been no request to return the confidential information. However Macpherson Kelley, the solicitors for Quatius, stated in a letter dated 20 September 2016 :
Quatius takes the protection of its Confidential Information seriously, in particular this incident involving theft of Quatius’ client files.
Quatius requests that you return all Property and client files obtained from the Premises….[28]
[28] Gammans affidavit, exhibit MJG3.
The defendants submit that this application is misconceived because none of the documents would assist the plaintiff to decide whether it should commence the proceeding and that there is no evidence of any reasonable enquiries to ascertain whether the documents exist. The defendants submit that there is no utility in making the order because Gammans has sworn that he does not have any of the documents and neither does Fredericks.
I do not accept the defendants’ submission that none of the documents would assist the plaintiff to decide whether it should commence the proceedings. These documents would assist Quatius to determine whether Frederick’s and/or Gammans has breached the confidentiality provisions of the consultancy agreement and whether Gammans has breached any fiduciary duties he may owe to Quatius.
Orders
37 I order preliminary discovery of the documents sought by the plaintiff as set out in the above paragraph 16. I will hear from the parties as to the precise form of orders and as to costs.
Certificate
I certify that the preceding 15 pages are a true copy of the revised reasons for decision of Her Honour Judge Lewitan delivered on 28 February 2017
Dated: 3 May 2017
…………………….
Nicola Ojerholm
Associate to Her Honour Judge Lewitan
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