Raindale Holdings Pty Ltd v Hundermark - [2019] WASC 276

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   RAINDALE HOLDINGS PTY LTD -v- HUNDERMARK [2019] WASC 276
CORAM:   SMITH J
HEARD:   14 JUNE 2019
DELIVERED          :   9 AUGUST 2019
FILE NO/S:   CIV 1654 of 2016
BETWEEN:   RAINDALE HOLDINGS PTY LTD
Plaintiff
AND
WAYNE HUNDERMARK
First Defendant
DAVID MULLER
Second Defendant
JOSHUA MULLER
Third Defendant

Catchwords:

Practice and procedure - Application for discovery of particular documents - Possession, custody and power - Whether documents in possession, custody or power of a third party company of directors who are parties to the proceedings - Relevant principles

Legislation:

Corporations Act 2001 (Cth), s 182, s 183
Rules of the Supreme Court 1971 (WA), O 26 r 6

Result:

Application allowed in part

Category: B

Representation:

Counsel:

Plaintiff	:	Mr C Slater
First Defendant	:	Mr C S Gough
Second Defendant	:	Mr C S Gough
Third Defendant	:	Mr C S Gough

Solicitors:

Plaintiff	:	Morgan Alteruthemeyer Legal Group
First Defendant	:	Mills Oakley
Second Defendant	:	Mills Oakley
Third Defendant	:	Mills Oakley

Case(s) referred to in decision(s):

Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd [2018] HCA 43; (2018) 92 ALJR 918
B v B (matrimonial proceedings: discovery) [1979] 1 All ER 801
Biala Pty Ltd v Mallina Holdings Ltd [1990] WAR 174
Compagnie Financiere et Commerciale du Pacifique v Peruvian Guano Co (1882) 11 QBD 55
Donaldson v Nolan [2015] WASC 194
EC Dawson Investments Pty Ltd v Crystal Finance Pty Ltd [No 3] [2013] WASC 183
Hadley v McDougall (1872) 7 Ch App 312
Kearsley v Philips (1883) 10 QBD 465
Langford v Cleary (1993) 2 Tas R 1
Perpetual Trustees Co Ltd v Burniston [2012] WASC 26
Roe v The State of Western Australia [2013] WASC 130
Singh v Friedman [2013] WASC 78
Streeter v Western Areas Exploration Pty Ltd [No 2] [2011] WASCA 17
Tan v St George Bank Ltd [2005] WASC 143
Turner v Davies (1981) 2 NSWLR 324
Warman International Ltd v Dwyer [1995] HCA 18; (1995) 182 CLR 544
Youlden Enterprises Pty Ltd v Health Solutions (WA) Pty Ltd [2005] WASC 60

SMITH J:

The application for further discovery and the result

This is an application by the plaintiff, Raindale Holdings Pty Ltd, for an order pursuant to O 26 r 6 of the Rules of the Supreme Court 1971 (WA) that each of the defendants, namely, Mr Wayne Hundermark, Mr David Muller and Mr Joshua Muller, each file and serve an affidavit stating whether any of the following documents are, or have been, in their possession, custody or power:[1]
1.The invoices issued by Power Engineering Services Pty Ltd and numbered as follows: 4, 6, 9, 10, 11, 36, 40, 43, 44, 46, 47.
2.The quotes issued by Power Engineering Services Pty Ltd and numbered as follows: 04, 06, 08, 09, 13, 14, 18, 21, 28, 32, 34.
3.The job listing records created by Power Engineering Services Pty Ltd for the jobs numbered as follows: 1, 2, 3, 4, 6, 8, 10, 13, 17, 19, 21, 27, 31, 34, 38-44, 49-53, 56, 58, 60, 61, 64-66, 68, 69, 74, 75, 77, 78, 81-111.
4.The statements for the account of Power Engineering Services Pty Ltd with the Bank of Queensland for account 223 4071 (other than for the period 3 August 2015 to 2 September 2015).
5.The records stored on the Xero cloud-based accounting system for Power Engineering Services Pty Ltd.
[1] Amended schedule to plaintiff's summons for further discovery, dated 12 June 2019.
Raindale also seeks an order that the affidavits explain the existence or extinguishment of any invoices that are said to be duplicates, raised in error and/or deleted.
The application for further discovery is opposed on three grounds. It is said that, firstly, there has been inadequate conferral; secondly, the request is oppressive; thirdly, in respect of the request for the documents that are invoices, quotes and job listing records, all relevant documents have been discovered.
For the reasons that follow, I will order that the first and second defendants, Mr Hundermark and Mr David Muller are to each file and serve an affidavit stating whether:
(a)any of the documents in categories 1, 2 and 3 are, or have been, in their possession, custody or power;
(b)the circumstances of any invoices that are said to be duplicate, or have been deleted, raised in error or extinguished are to be explained; and
(c)if it is maintained that any documents are in the possession or custody of Power Engineering Services Pty Ltd, and are not within their possession, custody or power, the affidavit is to set out the grounds upon which it is contended that those documents are not within their possession, custody or power.
I decline to make an order in respect of categories 4 and 5 on grounds of oppression.

The plaintiff's pleaded case

The plaintiff's pleaded case is as follows:
(a)Raindale trades as Global Testing Services and is in the business of supplying electrical testing and commissioning services. Each of the defendants are ex‑employees of Raindale.
(b)Mr Hundermark was employed as Raindale's operations manager between 10 April 2013 and 24 July 2015. Mr David Muller was employed as Raindale's projects and marketing manager between 10 April 2013 and 17 July 2015. Mr Joshua Muller (Mr David Muller's son) was employed as an electrical apprentice between 10 April 2013 and 22 July 2015.
(c)On 31 March 2015 (whilst employed by Raindale) Mr Hundermark and Mr David Muller together with an unrelated company, Benballey Pty Ltd, established a company named Power Engineering Services Pty Ltd. The directors of Power Engineering are Stewart Philip Cranswick, Mr Hundermark and Mr David Muller. Mr Hundermark holds one class B, 30 ordinary shares, Mr David Muller holds one class C, 30 ordinary shares and Benballey Pty Ltd holds one class A, 30 ordinary shares.
(d)As employees of Raindale, each of the defendants entered into written contracts of employment requiring:[2]
[2] Mr Hundermark signed his written contract of employment on 16 May 2013; Mr David Muller signed his contract on or about 10 April 2013; Mr Joshua Muller signed his contract on 22 April 2013.
(i)during the term of employment (and at all times after the termination thereof) to keep secret and confidential, and not to disclose or use directly or indirectly, any confidential information or knowledge relating to Raindale's customers, employees, business or activities; and
(ii)exclusive services either during or outside of work time.
(e)Each of the defendants owed Raindale fiduciary duties and statutory duties under s 182 and s 183 of the Corporations Act 2001 (Cth) and breached those duties by:
(i)Mr Hundermark and Mr David Muller by the wrongful establishment of a competing business whilst still employed by Raindale;
(ii)Mr Hundermark and Mr David Muller by each using their position as employees to obtain confidential information (of Raindale) for their own benefit, namely, by means of removable storage devices and online access, information including backups of email mailboxes, reports and client contact details and spreadsheets relating to equipment hire rates were used and removed;
(iii)Mr Joshua Muller by using his position as an employee to obtain confidential information (of Raindale) including, but not limited to, worksite photographs, site work, site forms and reports; and
(iv)each of the defendants by using and, unless restrained, continuing to use the confidential information for their own benefit and further, or alternatively, to the detriment of the business of Raindale.
(f)Raindale claims declaratory relief, permanent injunctions restraining the defendants in effect from using or disclosing Raindale's information, damages, equitable compensation, and an account of profits.
The defendants do not admit, and/or deny Raindale's pleaded case.

Legal principles – fiduciary duties – account of profits

In Streeter v Western Areas Exploration Pty Ltd [No 2],[3] Murphy JA (McLure P and Buss JA agreeing in respect of the exposition of the principles) summarised the relevant principles in respect of the existence, scope and purpose of fiduciary duties as follows:
The critical feature of a fiduciary relationship is that the fiduciary undertakes or agrees to act for or in the interest of another person. The fiduciary acts in a representative character: Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41, 96 ‑ 97.
The essence of a fiduciary relationship is that one party exercises power on behalf of another and pledges himself or herself to act in the best interests of the other: Pilmer v The Duke Group Ltd (in liq) [2001] HCA 31; (2001) 207 CLR 165, 196 ‑ 197 [71].
Within the scope of the fiduciary relationship the fiduciary must give undivided loyalty to the person to whom the obligation is owed: Breen v Williams [1996] HCA 57; (1996) 186 CLR 71, 93, 108; Maguire v Makaronis [1997] HCA 23; (1997) 188 CLR 449, 465. Within that scope, fiduciaries must subordinate their own interests to the interests of the other person to whom they stand in a fiduciary relationship: Furs Ltd v Tomkies (1936) 54 CLR 583, 590 (Latham CJ).
The undivided loyalty is secured by the general principle of equity concerning the obligation of a person in a fiduciary relationship to account for undisclosed personal benefits or gains. In Chan v Zacharia [1984] HCA 36; (1984) 154 CLR 178, 198 ‑ 199 Deane J said:
'The variations between more precise formulations of the principle governing the liability to account are largely the result of the fact that what is conveniently regarded as the one "fundamental rule" embodies two themes. The first is that which appropriates for the benefit of the person to whom the fiduciary duty is owed any benefit or gain obtained or received by the fiduciary in circumstances where there existed a conflict of personal interest and fiduciary duty or a significant possibility of such conflict: the objective is to preclude the fiduciary from being swayed by considerations of personal interest. The second is that which requires the fiduciary to account for any benefit or gain obtained or received by reason of or by use of his fiduciary position or of opportunity or knowledge resulting from it: the objective is to preclude the fiduciary from actually misusing his position for his personal advantage. Notwithstanding authoritative statements to the effect that the "use of fiduciary position" doctrine is but an illustration or part of a wider "conflict of interest and duty" doctrine (see, eg Phipps v Boardman [[1967] 2 AC, 123]; NZ Netherlands Society 'Oranje' Inc v Kuys [[1973] 1 WLR, 129]), the two themes, while overlapping, are distinct. Neither theme fully comprehends the other and a formulation of the principle by reference to one only of them will be incomplete. Stated comprehensively in terms of the liability to account, the principle of equity is that a person who is under a fiduciary obligation must account to the person to whom the obligation is owed for any benefit or gain (i) which has been obtained or received in circumstances where a conflict or significant possibility of conflict existed between his fiduciary duty and his personal interest in the pursuit or possible receipt of such a benefit or gain or (ii) which was obtained or received by use or by reason of his fiduciary position or of opportunity or knowledge resulting from it. Any such benefit or gain is held by the fiduciary as constructive trustee: see Keith Henry & Co Pty Ltd v Stuart Walker & Co Pty Ltd [(1958) 100 CLR 342, 350]. That constructive trust arises from the fact that a personal benefit or gain has been so obtained or received and it is immaterial that there was no absence of good faith or damage to the person to whom the fiduciary obligation was owed.'
[3] Streeter v Western Areas Exploration Pty Ltd [No 2] [2011] WASCA 17 [364] ‑ [367]; see also EC Dawson Investments Pty Ltd v Crystal Finance Pty Ltd [No 3] [2013] WASC 183 [406] ‑ [420] (Beech J).
Recently, in Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd, the majority of the High Court held that once causation is established the onus is on the defendant to show that he or she should not disgorge the full profit. In a joint judgment, Kiefel CJ, Keane and Edelman JJ observed:[4]
While it is true that equity will not require an errant fiduciary or a participant in a breach of fiduciary duty to account for an advantage which the breach of fiduciary duty has not caused or to which it has not sufficiently contributed, where causation is sufficiently established the onus is upon the errant fiduciary or participant to show that he or she should not account for the full value of the advantage. That onus is not discharged by mere conjecture or supposition giving the benefit of the doubt to a proven wrongdoer. The requirement of proof conforms with the obligation of a party charged with a breach of fiduciary duty to show why the full value of an advantage obtained in a situation of conflict of duty should not be disgorged.
[4] Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd [2018] HCA 43; (2018) 92 ALJR 918 [13]; see also [91] (Gageler J).
The plurality then went on to say that there are two ways of discharging the onus, either to argue that an allowance for skill and effort should be applied or to say that the profit was 'beyond the scope' of the wrongdoing, in that it has no reasonable connection with the wrongdoing, such that it would be inequitable for the defendant to account for it.[5]
[5] Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd [2018] HCA 43; (2018) 92 ALJR 918 [15] ‑ [16] (Kiefel CJ, Keane & Edelman JJ).
Justice Gageler similarly observed:[6]
The reasoning in Warman makes explicit that where there is shown to exist a causal connection between a fiduciary's breach of fiduciary obligation and a benefit or gain to the fiduciary or knowing participant, the onus shifts to the defendant to establish that it is inequitable to order that the defendant account for the value of the whole of the identified benefit or gain. The shifting of onus is explicable in part, but only in part, as putting the burden of proof of contested questions of fact on a party who is a proven wrongdoer. The burden on the defendant is not just evidentiary; more fundamentally, it is persuasive. The obligation of the defendant, imposed as an incident of 'the fiduciary relation itself', is to 'justify' the 'private advantage' that has been obtained.
[6] Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd [2018] HCA 43; (2018) 92 ALJR 918 [91].
Justice Gageler also observed that a fiduciary duty owed by an employee within the relationship of employer and employee is subject to the conflict rule and the profit rule as follows:[7]
The fiduciary duty that an employee has to an employer within the scope of the relationship of employment, no less than the fiduciary duty that any other person in a fiduciary position has to any other person to whom the fiduciary duty is owed within the scope of the venture or undertaking in respect of which the person in the fiduciary position has undertaken or assumed a responsibility to act in the exclusive interests of that other person, is a duty of 'absolute and disinterested loyalty'. That duty of loyalty is imposed in equity by means of two overlapping 'proscriptive obligations'. Each proscriptive obligation, or 'theme', is 'descriptive of circumstances in which equity will regard conduct of a particular kind as unconscionable and consequently attracting equitable remedies'.
'The first', often referred to as the 'conflict rule', 'is that which appropriates for the benefit of the person to whom the fiduciary duty is owed any benefit or gain obtained or received by the fiduciary in circumstances where there existed a conflict of personal interest and fiduciary duty or a significant possibility of such conflict: the objective is to preclude the fiduciary from being swayed by considerations of personal interest.' The unconscionability which attracts equitable remedies in circumstances where the conflict rule alone is invoked lies not so much in receipt by the fiduciary of the benefit or gain (over which the fiduciary need not have control) as in retention by the fiduciary of the benefit or gain which in conscience ought to be disgorged to the principal.
'The second', often referred to as the 'profit rule', 'is that which requires the fiduciary to account for any benefit or gain obtained or received by reason of or by use of [the] fiduciary position or of opportunity or knowledge resulting from it: the objective is to preclude the fiduciary from actually misusing [the fiduciary's] position for [the fiduciary's] personal advantage.' The unconscionability which attracts equitable remedies in such circumstances lies in pursuit by the fiduciary of self‑interest, or, more precisely, in pursuit of an interest other than the exclusive interest of the principal.
[7] Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd [2018] HCA 43; (2018) 92 ALJR 918 [67] ‑ [69].
The defendants argue that the decision of the High Court in Warman International Ltd v Dwyer is indicative of the fact that it is not appropriate for fiduciaries to account for the whole of the business profits for an indefinite time.[8] With respect, this is not entirely correct. Whether that would be so will depend upon the circumstances raised in a particular matter. In Warman, the High Court observed that it 'may' be inappropriate and inequitable to compel the fiduciary to account for the whole of the profit of his conduct or his exploitation of the principal's goodwill over an indefinite period of time.[9] In that matter, the High Court found that an order for account of profits was limited to a period of two years on grounds that Warman was likely to have lost its distributorship within a year.
[8] Warman International Ltd v Dwyer [1995] HCA 18; (1995) 182 CLR 544.
[9] Warman International Ltd v Dwyer [1995] HCA 18; (1985) 182 CLR 544, 561 (Mason CJ, Brennan, Deane, Dawson & Gaudron JJ).
However, on the facts before the court in Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd, the High Court found that a five year plan was an inadequate timeframe for an account of profits because it was not intended that Foresters would cease business at the end of that period. To the contrary, it was intended that the business was to continue indefinitely. Consequently, Foresters was required to account for the full value of its business.

Principles ‑ discovery

In Perpetual Trustees Co Ltd v Burniston, Edelman J found that there are three requirements that need to be satisfied in an application for discovery:[10]
(a)the court has reasonable grounds for being fairly certain that the documents sought (or class of documents sought) are in existence;
(b)those documents sought are relevant; and
(c)those documents ought to have been disclosed.
[10] Perpetual Trustees Co Ltd v Burniston [2012] WASC 26 [29].
Relevant documents are documents that would either advance a party's case or damage his or her opponent's case, or lead to a train of inquiry that would either advance a party's case or damage his or her opponent's case.[11]
[11] Perpetual Trustees Co Ltd v Burniston [2012] WASC 26 [30].
In Singh v Friedman, Allanson J observed:[12]
Relevance is not the only factor the court must consider in the exercise of the discretion to order discovery. But whether a document relates to a matter in question in the proceedings remains the descriptive criterion in O 26 of what documents should be discovered.
[12] Singh v Friedman [2013] WASC 78 [4].

This point was explained by Master Newnes in Youlden Enterprises Pty Ltd v Health Solutions (WA) Pty Ltd, who said:[13]
In determining whether to make an order for further discovery, the Court must have reasonable grounds for being fairly certain that there are other relevant documents which ought to have been discovered: Beecham Group Pty Ltd v Bristol Myers Co [1979] VR 273. The Court must be able to infer from the nature of the document in question that it is relevant; it will not speculate as to its relevance. Relevance may either appear from the nature of the document or its contents, and if the latter then there must be a prima facie case as to the contents before an order for further discovery will be made: Astra-National Productions Ltd v Neo Art Productions Ltd [1928] WN 218 at 219. Where an application is made in respect of a document referred to in a document already discovered (the relevance of the latter being conceded by its discovery) it is generally reasonable to assume, in the absence of a contrary indication in the document discovered, that the document referred to is relevant: see Compagnie Financiere et Commerciale du Pacifique v Peruvian Guano Co [1882] 11 QBD 55; Kent Coal Concessions Ltd v Duguid [1910] 1 KB 904 at 915 and the discussion in PDM Australia Pty Ltd v Kellogg Overseas Corporation & Ors, unreported; SCt of WA; Library No 6646; 26 March 1987 at [5‑14].
In determining whether a document relates to a matter in question, and, therefore, whether it ought to have been discovered, the test is that set out in Compagnie Financiere et Commerciale du Pacifique v Peruvian Guano Co (supra) as follows:
'It seems to me that every document relates to matters in question in the action which not only would be evidence upon any issue, but also which, it is reasonable to suppose, contains information which may ‑ not which must - either directly or indirectly enable the party requiring the affidavit either to advance his own case or to damage the case of his adversary. I have put in words "either directly or indirectly" because it seems to me, a document can properly be said to contain information which may enable the party requiring the affidavit either to advance its own case or to damage the case of its adversary, if it is a document which may fairly lead to a chain of inquiry, which may have either of those two consequences.'
The matters in issue are to be determined by reference to the pleadings: Mulley v Manifold (1959) 103 CLR 341 per Menzies J at 345. But regard must also be had to the conduct and admissions of the parties and the nature of the action: Schlam v WA Trustee Executor & Agency Co Ltd [1964] WAR 178 at 186.
It is also important to bear in mind that there is not a strict entitlement to an order for discovery, including an order for further discovery: Kent Coal Concessions Ltd v Duguid (supra) at 910. Moreover, amendments to the Rules in more recent times, including the introduction of O 1 r 4B and O 26 r 7, emphasise the need to have regard to the timely and cost effective disposal of the action in the exercise of the discretion to order discovery.
[13] Youlden Enterprises Pty Ltd v Health Solutions (WA) Pty Ltd [2005] WASC 60 [3] ‑ [6].
The task of considering whether to make an order for discovery is a balancing exercise. Justice Allanson articulated this point in Singh as follows:[14]
The discretion is to be exercised having regard to the timely and cost effective disposal of litigation: Corporate Systems Publishing Pty Ltd v Lingard [No 3] [2008] WASC 1 [7]; Youlden Enterprises Pty Ltd v Health Solutions (WA) Pty Ltd [6]. On the other hand, discovery has been described as promoting the ascertainment of truth in litigation and as an essential part of the proper administration of justice: Hamersley Iron Pty Ltd v Lovell (1998) 19 WAR 316, 321. Subject to the rules of privilege, there is a 'public interest in having available all evidence relevant to the issues in litigation': Carter v Managing Partner, Northmore Hale Davy & Leake [1995] HCA 33; (1995) 183 CLR 121, 128. The ultimate test is whether the discovery is necessary for fairly disposing of the proceedings: Science Research Council v Nasse [1979] UKHL 9; [1980] AC 1028, 1065.
[14] Singh v Friedman [2013] WASC 78 [3].
The principles in Singh were adopted by Martin CJ in Roe v The State of Western Australia who went on to observe:[15]
Put shortly, it is now established that general discovery is no longer regarded as a right. Rather, the extent of the obligation to give discovery and the entitlement to discovery will be fashioned having regard to the general principles that are articulated in the Rules of the Supreme Court 1971 (WA) and in particular the principles enunciated in O 1 r 4A and r 4B. Those principles include and expressly embody the notion of proportionality, which requires a court, before ordering any interlocutory process, to assess whether the forensic benefit to be derived by that process is proportional to the cost and delay which will flow from the undertaking of the process, having regard to the value, importance and complexity of the subject matter in dispute and the financial position of the parties.
In the context of discovery, this means that when issues arise with respect to the breadth of the discovery to be ordered, the ambit of discovery will be determined taking into account the cost and delay associated with the provision of discovery over a broader ambit, as compared to the forensic benefit likely to be derived from the provision of discovery over that broader ambit. Unless the cost and delay involved in the provision of that discovery is proportionate to the forensic benefit likely to be derived from a broader ambit of discovery, and to the value and importance or complexity of the subject matter of the proceedings, a narrower ambit of discovery will be ordered.
The only proposition I would add to the principles enunciated in the defendant's written submissions is the proposition that at least in cases such as this, when general discovery has not been sought or ordered, adjectival or indirect relevance of itself will no longer determine whether or not a document will be ordered to be discovered, and in particular the approach to general discovery enunciated in cases like Compagnie Financiere et Commerciale du Pacifique v Peruvian Guano Co (1882) 11 QBD 55 will no longer guide the court in relation to issues with respect to informal discovery.
Rather, those issues will be determined by the balancing of the likely forensic benefit to be obtained against the risk of cost and delay in the manner that I have described, viewed in the context of the value, importance and complexity of the subject matter of the proceedings. In that context, the forensic significance of the issue in respect of which discovery is sought and the relevance of the documents sought to that issue, in a qualitative sense, will be pertinent to the proper disposition of any application for discovery.
[15] Roe v The State of Western Australia [2013] WASC 130 [10] ‑ [13].
The approach of Martin CJ in Roe does not, however, exclude the application of the expansive 'line of inquiry' test of relevance in Compagnie Financiere et Commerciale du Pacifique v Peruvian Guano Co[16] when considering an application for further and better discovery in respect of categories of documents.
[16] Compagnie Financiere et Commerciale du Pacifique v Peruvian Guano Co (1882) 11 QBD 55.
As the defendants point out, satisfaction of the low threshold of relevance in the Peruvian Guano sense will not necessarily justify an exercise of discretion to order discovery. A claim to a broader ambit of discovery must be justified by whether the cost and delay involved in the wider ambit is proportionate to the forensic benefit likely to be derived from the wider ambit, in the context of the value, importance and complexity of the subject matters of the litigation.[17]
[17] Donaldson v Nolan [2015] WASC 194 [39] (Beech J).

Has there been adequate conferral in respect of the application?

After the employment of the defendants ceased, with the assistance of KPMG Forensic Pty Ltd (KPMG), Raindale discovered that some of their documents had been copied by the defendants.
Following letters of demand being sent to the defendants, in November 2015 the defendants quarantined some information and a 'mirror image' was taken of all relevant electronic devices by forensic examiners engaged by the defendants, Grant Thornton Forensics Pty Ltd (Grant Thornton), namely:
i.In November 2015, external USB hard drive Toshiba serial number 13ATT9HUTTV2, external USB hard drive Western Digital My Passport serial number WXL1A91J5420, external USB hard drive NexStar HX serial number 00H31A0241, two GTS branded USB flash drives, G‑Mech branded USB flash drive, cloud storage of dropbox accounts [email protected] and [email protected];
ii.In March 2016, USB devices, unbranded.
In mid‑March 2016, Mr Hundermark located further USB devices and the information on the USBs was also quarantined.
On 3 October 2016, Registrar Davies made orders for the disclosure by the defendants of further devices; confirmation whether the defendants had provided all of the documents and devices located in a KPMG report dated 3 December 2015 to Grant Thornton; and confirmation whether the documents and devices were 'the only documents and devices relevant to the issues in dispute in the power, control or possession of that defendant'.
As directed by the orders made by Registrar Davies on 3 October 2016, the defendants swore affidavits confirming that:
(a)the defendants had engaged Grant Thornton to forensically obtain electronically stored information relevant to the current dispute, and to quarantine some of the obtained information;[18]
(b)to the best of their knowledge, information and belief, they had provided all relevant documents to Grant Thornton;[19]
(c)to the best of their knowledge, information and belief, the documents identified in the Grant Thornton report dated 12 December 2015, plus the further USB device located by the first defendant and provided to Grant Thornton in mid March 2016, were the only documents and devices relevant to the issues in dispute and within their power, control or possession;[20] and
(d)the plaintiff has had access to the information obtained by Grant Thornton from the defendants since about October 2016. Included in the information obtained by Grant Thornton were complete mirror images of the relevant computers then used by the defendants.
[18] Affidavit of Wayne Alfred Hundermark, sworn 17 October 2016 [4]; affidavit of David John Muller, sworn 17 October 2016 [4]; affidavit of Joshua Muller, sworn 16 November 2016 [4].
[19] Affidavit of Wayne Alfred Hundermark, sworn 17 October 2016 [10]; affidavit of David John Muller, sworn 17 October 2016 [10]; affidavit of Joshua Muller, sworn 16 November 2016 [10] ‑ [11].
[20] Affidavit of Wayne Alfred Hundermark, sworn 17 October 2016 [14]; affidavit of David John Muller, sworn 17 October 2016 [14]; affidavit of Joshua Muller, sworn 16 November 2016 [13].
Raindale, however, has remained unconvinced that the quarantined information provided to KPMG from the relevant electronic devices contain all documents relating to the matter in question in this action.
For a period, after November 2017, the action was on the inactive cases list.
On 24 October 2018, the plaintiff applied by summons for further specific discovery. After hearing from the parties, I dismissed the application on grounds that Raindale conceded that KPMG had not reported whether the Grant Thornton set of documents contained the documents the subject of the summons. Following that application, KPMG were instructed by Raindale to engage in specific searches for the documents sought by Raindale.
On 16 January 2019, Raindale sought orders for further specific discovery of invoices, alternatively discovery verified by affidavit. Raindale made the application following receipt by it of a report from KPMG, dated 16 January 2019, which identified that a search of the information quarantined by Grant Thornton from some of the information on the computers and devices located only:
(a)three invoices issued by Power Engineering Services (numbered 12, 28 and 32); and
(b)references to two other invoices and two other documents.
At a CMC directions hearing on 17 January 2019, the application was adjourned to enable the parties' solicitors to confer.
By 14 February 2019, the defendants had provided a report to Raindale from their forensic advisers (now BDO Advisory (WA) Pty Ltd) that identified a different number of invoices than had been identified by Grant Thornton from images of the computer drives and other devices examined in 2015 and 2016.
On 8 February 2019, the defendants provided to Raindale 39 invoices (including the three located by KPMG within the Grant Thornton information) and later identified that these invoices were obtained from the defendants' accounting records using a Xero cloud‑based accounting package.
On 12 February 2019, Raindale's solicitors wrote to the defendants' solicitors requesting further documents.
On 14 February 2019, a CMC directions hearing was adjourned for further conferral about a disagreement between experts as to what information could be retrieved.
Correspondence subsequently ensued between the parties' solicitors about invoices that Raindale claimed were missing from the invoices that had been disclosed and other documents sought by the plaintiff, including bank statements.
On 28 February 2019, a CMC directions hearing was adjourned again. At that hearing I indicated to counsel that I expected to be informed, at the next date set for directions, as to whether any further applications for discovery would be made.
On 13 March 2019, Raindale filed a fresh application by summons for further specific discovery.
On 14 March 2019, orders were made to programme the summons for hearing.
On 26 March 2019, the defendants' solicitors provided further disclosure of documents with redacted information.
On 27 March 2019, Raindale, by letter, refined its request for information by specific job numbers and invoices, and pressed the request for information on five identified quotes and requested copies of unredacted bank statements.
On 15 April 2019, the defendants, by letter, provided further information on the job information, and insisted earlier invoice information (albeit redacted) was sufficient and expressed a view that further information was not relevant, provided further information on job quotes and refused to provide unredacted bank statements.[21]
[21] Affidavit of Lucy Elizabeth Pye, affirmed 16 April 2019, annexure LEP‑04, pages 74 ‑ 79.
The essence of the defendants' complaint that conferral was insufficient is that:
(a)the filing by the plaintiff of the summons for further specific discovery and the memorandum of conferral filed on behalf of the plaintiff on the afternoon of 13 March 2019 occurred before conferral was complete; and
(b)approximately two hours before Raindale's solicitors filed the summons and memorandum documents, a solicitor employed by the defendants' solicitors, Lucy Elizabeth Pye, spoke to Raindale's solicitor, Mr Alteruthemeyer, and requested clarification in respect of certain documents which had been requested by Raindale's solicitors on 11 and 12 March 2019. This communication was not referred to in the memorandum of conferral and other documents filed with the court in support of Raindale's application for discovery. To the contrary, the memorandum of conferral stated that:[22]
1.2The defendants responded by letters or emails dated: 8 February 2019, 20 February 2019 and 11 March 2019.
1.3The defendants have at the time of this certificate not responded to the letters dated 11 and 12 March 2019.
1.4The solicitor for the plaintiff has called and left a message for the solicitor for the defendants to call him.
1.5At the time of this certificate the solicitor for the defendant had been unable to return the call.
[22] Memorandum of conferral re: plaintiff's chamber summons, dated 13 March 2019.
In a letter to Raindale's solicitors, dated 26 March 2019, solicitors for the defendants stated:[23]
[23] Affidavit of Lucy Elizabeth Pye, affirmed 16 April 2019, annexure LEP‑02, page 18.
We consider the breadth of the request to be burdensome. The request remains unnecessarily wide in that there is no differentiation between former clients of the plaintiff and those that have never been clients of the plaintiff.
With a view to limit the occurrence of costs, we respond as follows:
1.You state that you have located job numbers 10, 17, 21, 29, 31, 34, 44, 45, 48 and 49. It is not clear which additional job numbers you are requesting and the relevance to the plaintiff's claim. Please provide a list of clients for which you require job numbers. In the meantime, we attach a redacted list of the defendants' jobs prior to 31 March 2016.
2.You have requested copies of invoice no's. 2, 4, 6, 7, 9, 10, 11, 23, 36, 43, 44, 46 and 47. Of the invoices requested, you are instructed that invoices 2-36 were voided or deleted and therefore not emailed to the defendants by their accounting software, Xero. The invoices will therefore not be amongst the data that was quarantined with Grant Thornton or located on the defendants' computers. Our clients are unable to print voided invoices through Xero, however in order to show you the information to which our client has access, we attach redacted screen prints taken from our clients' accounting software, Xero. We are instructed that invoices 43, 44, 46 and 47 are not shown in Xero and our clients are unsure why. Our clients instruct that some invoices could potentially have been deleted when they should have been voided and this may be the reason.
3.You report that KPMG has located job quote no's. 1 to 41 and request copies of job quote no's. 13, 14, 18, 21 and 28. Our client is not sure to what you are referring to when you state 'job quotes'. We are instructed that the quoting system as at 2015/2016 was as follows:
3.1An excel spread sheet or the workflowmax software was used to generate a quotation. The workflowmax quote number would be in the format Q00000__. We are instructed that the workflowmax software was time consuming and not user friendly so spreadsheets were predominantly used.
3.2We are further instructed that the defendants would assign a quote number from their quotation register. The format was the year followed by a number ie Q150016 etc.
Please confirm for which clients you require 'job quotes' and we will then seek further clarification from our clients. Again, the breadth of the request is too wide to be a reasonable request for discovery.
4.We attach redacted bank statements for your consideration. We maintain that these statements are not relevant to the plaintiff's pleaded claim.
Following this letter, conferral continued by letters between the parties' solicitors dated 27 March 2019 and 15 April 2019.
Whilst the erroneous information in certificate of conferral was, in the circumstances, an unacceptable error by Raindale's solicitors, it is plain that there had been extensive conferral in respect of Raindale's request for discovery over many months. Further, it is not unusual when applications for discovery are made for conferral to continue beyond the filing of an application.
In any event, it is clear from the correspondence between the parties' solicitors that whilst ongoing conferral resulted in some narrowing of the number of documents in categories 1, 2 and 3 of the summons now sought by Raindale, it is apparent from the objections made by the defendants to the application that this interlocutory dispute would not have been, and had no prospect of being, avoided by further conferral.

Categories 1, 2 and 3 - do the invoices, quotes and job listing records by Raindale exist?

Except for the job numbers that were created in error and/or have otherwise been deleted, it is clear the documents exist.
It is also clear that the quality of the print of some screenshots from the Xero cloud‑based accounting software provided by the defendants is so poor they are difficult, if not impossible, to read.

Categories 1, 2 and 3 - are the invoices, quotes and job listing records relevant?

What appear to be the final objections raised on behalf of the defendants to production of any documents in these categories, or in a redacted form, is that:
(a)screenprints of redacted invoices from the Xero cloud‑based accounting software have been provided that are (claimed to be) not relevant to Raindale's claim;
(b)some of the job numbers were for jobs for parties who had no relationship with Raindale;
(c)some job numbers were created in error and have been deleted;
(d)some job numbers relate to the hiring of equipment by Raindale from Power Engineering Services;
(e)one job quote is a demonstration quote for clients;
(f)one job quote is a quote to Raindale;
(g)one quote is a duplicate; and
(h)a redacted job report of all jobs undertaken between 1 June 2015 and 31 March 2016 had been provided.
All of the documents sought by Raindale are documents that came into existence prior to the defendants handing possession of the hard drives and devices to Grant Thornton that contained Raindale's confidential information in late 2015.
It is apparent from the matters pleaded by Raindale that the confidential information contained on the hard drives and devices was not confined to a list of clients but client contact details, spreadsheets relating to equipment hire rates, quote registers, costs of jobs, and job forecasting spreadsheets and work site forms. It can be contemplated that information of this kind could be used to establish a business in competition to Raindale and could be used to approach not only the clients of Raindale but potential clients of Raindale.
Raindale raises four issues about the information contained on the drives and devices handed to Grant Thornton. The first is whether all relevant documents were solely contained on the drives and devices that were handed over. The second is whether Grant Thornton extracted all relevant information from the drives and devices. The third issue is what use was made of the confidential information of Raindale by the defendants. The fourth issue is whether there has been continuing use of Raindale's confidential information by each or any of the defendants.
Given that the defendants have located additional documents on their Xero cloud‑based accounting software, I am satisfied that there may be relevant documents in existence that were not contained on the devices and drives provided to Grant Thornton or that all relevant information and documents were not extracted by them from the drives and devices.
As to the third and fourth issues, I am satisfied that (by the nature of the invoices, quotes and job listing records sought by Raindale) the documents sought are relevant and should be the subject of a list of documents which have been in the possession, custody or power of Mr Hundermark or Mr David Muller.
For reasons that follow, as Mr Joshua Muller is not a director or a shareholder of Power Engineering Services, no order should be made requiring him to produce a list of documents on affidavit.
I am also satisfied that insofar as the documents and records sought by Raindale in these categories that do not relate to persons who were not, or had not been, clients of Raindale, but the work carried out or tendered for was work that was in competition with Raindale it is reasonable to suppose that these documents may contain information that may advance the case of Raindale or damage the case of the defendants.
I have formed this opinion because when the documents and records were created it cannot be in dispute that the defendants had, in their possession, confidential documents of Raindale which could, if used, be used to gain work in competition to Raindale, which work could have involved work for clients of Raindale or prospective clients of Raindale.
I am also of the opinion, given the poor quality of the screenshots of the Xero cloud‑based accounting software, that the list of documents should list the records from this source in their electronic form.
Whether the documents and records sought by Raindale can properly be said to be documents within the possession, custody or power of Mr Hundermark and Mr David Muller is an issue that may have to await another day.
Whilst an objection to this application for further discovery was not made on behalf of any of the defendants that the documents sought are documents of a third party, there is authority for the proposition that a duty of disclosure may exist in the case of a document in respect of which a corporation has the sole right of possession, but the document itself is in the physical custody of a director who is a party to proceedings. This may be particularly so if the director controls the corporation and so can control the document. This point has its genesis in the decision of B v B (matrimonial proceedings: discovery).[24] However, this point is not entirely settled in Western Australia.
[24] B v B (matrimonial proceedings: discovery) [1979] 1 All ER 801.
In Biala Pty Ltd v Mallina Holdings Ltd, Master White found that a party who applies to see documents which are in the joint possession of a party and another person (who is not a party to the proceedings), the right to production and inspection of documents does not apply to documents which are not in the sole possession or power of a party to a suit.[25]
[25] Biala Pty Ltd v Mallina Holdings Ltd [1990] WAR 174, 181.
In Biala, the issue arose in respect of documents that were jointly owned by the first and second defendants, and the second defendant's wife who was not a party to the action and not willing to have the documents inspected by or on behalf of the plaintiffs.
In determining this point in Biala, Master White applied the English authorities of Kearsley v Philips[26] and Hadley v McDougall.[27] It should be noted, however, that both of those cases considered the entitlement to inspect documents provided they were in the 'possession' or 'power' of a party, which reflected the law as it was prior to the amendment to the Rules of the Supreme Court that introduced the requirement of production and inspection of documents in the 'custody' of a party to proceedings.
[26] Kearsley v Philips (1883) 10 QBD 465.
[27] Hadley v McDougall (1872) 7 Ch App 312.
This point was made by Maxwell J (in the New South Wales context) in Turner v Davies.[28] In Langford v Cleary, Zeeman J followed Turner v Davies and declined to follow Biala on this point.[29]
[28] Turner v Davies (1981) 2 NSWLR 324, 326 (Maxwell J).
[29] Langford v Cleary (1993) 2 Tas R 1, 7
More recently, without regard to the decision of Master White in Biala, Master Newnes in Tan v St George Bank Ltd considered the principle in B v B (matrimonial proceedings: discovery) and relevantly observed that:[30]
[30] Tan v St George Bank Ltd [2005] WASC 143 [48] ‑ [53].
[D]ocuments held by a company may nevertheless be in the power of a director of the company.
In B v B (matrimonial proceedings: discovery) [1979] 1 All ER 801 it was held that documents of a company may be in the power of a director in the sense that the director has an enforceable right to inspect them or obtain possession or control of them. Dunn J concluded that whether company documents were within a director's power was a question of fact depending upon his shareholding, whether other shareholders were adverse to him, the constitution of the board of directors and whether they objected to disclosure of the documents. Where the company was his alter ego, so that the director has unfettered control of its affairs, company documents would be within the director's power.
That case was distinguished by the Court of Appeal in Lonrho Ltd v Shell Petroleum Co Ltd [1980] 1 QB 358, where the question was whether documents in the possession of its subsidiaries were in the power of the parent company. It was held that they were not. The Court of Appeal acknowledged, however, that a great deal depends upon the facts of the case and the position may be different where a person has such control over a company that compliance with their wishes is assured: per Denning MR at 371 and Shaw LJ at 376, with whose judgments Brandon LJ agreed.
An appeal from the decision of the Court of Appeal was dismissed by the House of Lords in Lonrho Ltd v Shell Petroleum Co Ltd [1980] 1 WLR 627. On the appeal, Lord Diplock (in a speech concurred in by the other members of the House of Lords) said (at 635) that a document is in a party's power if that party has 'a presently enforceable legal right to obtain from whoever actually holds the document inspection of it without the need to obtain the consent of anyone else'. It is, however, significant that Lord Diplock (at 636 - 637) 'expressly decline[d] an invitation to roam any further into the general law of discovery' beyond the 'special facts' of the appeal, noting, in particular, that, depending on their own particular facts, different considerations may apply to one-man companies.
In Taylor v Santos [1998] 71 SASR 434, Doyle CJ, with whom Prior J agreed, said (at 437) that Lord Diplock's statement as to a presently enforceable legal right was not an exhaustive statement of the content of the expression 'power' in this context, although the Court should be cautious in extending the scope of 'power'. His Honour went on (at 438) to say:
'… my view is that the obligation to discover a document is limited to a document that the person in question has the legal power or (I can think of no better expression) actual and immediate ability to inspect, even though the document is the property of or is held by another person. … A person does not have that right or actual immediate ability if the person is able to inspect the document only if a third person, who has control of the document, agrees to permit inspection, or agrees to refrain from so exercising that person's control as to prevent inspection.
I respectfully agree with that view. Of course, as Doyle CJ made clear in that case, in speaking of an immediate ability to inspect, the Court is not concerned with issues of practicality, in the sense, for instance, that the document may be physically located in a distant or relatively inaccessible location.
Master Newnes then went on to observe that the only relevant evidence in the matter before him was that the second defendant (referred to in the decision as 'Dawson') was a director of the company who held the documents in question and that that was not sufficient to make an order for production and inspection. Master Newnes, however, did not find that to be determinative of the issue and then found:[31]
I respectfully agree with what was said by Hedigan J in Linfra Pty Ltd v Citibank Ltd [1995] 1 VR 643 at 648, as follows:
'The court has a discretion, in my opinion, as to the propriety of an order and its form. The court might decline to make an order at all where, on the material, it is apparent that the documents are not within the power of the party from whom they are sought On the other hand, the court might consider that an order should be made in such form as will advance the matter to enable a fair decision to be made as to whether or not it is within power. Such an order initially might do no more than direct a further affidavit elaborating a claim that a document is not within power.'
[31] Tan v St George Bank Ltd [2005] WASC 143 [55].
Master Newnes indicated that he would make an order for discovery by each the defendants of any documents of the nature sought by the plaintiffs which are, or have been, in that defendant's possession, custody or power relating to the transactions where Dawson was one of the borrowers or where St George Bank advanced money to, or at the direction or by the authority of, Dawson.[32]
[32] Tan v St George Bank Ltd [2005] WASC 143 [56].
Master Newnes also observed that if Dawson maintains that any such documents in the possession or custody of the third party (the company in which he was the director) are not within his power, he must file and serve an affidavit setting out the grounds upon which it is contended they are not within his power.[33]
[33] Tan v St George Bank Ltd [2005] WASC 143 [57].
In my view, the approach of Master Newnes should be applied in this matter.

Categories 4 and 5 ‑ bank statements and records stored on the cloud Xero cloud-based accounting software

In categories 4 and 5 Raindale seeks discovery of all bank statements and records stored on the Xero cloud‑based accounting software from the date of the start-up of the business of Power Engineering Services to date, and for ongoing production and inspection.
In respect to the bank statements, Raindale claims that these documents are relevant as the financial performance of Power Engineering Services will be reflected in its bank statements and its profit is relevant to what income the defendants may have received in the form of a salary and, in respect to the first and second defendants, whether they have received other income or gained capital growth in the company.
The difficulty with this contention is that the bank statements will not necessarily reveal this information and there are other categories of documents which have not, as yet, been informally requested which will reveal some, or all, of this information (such as pay records and dividend statements).
In any event, given that Power Engineering Services are not a party to the proceedings, I am not satisfied that the forensic benefit of production and inspection of all of the bank statements of the account of Power Engineering Services would shed any light on the profit or capital that the first and second defendants have derived from the business of Power Engineering Services.
The accounting information on the Xero cloud‑based accounting software records is sought by Raindale on grounds that it is also relevant to the damages and an account of profits, and should show payments made to the defendants by way of income, dividends and profit, together with the growth of the value of the business.
Whilst the defendants object to Raindale having access to its accounting records on the grounds it is a trade rival, confidentiality is not an overriding consideration. Whilst in the usual case the concerns of the defendants might be addressed by the adoption of a suitable regime, it may also be necessary, whether in this particular case by regard to the interests of fairness, whether the conduct of the defendants in copying confidential documents and records of Raindale in 2015 is relevant to consideration as to whether such a regime should be applied. However, this issue does not need to be determined in this application.
In the absence of Power Engineering Services being joined as a party to these proceedings any account of profits against the defendants must necessarily be considered to be narrow.
To allow the discovery of all accounting records of a third party in these circumstances offends against the principle of oppression, particularly given the breadth and extent of the discovery sought and the issues in the case.
For these reasons, no orders should be made in respect of categories 4 and 5.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
EH
Research Associate/Orderly to the Honourable Justice Smith
9 AUGUST 2019