Raindale Holdings Pty Ltd v Hundermark [No 2]
[2020] WASC 202
•9 JUNE 2020
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: RAINDALE HOLDINGS PTY LTD -v- HUNDERMARK [No 2] [2020] WASC 202
CORAM: SMITH J
HEARD: 2 JUNE 2020
DELIVERED : 2 JUNE 2020
PUBLISHED : 9 JUNE 2020
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 - Joinder of an additional defendant - Test of necessity considered - Whether an order of the court may affect rights of proposed defendant - Whether discretion to join party should be exercised
Legislation:
Rules of the Supreme Court 1971 (WA), O 18 r 6(2)(b)
Result:
Power Engineering Services Pty Ltd joined as a defendant
Expert evidence orders and order for particulars vacated
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):
Ooranya Pty Ltd v ISPT Pty Ltd [No 2] [2019] WASC 453
Raindale Holdings Pty Ltd v Hundermark [2019] WASC 276
Wright Prospecting Pty Ltd v Hancock Prospecting Pty Ltd [No 7] [2016] WASC 305
Wurth Australia Pty Ltd v Burgess [2012] WASC 504
SMITH J:
Application for leave to amend the writ and join a fourth defendant and the result
By an application brought by chamber summons, filed on 16 March 2020, the plaintiff, Raindale Holdings Pty Ltd (Raindale), seeks leave to amend the writ of summons, dated 21 April 2016, to join a fourth defendant, Power Engineering Services Pty Ltd (PES Pty Ltd), pursuant to O 18 r 6(2)(b) of the Rules of the Supreme Court 1971 (WA).
Raindale also seeks consequential orders to vacate earlier orders that required an exchange of expert evidence and particulars of the plaintiff's damages.
The application was heard on 2 June 2020. After hearing counsel, I made the orders sought by Raindale. These are my reasons for making the orders.
The materials before the court and background to the proceedings
Attached as a schedule to the summons to amend writ and earlier orders, is Raindale's proposed amended writ of summons and amended statement of claim.
In support of the application, Raindale filed an affidavit of Stefan Otto Alteruthemeyer, sworn on 16 March 2020.
Raindale's pleaded case in the statement of claim annexed to the writ, filed 21 April 2016, 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 PES Pty Ltd. The directors of PES Pty Ltd 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:
(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 times.
(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 as follows:
(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, including the taking of all necessary accounts and enquiries. Of particular relevance to this application, Raindale seeks a declaration that Mr Hundermark and Mr David Muller hold the profits made from conduct in breach of fiduciary duties as constructive trustee for Raindale.
The defendants in their defence, filed on 30 June 2016, do not admit, and/or deny Raindale's pleaded case.
Legal principles ‑ joinder of defendants O 18, r 6(2)(b)
Order 18, r 6(2)(b) provides:
(2)At any stage of the proceedings in any cause or matter the Court may on such terms as it thinks just and either of its own motion or on application -
…
(b)order that any person who ought to have been joined as a party or whose presence before the court is necessary to ensure that all matters in dispute in the cause or matter may be effectually and completely determined and adjudicated upon, be added as a party,
but no person shall be added as a plaintiff without his consent signed in writing or in such other manner as may be authorised.
In Wurth Australia Pty Ltd v Burgess, Corboy J set out the principles to be applied in determining an application made pursuant to O 18, r 6(2)(b) as follows:[1]
[1]Wurth Australia Pty Ltd v Burgess [2012] WASC 504 [57]; applied in Ooranya Pty Ltd v ISPT Pty Ltd [No 2] [2019] WASC 453 [44] (Kenneth Martin J).
I consider the following propositions to be relevant to the determination of an application made pursuant to O 18 r 6(2)(b):
(a)The rule is designed to avoid unnecessary technicality so that the parties may litigate the real issues between them in an expeditious, efficient and cost effective way: Elovalis v Elovalis [2008] WASCA 141 (S) [6]. Consequently, the phrase 'all matters in dispute' should be given a beneficial interpretation. The phrase should be afforded the widest interpretation that the language of the rule will permit.
(b)Further, the phrase gives the rule an 'elastic' application. The rule is not to be construed so that the matters in dispute are limited to matters arising on the existing pleadings. The disputed matters for the purpose of the rule may include disputed issues of fact that are 'subjacent' to the pleadings: Elovalis [7].
(c)In Amon v Raphael Tuck & Sons Ltd [1956] 1 QB 357, Devlin J observed that the expression 'the cause or matter' in the then equivalent English rule referred to the action 'as it stands between the existing parties' - '[i]f it were otherwise, then anybody who showed a cause of action against either a plaintiff or defendant could, of course, say that the question involved in his cause of action could not be settled unless he was made a party' (369; see also, at 378). Similarly, Adams J in Birtles v Commonwealth of Australia [1960] VR 247 held that the reference to 'cause' in the then equivalent Victorian rule referred to the existing cause or matter against the original defendant (251).
(d)Although O 18 r 6(2) is to be interpreted beneficially, the test imposed by the rule is necessity; a party cannot be joined merely because it is thought to be just or convenient: The Hancock Family Memorial Foundation Ltd v Fieldhouse[No 3] [2010] WASC 223; Vandervell Trustees Ltd v White [1971] AC 912, 935 ‑ 936 (Viscount Dilhorne).
(e)The rule requires the court to consider whether the proposed parties' rights against or liabilities to any existing party in respect of the subject matter of the action will be directly affected by any order that may be made in the action: Pegang Mining Co Ltd v Choong Sam [1969] 2 MLJ 52, 55 ‑ 56; News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410, 524 and Homestyle Pty Ltd v City of Belmont [1999] WASCA 59 (Templeman J, with whom Malcolm CJ and Owen J agreed). In a passage that was cited with approval in Homestyle and more recently by the Court of Appeal in Cheng Chih Tiao v Sheng Chin Lai [No 2] [2010] WASCA 189, the Full Court of the Federal Court in News Ltd v Australian Rugby Football League observed, in relation to the test identified by the Privy Council in Pegang Mining, that (525):
'The test involves matters of degree, and ultimately judgment, having regard to the practical realities of the case, and the nature and value of the rights and liabilities of the third party which might be directly affected. The requirement that a third party's rights against, or liability to, any party to the proceedings be directly affected is an important qualification that recognises that many orders of a court are likely to affect other people to a greater or lesser extent. This is particularly so with remedies in the nature of an injunction: see Silktone Pty Ltd v Devreal Capital Pty Ltd (1990) 21 NSWLR 317 at 322 per Kirby P. The requirement of a direct effect on rights or liabilities differentiates the case where a person ought to be joined, from other cases where the effect of the order on non‑parties can be characterised as only indirect or consequential.'
(f)The focus in considering an application to join a defendant is on the rights and liabilities of the proposed defendant and not on 'some looser concept of "interests"': Alinta Asset Management Pty Ltd v Essential Services Commission [2007] VSC 32 (Hollingworth J) (and see Amon at 379 and the comments of Edelman J in Martin Bruce Jones as Receiver and Manager of Miami Waterfront Developments Pty Ltd v Miami Waterfront Developments Pty Ltd [2012] WASC 483 [13] - [14]). An order that directly affects a third person's rights against or liabilities to a party should not be made unless the person is also joined as a party: News Ltd (524). Consequently:
'Where, before trial, a question arises whether a necessary party has been joined, attention should be directed to the orders sought in the proceedings. It is the effect of the orders upon the third party that must be determined. The test is not whether the conduct of the third party is raised in the pleadings between the existing parties, or whether the third party is a party to a contract, the meaning or effect of which is pleaded as a matter relevant to the ascertainment of the rights between those parties. (News Ltd at 525).'
The test for necessity is met
The question to be determined is not whether it is just or convenient to join PES Pty Ltd as a party, but whether if PES Pty Ltd is not added as a party to these proceedings its rights will be directly affected by any order which may be made in the action.
Two of the existing defendants, Mr Hundermark and Mr David Muller, are directors of PES Pty Ltd and together they form its majority shareholders. In its pleaded case, Raindale alleges that they have derived a benefit from the use of Raindale's confidential information in establishing and running the business of PES Pty Ltd.
As Raindale points out, the profits made and the obligations to account for that profit in the event that Raindale is successful in its action will have a direct impact on PES Pty Ltd. This is because Raindale seeks a declaration that Mr Hundermark and Mr David Muller hold the profit made from their conduct in breach of fiduciary duties (owed to Raindale), part of which may include capital growth in PES Pty Ltd. If the court was to consider making an order that Mr Hundermark or Mr David Muller are to hold their shares in PES Pty Ltd on trust for Raindale (for a share of profits) such an order, if made, would directly affect or directly impact the interests of PES Pty Ltd, and is an order that should not be made unless PES Pty Ltd is joined as a party to the action.
Where the test for necessity is met, the court must then consider whether it should exercise its discretion to join an additional party to the proceedings.
Reasons why the discretion to grant leave to amend and join a fourth defendant should be exercised
In Wright Prospecting Pty Ltd v Hancock Prospecting Pty Ltd [No 7], Le Miere J observed:[2]
RSC O 18 r 6(2) is in discretionary terms - the court 'may' order that any person be added as a party. In APT Finance Pty Ltd v Wingside Nominees Pty Ltd [No 2] [2009] WASCA 235 Wheeler JA, with whom Newnes JA agreed, said:
'It has been held that the court has a discretion to refuse an order for joinder: Lancaster Banking Company v Cooper (1878) 9 Ch D 594. However, it is difficult to justify the exclusion of a party whose presence is necessary for the effectual determination and adjudication of matters in dispute and, consequently, it would seem that any discretionary power to decline an order would generally be confined to practical matters of convenience or disruption which might tell against the late admission of such a party: Southern Cross Pipelines Australia Pty Ltd v Kenneth Comninos Michael Western Australian Independent Gas Pipelines Access Regulator [2002] WASC 149 at [8] [29].'
[2] Wright Prospecting Pty Ltd v Hancock Prospecting Pty Ltd [No 7] [2016] WASC 305 [23].
The defendants claim that at the time of the commencement of proceedings, Raindale made a choice not to include PES Pty Ltd as a defendant but to pursue only its ex-employees, two of which are directors and shareholders of PES Pty Ltd, and it should now be held to that choice. The defendants also claim that after four years, the proceedings are advanced and extensive discovery has been provided by each of the defendants, yet Raindale has provided limited discovery and has not provided particulars of what damages it seeks from the defendants other than in the barest of terms. Further, the defendants claim that Raindale has delayed making this application.
On 19 December 2019, orders were made granting the parties leave to adduce expert evidence at the trial and requiring Raindale to provide the defendants with its expert report by 6 March 2020, and requiring Raindale to file and serve a schedule of damages. Orders were also made referring the matter for mediation, and the matter was subsequently listed for a mediation to take place on 5 June 2020.
Raindale did not comply with the expert evidence orders. Raindale claims it was unable to comply. However, the parties still intend to proceed with the mediation listed for 5 June 2020.
In his affidavit, Mr Alteruthemeyer deposes that in the course of preparing a draft brief to an expert it was determined that further information was required from PES Pty Ltd to prepare the expert evidence.[3] On 13 February 2020, Mr Alteruthemeyer wrote to the defendants' solicitors seeking the consent of their clients to the joinder of PES Pty Ltd to the action on grounds that the conduct of the defendants was likely to have led to profits by PES Pty Ltd and that profit was likely to be derived by the first and second defendants as shareholders of PES Pty Ltd. On the advice of an expert valuer, Mr Alteruthemeyer, on behalf of Raindale, sought the consent disclosure of further documents of PES Pty Ltd being financial statements, (not bank statements) profit and loss statements, balance sheets and payroll activity summaries.[4] The defendants claimed that Raindale already have all documents relevant to the issues in dispute, but if required it can seek third party discovery orders or attempt to issue a subpoena to PES Pty Ltd. However, as Raindale points out, such applications may not be successful.
[3] Affidavit of Stefan Otto Alteruthemeyer, sworn on 16 March 2020 [4] ‑ [6].
[4] Affidavit of Stefan Otto Alteruthemeyer, sworn on 16 March 2020 [7] ‑ [11].
Whilst the affidavit evidence of Mr Alteruthemeyer does not go to the issue of whether the test of necessity to join PES Pty Ltd is met, it does go to the question of whether Raindale have delayed or been dilatory in the prosecution of its claim against the defendants.
An attempt to obtain some of the financial records of PES Pty Ltd was unsuccessful in its application for discovery by the defendants in 2019. In Raindale Holdings Pty Ltd v Hundermark, the plaintiff was unsuccessful in seeking discovery of bank statements of PES Pty Ltd and Xero cloud‑based accounting software records on grounds that in the absence of PES Pty Ltd being joined as a party to the proceedings, any account of profits against the defendants must necessarily be considered a narrow task as the records were records of the third party, and in these circumstances, offended the principle of oppression.[5]
[5] Raindale Holdings Pty Ltd v Hundermark [2019] WASC 276 [79].
The defendants also submit that if the proposed amendments are allowed and PES Pty Ltd is joined as a party to the proceedings, it would require the parties to essentially defend their position from the beginning and incur significant costs and further delay, resulting in an unfair burden and potentially an abuse of process.
The passage of time is only one relevant factor to be considered in assessing delay. Delay must be considered not only in terms of the factors that have led to a delay, but also whether because of delay any prejudice or unfairness has resulted to the party or parties complaining of delay.
Neither the defendants, nor PES Pty Ltd, have filed any affidavit evidence in support of their submissions opposing the orders sought by Raindale. Consequently, there is no material before the court upon which the court could find that the defendants or PES Pty Ltd would be prejudiced by the granting of the application.
The pleadings are yet to close as the plaintiff has not entered this matter for trial. Other than to require PES Pty Ltd to plead to the amended statement of claim and to provide additional discovery, it is difficult to contemplate how it could be said that the defendants would have to defend their position from the beginning. The amendments proposed to the statement of claim, seek not only to add PES Pty Ltd as a fourth defendant but also seek to plead that each of the defendants have not only used their position as an employee to obtain confidential information for their own benefit (a matter which is currently pleaded) but also for the benefit of PES Pty Ltd.[6] As against PES Pty Ltd, the proposed amended statement of claim seeks to plead that PES Pty Ltd received the confidential information from the other defendants, it had notice of the breach of fiduciary duty, alternatively, knowledge of the breach of fiduciary duty on the part of the other defendants, and it knowingly assisted the other defendants.[7] As against the defendants and PES Pty Ltd, the proposed amended statement of claim seeks to plead that in the period since the receipt of the confidential information, the defendants have used and exploited the confidential information.[8] In respect of the relief sought, whilst it must be accepted that some of the relief sought against the current defendants would also extend to seeking relief against PES Pty Ltd, the only additional pleaded relief is declaratory relief against PES Pty Ltd.
[6] Proposed amended statement of claim dated 16 March 2020 [31] - [32], [35] ‑ [36], [38] ‑ [39].
[7] Proposed amended statement of claim dated 16 March 2020 [41] ‑ [43].
[8] Proposed amended statement of claim dated 16 March 2020 [44].
Whilst there have been lengthy interlocutory proceedings between Raindale and the defendants in respect of the provision of discovery by the defendants,[9] and the action was for a period of time in 2017 until early 2018 on the inactive cases list, I do not accept that Raindale has been dilatory in prosecuting its claims against the defendants. Raindale has been persistent in this period of time in seeking to obtain discovery from the defendants. Whilst Raindale was unsuccessful in an application for discovery in November 2018 in the absence of particulars,[10] a subsequent application brought by it in June 2019 resulted in a substantially successful outcome in its favour in August 2019.[11]
[9] Raindale Holdings Pty Ltd v Hundermark [2019] WASC 276 [75] - [79].
[10] See ts 29 November 2018, page 58.
[11] Raindale Holdings Pty Ltd v Hundermark [2019] WASC 276.
Clearly, all of the circumstances referred to by the defendants and PES Pty Ltd are not such as to raise any practical matter of inconvenience or disruption which would be a sufficient reason for not ordering that PES Pty Ltd be joined as a fourth defendant to the action.
For these reasons, I was satisfied that the orders sought by Raindale for joinder and amendment should be made. After informing counsel that I intended to make these orders, it was conceded on behalf of the defendants that the orders requiring an exchange of expert evidence and particulars of the plaintiff's damages should be vacated.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
NM
Research Orderly to the Honourable Justice Smith9 JUNE 2020
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