Reeve v Aqualast Pty Ltd

Case [2012] FCA 679

FEDERAL COURT OF AUSTRALIA

Reeve v Aqualast Pty Ltd [2012] FCA 679

Citation: Reeve v Aqualast Pty Ltd [2012] FCA 679
Parties: LLOYD REEVE v AQUALAST PTY LTD (ACN 137 316 888), ULTRALAST MANUFACTURING PTY LTD (ACN 139 587 242), ULTRALAST INTERNATIONAL PTY LTD (ACN 137 334 706), ULTRALAST HOLDINGS PTY LTD (ACN 146 101 386), GREENGUARD PTY LTD (147 950 098), ALPHALAST PTY LTD (ACN 140 791 644), ALPHALAST GLOBAL PTY LTD (ACN 152 564 200), ECO GLOBALGEN PTY LTD (ACN 152 594 628), MAHER (AKA MARK) JOSEPH, AKA JOSEPH MAHER and STEVEN NIKOLOVSKI
File number: NSD 98 of 2012
Judge: YATES J
Date of judgment: 29 June 2012
Catchwords: PRACTICE AND PROCEDURE – application for preliminary discovery under r 7.23 of the Federal Court Rules 2011
Legislation: Federal Court Rules 2011 rr 7.21, 7.23
Cases cited: Ebos Group Pty Ltd v Team Medical Supplies Pty Ltd [2011] FCA 862
EBOS Group Pty Ltd v Team Medical Supplies Pty Ltd (No 3) (2012) 199 FCR 533
Glencore International AG v Selwyn Mines Ltd (recs and mgrs apptd) (2005) 223 ALR 238
Higgins v Hancock (2011) 199 FCR 393
St George Bank Ltd v Rabo Australia Ltd [2004] FCA 1360
Date of hearing: 12 March 2012
Place: Sydney
Division: GENERAL DIVISION
Category: Catchwords
Number of paragraphs: 122
Counsel for the Prospective Applicant: Mr J O'Sullivan
Solicitor for the Prospective Applicant: O'Neill Partners Commercial Lawyers
Counsel for the First, Second, Third, Fifth and Ninth Prospective Respondents: Mr B McNab
Solicitor for the First, Second, Third, Fifth and Ninth Prospective Respondents: Aldgate Lawyers
Counsel for the Fourth, Sixth, Seventh, Eighth and Tenth Prospective Respondents: Mr RA Harris
Solicitor for the Fourth, Sixth, Seventh, Eighth and Tenth Prospective Respondents: Lawcorp Lawyers

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION

NSD 98 of 2012
BETWEEN:

LLOYD REEVE
Prospective Applicant
AND:

AQUALAST PTY LTD (ACN 137 316 888)
First Prospective Respondent

ULTRALAST MANUFACTURING PTY LTD (ACN 139 587 242)
Second Prospective Respondent

ULTRALAST INTERNATIONAL PTY LTD (ACN 137 334 706)
Third Prospective Respondent

ULTRALAST HOLDINGS PTY LTD (ACN 146 101 386)
Fourth Prospective Respondent

GREENGUARD PTY LTD (147 950 098)
Fifth Prospective Respondent

ALPHALAST PTY LTD (ACN 140 791 644)
Sixth Prospective Respondent

ALPHALAST GLOBAL PTY LTD (ACN 152 564 200)
Seventh Prospective Respondent

ECO GLOBALGEN PTY LTD (ACN 152 594 628)
Eighth Prospective Respondent

MAHER (AKA MARK) JOSEPH, AKA JOSEPH MAHER
Ninth Prospective Respondent

STEVEN NIKOLOVSKI
Tenth Prospective Respondent

JUDGE:

YATES J

DATE OF ORDER:

29 JUNE 2012

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:

1.The parties are to provide within seven days an agreed form of orders giving effect to these reasons.

2.In the absence of agreement between the parties on the form of the orders for discovery and on the question of costs, the parties are to provide within 14 days drafts of the orders they seek supported by short written submissions which are not to exceed three pages in length.

Note:    Settlement and entry of orders…

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AGLC
Reeve v Aqualast Pty Ltd [2012] FCA 679
Case
[2012] FCA 679
Decision Date

CaseChat Overview and Summary

The case of Reeve v Aqualast Pty Ltd involves a complex dispute regarding the ownership and protection of intellectual property, specifically the formulation and method of preparation of a binding ingredient called "Millbase" used in paint products. The applicant, Mr Reeve, claims that Millbase information is a trade secret and confidential information, which he acquired from Self-Coat Zero VOC Technology Pty Ltd in South Africa. He is seeking preliminary discovery of certain documents from the respondents, Aqualast Pty Ltd, Ultralast International Pty Ltd, and Mr Joseph, among others, to assist in determining whether to commence proceedings against them for relief. The legal issues before the court include whether the documents sought are directly relevant to Mr Reeve's rights to relief and whether the discovery should be granted as a matter of discretion. The court found that certain categories of documents should be disclosed, while others should not. The court's reasoning was based on the relevance of the documents to Mr Reeve's rights and the absence of any ulterior or collateral purpose in seeking the discovery. The orders require the parties to agree on the form of orders for discovery and to provide drafts of the orders they seek, supported by written submissions.

Orders

Orders of the court

1. The parties are to provide within seven days an agreed form of orders giving effect to these reasons.

2. In the absence of agreement between the parties on the form of the orders for discovery and on the question of costs, the parties are to provide within 14 days drafts of the orders they seek supported by short written submissions which are not to exceed three pages in length.

Background

Background to the litigation

For the reasons which follow, the application should be allowed in part.Background It is necessary at the outset to say something about the somewhat complex history of the relationship between the parties, particularly Mr Reeve, Mr Joseph and Mr Nikolovski. That relationship concerns, essentially, their involvement in the business of manufacturing paint products using a binding ingredient referred to in the paint industry by the descriptions “kick-start”, “millbase” and a variety of other descriptions. It seems that there are a number of such ingredients available for use in the manufacture of paint products. For ease of exposition I will refer to the particular binding ingredient, the subject of the present controversy, as “Millbase”. Mr Reeve claims that the formulation and the method of preparation of Millbase (the Millbase information) is a trade secret constituting confidential information that can be protected at his suit. From the account that follows, it will be apparent that there is a significant dispute between the parties concerning Mr Reeve’s “title” to this information. Mr Reeve says that he acquired the intellectual property rights with respect to the Millbase information from a company in South Africa called Self-Coat Zero VOC Technology Pty Ltd (SCZVT) through his dealings with Andre Moss and Jacques du Buison, who were directors of that company. Mr Reeve has advanced a particular document, dated 9 September 2009, under which he claims to have acquired ownership of that information. It is apparent from certain handwritten notations on the document that others, including Donald du Preez, to whom I will later refer, had or might have had knowledge of the Millbase information, or some part of it, at that time. Mr Reeve is, and was at the time of the events to which I will refer, a resident of the United Kingdom. He says that he is the sole director of, and shareholder in, a United Kingdom company called Self-Coat London Ltd which has for some years carried on business selling and distributing a range of paint products that include Millbase as an ingredient. On 23 September 2009 Mr Reeve executed Heads of Agreement, to which Mr Joseph and the third prospective respondent, Ultralast International Pty Ltd (Ultralast International), were also parties. Ultralast International was identified in the Heads of Agreement as carrying on the business of manufacturing and marketing “Paint & related products” and “Wood Preservative & related products”. Mr Joseph was identified as a director of, and shareholder in, that company. The Heads of Agreement recorded the following matters (amongst other things):(a)Mr Reeve and Mr Joseph had agreed to set up a company, Aqualast Pty Ltd (Aqualast), the first prospective respondent, in which they would be officeholders and equal shareholders. Aqualast would hold “Intellectual Properties” to be contributed by Mr Reeve and Mr Joseph.(b)Mr Reeve and Mr Joseph had agreed to set up a company, Ultralast Manufacturing Pty Ltd (Ultralast Manufacturing), the second prospective respondent, in which they would be officeholders and equal shareholders. Ultralast Manufacturing would manufacture and market Millbase. (c)Certain intellectual property rights (the identity of which is obscure) and Millbase would be sold to individuals and companies on terms and conditions to be agreed by Mr Reeve and Mr Joseph. The income from these activities would be divided and used as set out in the Heads of Agreement.(d)The shareholding in Ultralast International would be restructured with Mr Reeve and Mr Joseph each holding 30% of the issued shares, with the balance of the shares being held by certain other identified individuals. (e)Mr Reeve and Mr Joseph would each be an officeholder in Ultralast International, along with certain other identified individuals.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

Full text does not contain this section.

Ratio Decidendi

Legal Principle Established

It is thus necessary to consider categories 1, 2, 5, 6, 7, 9, 12, 13 and 14 with a view to determining whether, subject to the findings I have made above (see [73]-[88]), the documents in these categories are directly relevant to the question of whether Mr Reeve has a right to obtain relief against one or more of the prospective respondents of the kind or kinds identified and whether inspection of those documents would assist in making a decision whether to start a proceeding in the Court to obtain that relief. Even if these conditions are fulfilled, there remains the question whether, as a matter of discretion, discovery, as sought, should be ordered to be given.ConsiderationCategory 1 Mr Reeve submits that discovery of documents in this category should be given because he apprehends that Mr Joseph will not exercise the option agreement for the reason that he (Mr Joseph) will derive all of the commercial benefit he previously derived from the new Ultralast group through the “phoenix” Alphalast group. Mr Joseph resists the giving of discovery on the ground that his deliberations on whether to exercise his option are confidential to him and that, for that reason, he should not be obliged to disclose documents to Mr Reeve. I decline to order the giving of discovery in accordance with this category. In light of Mr Joseph’s submission, I am unable to see how any of the documents in this category are directly relevant to any right to relief that Mr Reeve has identified or how those documents would assist in making a decision to start a proceeding in this Court to obtain the relief that Mr Reeve has identified. Mr Joseph and MTJ Holdings are not under any legal obligation to exercise their rights under the option agreement. Category 2 Mr Reeve submits that discovery of documents in this category should be given because the Alphalast website refers to products that appear to be identical to products formerly manufactured and supplied by the new Ultralast group. He submits that it appears that there has been an assignment or licence of intellectual property, manufacturing equipment or other assets from the new Ultralast group to the Alphalast group. Mr Joseph submits that the discovery of documents in this category should be refused because it is being sought for the ulterior and collateral purpose of ascertaining the likelihood that claims might be brought against Mr Reeve himself (presumably by one or more of the prospective respondents) in relation to representations he has made concerning his ownership of the Millbase information. I reject that submission. I am unable to see how it engages with the category of documents that is sought. Moreover, no satisfactory basis has been established to sustain a submission that, in seeking preliminary discovery, Mr Reeve is acting with an ulterior or collateral purpose such as would deny his entitlement to such discovery if otherwise established. Mr Nikolovski submits that Mr Reeve has more than sufficient information to make a decision whether to commence proceedings for the relief that he has identified. At the hearing he also submitted that discovery according to this category was premature because Mr Joseph and MTJ Holdings might exercise their rights under the option agreement to purchase Mr Reeve’s shares, in which event Mr Reeve could have no continuing claim against the prospective respondents. I am not sure that the last submission is necessarily correct. In any event, as the period for exercising the options has now passed, and as no party has sought to re-open, I propose to consider whether discovery should be given in this category on the evidence that is now before me.