SOLDER-TECH Pty Ltd v Willmay Pty Ltd (No 2) - [2011] SASC 74

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
SOLDER-TECH PTY LTD & ANOR v WILLMAY PTY LTD & ORS (No 2)
[2011] SASC 74
Reasons of Judge Lunn a Master of the Supreme Court
3 May 2011
PROCEDURE
Experts' reports - 6R 160(5) request for production of documents relied upon by expert - pleadings not yet completed - whether premature to make order - prerequisite that party proposes to rely at trial on evidence from the expert - held not possible to satisfy this requirement before close of pleadings as not then known what the issues at trial will be - order for production made under 6RR 116(1) and 117(1) as being necessary for the proper conduct of the proceedings in the interests of justice.

PROCEDURE
Whether 6R 129 bars an application being made before closure of settlement conference - exception in sub-r (1)(a), (b) and (c) - rationale of rule - held exceptions apply where application would facilitate a productive settlement conference.

SOLDER-TECH PTY LTD & ANOR v WILLMAY PTY LTD & ORS (No 2)
[2011] SASC 74
Reasons on defendants’ applications for disclosure of documents
Background[1]
[1] These background facts are confined to those necessary to understand the present applications.

In September 2006 the first plaintiff bought a business from the first defendant. The fourth defendant is a director and shareholder of the first defendant and is the father of the third defendant. The plaintiffs allege, and the defendants in affidavits have denied, that before the sale of the business various of the parties entered into two restraint of trade agreements[2] which had the effect of preventing the defendants from competing with the first plaintiff’s business. The plaintiffs to date have only produced a photostat or machine-generated copy of the second restraint agreement and not an original signed copy of either written agreement.
[2] At the time the defendants swore their affidavits there was only an allegation of one restraint of trade agreement in writing, but I infer that the denials of the defendants extend to any such agreements.
The third defendant was employed by the first plaintiff in its business up until he resigned on 31 August 2009. The third defendant is a director of the second defendant, which is a company which since September 2009 has been competing with the first plaintiff in the first plaintiff’s field of business. It is alleged that the third defendant, without authority to do so, copied confidential business records of the first plaintiff before he left its employment and those records have been used by the second defendant in the furtherance of its business.
A search Order made by this Court under 6R 148 was executed on the defendants in December 2010. A computer expert, Mr Gare, was retained by the plaintiffs. He has produced a report dated 8 February 2011 (“the Gare report”) about his investigations into the computer records of the second defendant and comparing them with records of the first plaintiff.
On 1 March 2011 the plaintiffs filed their Statement of Claim. On 12 April 2011 I struck out some paragraphs of that Statement of Claim, but gave the plaintiffs permission to re-plead those paragraphs. The defendants have not yet filed any defence.
On 29 March 2011 the defendants took out an application, FDN27, seeking various orders for production of documents. Only paragraphs 2.1 and 3 of this application are now in issue.
Documents produced referred to in his report
In paragraph 2.1 of FDN27 the defendants sought orders that the plaintiffs produce the documents provided by the plaintiffs to Mr Gare which are six specified classes of documents that are referred to in his report. The plaintiffs’ opposition to paragraph 2.1 was a global one and so it is not necessary to go into the particular classes of documents. Paragraph 2.1 of the application will either wholly succeed or wholly fail.
The defendants relied upon 6R 160, the relevant parts of which are as follows:
160—Pre-trial disclosure of expert reports
(1)     A party must, before the relevant time limit—
(a)obtain all expert reports that the party intends to obtain for the purposes of the trial of the action; and
(b)serve on every other party to the action a copy of each expert report in the party’s possession relevant to the subject matter of an action (whether the party intends to rely on it at the trial or not).
…
(2)     The relevant time limit is the end of a period of 60 days after the time limited for making an initial disclosure of documents.
…
(5)     A party who has disclosed an expert report, and proposes to rely on evidence from the expert at the trial, must, at the request of another party, provide the party making the request with—
(a)a copy of documentary material (including material in the form of computer data) on which an expert has relied for making a report; and
…
(c)details of any communications relevant to the preparation of this report—
(i)between the party, or any representative of the party, and the expert; and
(ii)between the expert and another expert.
Although the report of Mr Gare was one obtained in relation to the 6R 148 search Order, and was obtained before there had been any pleadings in the action, it is one to which 6R 160(1) applies. The plaintiffs clearly obtained it for the purposes of the trial. Sub-r 160(2) merely puts an outer limit on the time within which it must be obtained. No inner limit is specified.
The defendants cannot avail themselves at this point in the action of sub-r (5). It only applies if it is shown that the plaintiffs propose to rely on evidence from the expert at the trial. The plaintiffs can only rely on the report if it is relevant to issues raised by the pleadings. As the pleadings have not yet closed, it is impossible to say that the plaintiffs could so use it at the trial. It is theoretically possible that the defendants may admit either in their defence, or in response to a notice to admit, all of the contents of the report which would otherwise be admissible. I consider that sub-r (5) must be viewed at the time of the request. It can only operate if the addressee of the request at that point of time has a positive intention to rely on the evidence from the expert at the trial. That party can only have that positive intention if there is at that point in time an issue defined by the pleadings on which the evidence of the expert would be admissible. That is not yet the case here.
However, there is much practical utility and commonsense in what the defendants are seeking to achieve by paragraph 2.1. There is some urgency, particularly from the plaintiffs’ viewpoint, to get this action on for trial and finally determined.[3] It is likely that the defendants will obtain a report from another computer expert to see if the conclusions of Mr Gare can be challenged. The documents referred to in paragraph 2.1 are needed to obtain that report. The sooner they obtain such a report, the quicker the action can be got on for trial.
[3] There is some evidence on the file to suggest that the competition which it is experiencing from the competition from the second defendant is having a significant adverse effect on its business and its ability to carry on.
Rules 116(1) and 117(1) give the Court power to manage litigation as expeditiously as is consistent with the proper administration of justice and to make such orders as are necessary for the proper conduct of the proceedings in the interests of justice. The plaintiffs did not suggest that there would be any particular prejudice to them in complying with an order under paragraph 2.1. Their point was merely that it was premature under the terms of Rule 160(5). They conceded it probably would occur later in the action if the prerequisites of sub-r (5) were then satisfied. It is likely, although not certain, that those prerequisites will be satisfied. If the plaintiffs are put to expense in complying with an order in terms of paragraph 2.1, and it subsequently transpires that such production was not necessary for the proper preparation of the defence case, they will have a good argument to be awarded the costs of the production in any event. Accordingly, I will make the order sought.
Production of the original restraint agreements
Paragraph 3 of FDN27 seeks an order:
3.That the Plaintiffs produce the original of the document exhibited to the Affidavit of Michael Aronis as ‘MA-1’ (‘Restraint Document’), or in the alternative file an affidavit detailing the efforts undertaken to find the original of the Restraint Document including enquiries made of third parties.
Under 6R 61 the defendants are entitled to copies of the restraint agreements which are pleaded.[4] The plaintiffs’ counsel did not dispute that the plaintiffs would produce copies of such of the restraint agreements as they had. However, the affidavit evidence from the search order application shows that they only had copies of the alleged signed second restraint agreement and not its original. They deposed that at least the original of the second restraint agreement was given by them to the National Australia Bank. I have been told by the plaintiffs’ counsel on earlier hearings that they have been unsuccessful in retrieving that original from the National Australia Bank.
[4] FDN27 was prepared before the defendants received the Statement of Claim showing that the plaintiffs alleged two written restraint agreements and not merely one. It was argued on the basis that it encompassed both such agreements.
On the issues as disclosed by the affidavits on the search order, there is a major dispute about whether the third and fourth defendants did sign any restraint agreements. The defendants have already obtained an expert report from a hand-writing expert who has examined a machine-generated copy of the signed agreement which has been produced by the plaintiffs. It was not disputed that any hand-writing expert would be benefitted by examining the original signed copy of the document, rather than copies.
For similar reasons given above concerning the expert computer evidence, it would be advantageous to the expeditious progress of this action if any hand-writing expert evidence was obtained as soon as practicable. This requires that the hand-writing expert should be instructed whether an original copy of the agreement is available or not, or whether the opinion has to be based on a machine-generated copy. Accordingly, I am prepared to direct the plaintiffs now to produce the originals of the restraint agreements which they have pleaded, if it is within their power to do.
Counsel for the defendants readily conceded that he could not cite any authority for the alternative order sought in paragraph 3. If the original documents are now held by third parties, and are outside the power of the plaintiffs, it is equally open to the defendants, as it is for the plaintiffs, to obtain them by the processes of non-party disclosure under 6R 147 or by subpoena. If the plaintiffs have any suspicion or belief about where the originals now might be and do not take proper steps to obtain them, this is a matter which can be pursued by the defendants at trial. Whether it can be pursued by pre-trial written questions under 6R 150, I will leave for argument if it is pursued.
Applications before closure of the settlement conference
The plaintiffs objected that paragraphs 2.1 and 3 of FDN27 were barred by 6R 129(1), which provides:
129—Restrictions on interlocutory proceedings before closure of settlement conference
(1)A party must not make an interlocutory application before closure of the settlement conference unless—
(a)the nature of the application requires that it be made before that time; or
Example—
An application to extend the time for serving originating process.
(b)the nature of the application requires that it be made without delay; or
Example—
An application for a Mareva order.
(c) it is necessary to make the application before closure of the settlement conference in order to avoid prejudice to the applicant.
6R 129(1) is subject to the general powers of the Court in 6RR 116(1) and 117(1) which are referred to above. The exceptions in its sub-paragraphs (a), (b) and (c) in general terms mean that it is not to be applied where it is in the interests of justice in a particular case that an interlocutory application should then be made.[5]
[5] It is not necessary here to differentiate between the exceptions (a), (b) and (c). An alternative course would be to exercise the dispensing power under 6R 117(2)(a).
The intent of Part 1 of Chapter 7 of the Rules is that in the usual run of cases a settlement conference is to be held before substantial legal costs are incurred on interlocutory steps which would be wasted if the case can be settled without those steps being taken.[6] However, as the exceptions (a) and (b) and (c) to sub-r (1) recognise, there will be cases where the general policy behind Chapter 7 Part 1 is not in the interests of justice for particular applications. Here, no party has suggested to me that there is any prospect that there could be a negotiated settlement of the case at the present time.   It is unrealistic to expect that the parties would make their best offers until they are aware of the available evidence to establish whether the third and fourth defendants did execute any restraint agreements. While this will not resolve the whole of the case, it is of sufficient significance to make it unlikely that there would be any settlement at this point. All the indications are that a settlement conference would be futile, and a waste of costs and time, at this juncture of the action.[7]
[6]    IPA Manufacturing Pty Ltd v Industrial Pyrometers (2001) 214 LSJS 408. It is to be contrasted with the position under R56 of the original 1987 Rules where its equivalent, the pre-trial conference, was only held after all the interlocutory steps had been completed and immediately before reference for trial.
[7]    My experience as a taxing Master has revealed that the costs of all the parties of an unsuccessful settlement conference can run into many thousands of dollars.
Accordingly, in the circumstances of this matter, I find that the exception to 6R 129(1) applies to paragraphs 2.1 and 3 of FDN27.
Orders
I have today made the following orders:
1That the plaintiffs produce to the defendants within 14 days the documents referred to in paragraph 2.1 of FDN27.
2That the plaintiffs produce the originals of the restraint agreements pleaded in paragraphs 11 and 18 of the Statement of Claim, if it is within their power to do so, within 14 days.
3If the plaintiffs cannot produce the originals of those agreements, they are to disclose within 14 days to the defendants when they were last in their possession and what then happened to them.
4An order that the plaintiffs file an affidavit detailing the efforts undertaken to find the original agreements, including enquiries made of third parties, is refused.
5Costs reserved.