Sydney Tools Pty Ltd v Neicho

[2021] NSWSC 752

Supreme Court

New South Wales

Medium Neutral Citation:

Sydney Tools Pty Ltd v Neicho & Ors [2021] NSWSC 752

Hearing dates:

2 June 2021 & written submissions

Date of orders:

24 June 2021

Decision date:

24 June 2021

Jurisdiction:

Equity

Before:

Lindsay J

Decision:

(1) Orders made for disclosure of documents and information.

(2) An application for the separate determination of questions of liability and relief dismissed.

Catchwords:

CIVIL PROCEDURE — Discovery — General discovery — Orders for disclosure of documents and information

CIVIL PROCEDURE — Separate determination of questions — Application for separate determination of questions of liability and relief dismissed

Category:

Procedural rulings

Parties:

Plaintiff: Sydney Tools Pty Ltd ACN 112 852 285
First Defendant: Sean Anthony Neicho
Second Defendant: Anthony Soccio
Third Defendant: Warren David Jones
Fourth Defendant: Shoukry Asaad
Fifth Defendant: David Thomson
Sixth Defendant: Michael Hall
Seventh Defendant: Nicole Bemelmans
Eighth Defendant: Total Tools Holdings Pty Ltd ACN 138 595 525
Ninth Defendant: Total Tools Stores Pty Ltd ACN 617 752 806
Tenth Defendant: Total Tools Commercial Pty Ltd ACN 621 146 772
Eleventh Defendant: TT Brookvale Pty Ltd ACN 617 753 670
Twelfth Defendant: TT Brooklyn Pty Ltd ACN 145 002 660
Thirteenth Defendant: TT Dandenong Pty Ltd ACN 006 867 572
Fourteenth Defendant: TT Darwin Pty Ltd ACN 603 142 650
Fifteenth Defendant: TT Geelong Pty Ltd ACN 138 182 671
Sixteenth Defendant: TT Grovedale Pty Ltd ACN 625 236 571
Seventeenth Defendant: TT Kilsyth Pty Ltd ACN 129 065 630
Eighteenth Defendant: TT Melton Pty Ltd ACN 160 017 336
Nineteenth Defendant: TT Mitcham Pty Ltd ACN 108 933 240
Twentieth Defendant: Total Tools Moorabbin Store Pty Ltd ACN 623 395 228
Twenty First Defendant: TT Narre Warren Pty Ltd ACN 122 947 826
Twenty Second Defendant: TT Sandgate Pty Ltd ACN 621 841 969
Twenty Third Defendant: TT South Melbourne Pty Ltd ACN 146 263 185
Twenty Fourth Defendant: TT Traralgon Pty Ltd ACN 105 322 129
Twenty Fifth Defendant: TT Warners Bay Pty Ltd ACN 612 768 546
Twenty Sixth Defendant: Total Tools (Importing) Pty Ltd ACN 084 220 342
Twenty Seventh Defendant: Total Tools Industrial Pty Ltd ACN 073 711 789
Twenty Eighth Defendant: Total Tools Licensing Pty Ltd ACN 143 791 736
Twenty Ninth Defendant: Total Tools Online Pty Ltd ACN 167 416 355
Thirtieth Defendant: Paul Dumbrell
Thirty First Defendant: Michael O’Donohue
Thirty Second Defendant: Andrew Illichmann

Representation:

Counsel:
Plaintiff: MR Elliott SC and AR Langshaw
Defendants: G Dalton QC and D Larish

Solicitors:
Plaintiff: McCabe Curwood
Defendants: KHQ Lawyers

File Number(s):

2019/00110529

Judgment

Introduction

1. In proceedings commenced by a summons filed on 9 April 2019 and continued on pleadings (with a statement of claim filed on 30 June 2020 and a defence filed on 30 October 2020) the plaintiff Sydney Tools Pty Ltd claims relief that includes, inter alia, claims for damages, equitable compensation or an account of profits arising from use by the defendants of information confidential to the plaintiff.

2. There are presently 32 named defendants but, for present purposes, they can be grouped together. They have common representation in the proceedings.

3. Before the Court are two competing notices of motion which, together, crystallise case management questions. The two motions have been heard together. By its notice of motion filed on 15 February 2021, the plaintiff seeks orders for disclosure by the defendants of categories of documents ostensibly required for the preparation of expert evidence. By a notice of motion filed on 17 February 2021, the defendants seek an order for the separate determination of questions of “liability” and “relief”, to the intent that they not be required to make the extensive disclosures sought by the plaintiff before (at least) a determination of questions of liability.

Contextual Facts

4. The genesis of the principal proceedings lies in the departure of the first defendant from the employment of plaintiff in November 2018 and his commencement of employment, shortly thereafter, with the plaintiff’s principal competitor, a business known as “Total Tools” operated by several of the defendants (principally the eighth defendant) and franchisees.

5. When he left the plaintiff’s employ, the first defendant took with him his access credentials to an email account owned by the plaintiff, an account used by members of the plaintiff’s staff to communicate business confidential to the plaintiff.

6. In about January 2019, the first defendant provided his access credentials to the plaintiff’s email account to the second defendant, a senior manager of the Total Tools business and a director of various of the corporate defendants.

7. Commencing on or about 17 January 2019, for a period of several months, the second defendant secretly accessed emails stored in and received by the plaintiff’s email account, forwarding them to his own email address and then circulating them to directors and other senior managers within the Total Tools business. The content of the emails thus accessed related to a wide variety of products, product ranges and proposed business practices and plans confidential to the plaintiff.

8. Upon discovery of Total Tools’ access to its emails, the plaintiff commenced these proceedings by summons and, on 11 April 2019, secured, by consent, interlocutory orders restraining the use of its confidential information and providing for the production of documents and the provision of affidavits attesting to defendants’ compliance with the Court’s orders.

9. The parties subsequently became enmeshed in fruitless discussions about the nature and extent of disclosures to be provided by the defendants to the plaintiff.

Pleadings and Evidence

10. On 30 June 2020 the plaintiff filed a lengthy Statement of Claim detailing its allegations about misuse of its confidential information by the defendants.

11. On 30 October 2020 the defendants filed a Defence, the effect of which is that:

1. The defendants admit that the plaintiff’s emails were accessed without the plaintiff’s permission.

2. The defendants are prepared to consent to the injunctive relief sought by the plaintiff.

3. The defendants deny any liability to the plaintiff, contending that the information in the plaintiff’s emails was not used by the defendants in a manner attracting legal liability.

4. The defendants contend that, even if they are liable in respect of one or more of the plaintiff’s emails, they did not make any profits, and the plaintiff did not suffer any losses, from the defendant’s access to the emails.

12. The pleadings have closed.

13. The parties’ evidence has not yet been served.

The Plaintiff’s Disclosure Motion

14. Although the plaintiff’s notice of motion was predicated upon an expressed need to obtain expert evidence going to questions of the nature and quantity of relief to be granted upon establishment of liability in the defendants, the defendants’ application for a separate determination of questions as to liability caused the plaintiff to rethink its position. It now contends that the disclosures it seeks are necessary to enable it to address questions of liability as well as questions relating to relief. Questions of liability are said to require an analysis of the extent to which information in the plaintiff’s emails was used in the conduct of the defendant’s business.

15. For their part, the defendants contend that (having regard to Practice Note SC Eq 11) the plaintiff’s application for disclosure is premature and that the nature and extent of any disclosures to be made by them are likely to be best dealt with in the light of a determination by the Court as to whether the defendants have any liability to the plaintiff.

16. A problem for the plaintiff is that, although it has established that the defendants had access to their emails, it cannot readily, without disclosures on the part of the defendants, ascertain what use was made of its confidential information throughout the Total Tools business.

17. The plaintiff seeks, inter alia, information about the defendant’s sales for a period commencing before the defendants had access to the plaintiff’s emails and extending to a time after they had access to the emails so that an analysis (“a trend analysis”) can be undertaken charting movements in the performance of the defendants’ business over that time. Access to this type of information is the most contentious part of the plaintiff’s application.

18. The sales information sought by the plaintiff is available on databases maintained by the defendants in the ordinary course of business. One (the SQL server database) contains sales and other financial performance information at a relatively high level. The other (“the Pronto database”) contains more detailed information about sales data.

19. In my opinion the plaintiff has established a proper forensic purpose for the disclosures it seeks. It has articulated its purpose by reference to advice received from an expert accountant as to the utility of the information. The information sought is peculiarly within the knowledge of the defendants. It is of a type one might reasonably expect to be available for decision making purposes within the defendants’ management.

20. The defendants’ submissions in opposition to the plaintiff’s motion draw a distinction between processes of “discovery” and processes of “disclosure” to reinforce a contention that they should not be required to “create” documentation for the benefit of the plaintiff as their adversary.

21. These submissions reflect an old world view of discovery procedures, minimising the fact that information the subject of inquiry is held in databases (a present reality) accessed by administrative steps (conceptually, a process of “creation”). The practical reality is that if orders are not to be made for the defendants’ computer-ware to be impounded for interrogation by an outside expert, a degree of cooperation is required on the defendants’ side of the record.

22. The Court’s case management powers extend to imposition of a regime designed to operate, in an orderly and reasonable way without oppression, to extract information from databases within the control of a party. There may be a necessity for supplementary orders in the working out of orders for the disclosure of information on a database. However, in most cases (and, one trusts, in the present case) practical problems are best dealt with by cooperation between parties once an entitlement to information has been established.

23. Practice Note SC Eq 11 provides no impediment to disclosure orders being made in these proceedings because I am satisfied that: (a) the plaintiff’s case has been articulated in great detail in its statement of claim; (b) the defendants’ admission that the plaintiff’s emails were accessed without the plaintiff’s permission carries with it an acceptance that many primary facts (including identification of emails accessed, the content of the emails, the nature of the information they contained, and the recipients of the emails) are not in dispute; (c) questions about whether confidential information of the plaintiff was used by the defendants involve layers of inquiry beyond identification of the recipients of emails; (d) a legitimate line of enquiry is whether the defendants’ use of the plaintiff’s emails manifested itself in the defendants’ business performance; and (e) the information sought by the plaintiff is essentially within the knowledge of the defendants, and available in forms accessible by them without the imposition of an unreasonable burden.

24. Accordingly, I propose to make “disclosure orders” substantially in the form propounded by the plaintiff after several modifications responsive to commentary of the defendants.

25. Annexure “A” to the Court’s orders retains a numbering system that emerged in the parties’ negotiations for a workable regime of disclosures. It is retained because it is familiar to the parties and its familiarity may facilitate implementation of the Court’s orders.

26. Paragraphs 3 and 7 of the Annexure “A” include alternative means of compliance with the Court’s orders indicative of a preparedness on the part of the plaintiff to accept provision of information in a form more informal than the primary means of compliance. Subject to such (if any) supplementary orders as may be made in due course, the defendants have a discretion as to the means of their compliance with the Court’s orders.

The Defendants’ “Separate Questions” Motion

27. Having given consideration to the defendants’ application for a separate determination of questions of liability, the view that I have formed is that an order for the determination of liability as a separate question should not be made in the absence of a better understanding of the evidence proposed to be adduced at a final hearing “on all questions”.

28. As presently advised, I am not satisfied that questions of liability and relief can conveniently be kept distinct. I cannot disregard the plaintiff’s contention that its witnesses (the same witnesses) are likely to give evidence directed to both liability and relief.

29. At this stage, neither side of the record is committed to calling, or not calling, particular witnesses. The likely course of the evidence at a final hearing “on all questions” is not yet clearly marked out.

30. In the course of debate on the parties’ two motions, I did give consideration to the possibility that the plaintiff’s concern about a need for disclosure of information, and the defendants’ concern about limiting the ambit of a final hearing pending a determination of liability, might each be accommodated by an order for a separate determination of questions of liability conditioned upon an undertaking by the defendants to make particular persons within its camp available for cross examination if required by the plaintiff.

31. The view that I have since formed is that such an expedient could not reasonably satisfy the plaintiff’s perceived need for disclosure orders and could not offer any assurance about facilitation of a well-managed final hearing.

32. Even if orders are not made for the separate determination of questions of liability, it remains open for a judge presiding over a final hearing of “all questions” to give directions for the conduct of a final hearing staged in a way that might permit questions about liability and relief to be addressed separately.

33. An assessment of the utility of an order for the separate determination of questions of liability requires a greater appreciation of the likely course of evidence than is presently realistically to be had.

34. The defendant’s application for a separate trial of questions of liability is, at least in part, directed towards a contention that the plaintiff’s forensic need for disclosures can be limited by confining current preparations for trial to a trial of questions of liability. Having determined that the plaintiff has a proper forensic purpose in obtaining disclosure orders of the nature and scope it seeks, I doubt the utility of an order for the separate determination of questions of liability.

35. Accordingly, I propose to dismiss the defendants’ motion.

Case Management

36. In a practical sense, the directions hitherto given for case preparation and for the conduct of a mediation have been displaced by a need to determine the current motions.

37. I propose to list the proceedings for a directions hearing following completion of the process of disclosure to be ordered on the plaintiff’s motion, requiring the parties in the meantime to focus attention on an orderly completion of that process.

38. It may be that an opportunity for the conduct of a meaningful mediation will occur upon completion of the disclosure process.

Costs

39. The parties’ competing motions have provided an occasion for the Court to consider questions about management of the proceedings looking beyond the text of each motion.

40. In these circumstances, the appropriate order for costs is that the costs of both motions be the parties’ respective costs in the proceedings.

41. I do not propose at this stage to make any special orders about payment of the costs of compliance with the Court’s orders for disclosure. Prima facie, the costs of compliance should be borne by the defendants in the ordinary course, subject to any entitlement they may have to seek an order for payment of their costs in due course. If, in the meantime, an application is made for a special costs order it should be accompanied by evidence.

42. In this context, I note a preparedness on the part of the plaintiff to fund employment of an independent expert to interrogate the defendants’ databases should a regime for such interrogation be agreed or ordered.

Orders

43. Accordingly, I make the following orders:

1. ORDER, subject to order 3, that the defendants give discovery pursuant to rule 21.2 of the Uniform Civil Procedure Rules 2005 (UCPR) of the documents falling within each category (including each sub-category) set out in Annexure A to these orders (Discovery Categories) by no later than 16 July 2021.

2. ORDER, subject to order 3, that the defendants produce to the plaintiff’s solicitors, McCabe Curwood, copies of all documents described in Part 1 of the list of documents served in compliance with order 1 by no later than 30 July 2021.

3. ORDER that, if and to the extent that the giving of discovery of any information referred to any one or more of categories 1, 3 and 10 of the Discovery Categories requires the location, extraction or compilation of data or information stored on the electronic databases and systems referred to in paragraph 16 of the affidavit of Olivia Mae Dalton affirmed 26 March 2021 (other than the SQL server database which is the subject of separate discovery category 1A), discovery of those parts of the databases and systems [or disclosure of that information, if that is how the process is properly to be characterised] is instead to be given by the defendants taking the following steps by no later than 30 July 2021:

1. locating, extracting and compiling that data or information in a single file (or in the event it is necessary for there to be more than on file, in as fewer and logically determined and organised files as possible) in a readable and searchable format (Category 1 File);

2. serving on the plaintiff’s solicitors an affidavit (Category 1 Affidavit) given by the person responsible for undertaking those steps explaining in detail the steps taken to create the Category 1 File;

3. exhibiting to the Category 1 Affidavit, and serving on the plaintiff’s solicitors, a USB or other usable storage device containing the Category 1 File; and

4. providing to the plaintiff’s solicitors any password or login credentials required to access any part of the Category 1 File.

4. ORDER, until further order, that absent the written consent of the defendants, access to all documents responsive to the Discovery Categories and the Category 1 File, or any document derived from the information contained in those documents, be limited to:

1. the plaintiff’s solicitors, McCabe Curwood;

2. the plaintiff’s Counsel; and

3. Mr Michael Potter of Axiom Forensics, and his employees.

5. ORDER, subject to further order, that the persons identified in order 4 of these orders are not to:

1. use information obtained by them from the defendant pursuant to these orders for disclosure other than for the purpose of these proceedings; and

2. communicate any such information to any person, including officers or employees of the plaintiff, except as between themselves or in communication with the defendants’ legal representatives.

6. ORDER that the plaintiff’s notice of motion filed on 15 February 2021 otherwise be dismissed.

7. ORDER that the defendants’ notice of motion filed on 17 February 2021 be dismissed.

8. ORDER that each parties’ costs of the motions be the parties’ costs in the proceedings.

6. ORDER that these proceedings be listed before Lindsay J at 9:00am on 4 August 2021 for directions.

7. RESERVE to the parties liberty to apply to the chambers of Lindsay J for the appointment of an alternative date for a directions hearing.

8. RESERVE to the parties liberty to apply for supplementary orders in the working out of the Court’s disclosure orders.

9. ORDER that these orders be entered forthwith.

Annexure “A”

 Disclosure categories

1.   Documents recording sales transactions data on all products sold by the Total Tools business (including but not limited to sales by all franchisees and wholly-owned stores and online sales) (Total Tools Business) for the period 1 July 2017 to 30 November 2020, including to the extent available recording the following information for each such sale:

a.   Transaction date and time;

b.   Transaction code or reference number;

c.   Item product code or SKU code for each item sold;

d.   Item product description;

e.   Transaction location (i.e. branch location or online sale);

f.   Purchase price (i.e. the sale price);

g.   Volume;

h.   Product cost (or gross profit margin %);

(separately and collectively, the Sales Data).

1A.   In addition:

a.   a copy of the full SQL server database referred to in paragraph 16(b) of the affidavit of Olivia Dalton filed 26 March 2021 (Dalton Affidavit), (SQL Copy File);

b.   the version details of the SQL Copy File; and

c.   any password or login credentials required to access any part of the SQL Copy File.

1B.   The month-end and year-end reporting documents referred to in paragraph 21(b) of the Dalton Affidavit, both the PowerPoint and Excel documents that are referred to (as modified) over the period of 1 July 2017 to 30 November 2020.

1C.   A list of corporate owned and franchise stores and the identifiers used by Total Tools for each store.

3.   Promotional emails sent (including, without limitation, Electronic Direct Mailouts (EDMs) in respect of the following trade promotion, events or campaigns:

a.   any trade promotion, events or campaigns conducted on 7 or 8 February 2019 or in the period 27 to 29 March 2019;

b.   the "Biggest Ever Makita Sale" promotion commenced 1 February 2019;

c.   the free battery campaign commenced 22 February 2019;

d.   the Milwaukee car mat promotion commenced on or about 3 March 2019;

e.   the catalogue titled "Super Charged LOW PRICES" dated March 2019;

f.   eDM titled "Race in Today and Grab a Super Charged Deal | Shop the Latest Catalogue Now!" dated 14 March 2019;

g.   eDM titled "Super Charged Bonuses Out Now | Plus Redemptions Ending Soon" dated 18 March 2019;

h.   eDM titled "NEW Datum Professional Laser Levels | Shop Now" dated 29 October 2019;

i.   eDM titled "Fill your stockings with our Tradie Christmas Catalogue | OUT NOW" dated 3 December 2019;

j.   eDM titled "Great Toolbox Suffers Inside! Plus Click and Collect right up to Christmas Eve" dated 21 December 2019;

k.   eDM titled "Exclusive to Total Tools | Datum Rotary Laser Dual Laser" dated 2 March 2020;

l.   eDM titled "Back to Work Catalogue – OUT NOW" dated 3 February 2020;

m.   eDM titled "Get Back to Work with Total Tools | Catalogue out now" dated 6 February 2020;

n.   eDM titled "Back to Work at Low Prices | Shop New Catalogue Now" dated 10 February 2020;

o.   eDM titled "LAST WEEK! Don’t miss out on our Back to Work catalogue | Check out the latest TTI redemptions" dated 17 February 2020;

p.   eDM titled "Check out the Tax Time catalogue | Only 5 weeks until EOFY" dated 27 March 2020;

q.   eDM titled "Tool Blitz STARTS NOW! Get up to $1000 in free tools" dated 28 May 2020;

r.   catalogue titled "The Perfect Trade Christmas" dated December 2019;

s.   catalogue titled "Back to Work" dated February 2020;

t.   eDM titled "Supercharged Catalogue – OUT NOW" dated 16 March 2020;

u.   catalogue titled "Supercharged" dated March 2020;

v.   eDM titled "Last chance to check out the Supercharged catalogue offers!" dated 30 March 2020;

w.   eDM titled "Looking for a new tool? Check out our new range updates" dated 10 April 2020;

x.   eDM titled "ENDING SOON! Grab a deal with our Serious Tools catalogue" dated 22 April 2020;

y.   catalogue titled "SERIOUS TOOLS" dated April 2020;

z.   catalogue titled "TOOL TIME" dated May and June 2020;

aa.   eDM titled "It's Tax Time Bonanza | Start your week right with these crackin' deals" dated 17 June 2019;

bb.   catalogue titled "TAX TIME BONANZA" dated June 2019;

cc.   catalogue titled "TAX TIME" dated May and June 2019; and

dd.   eDM titled "WIN a VIP FC Barcelona Experience | Plus Check Out Our Fastening Range" dated 13 February 2019,

or alternatively, if the defendants would find it quicker and more cost effective, in respect of each of the identified catalogues or promotions above, a list of the customers to whom a promotional email was sent (collectively, Customer Lists).

4.   Each monthly snapshot referred to in paragraph 41 of the Dalton Affidavit for the period of 1 July 2018 to 30 November 2020.

7.   All franchise agreements in force as between any Total Tools franchisee and Total Tools Holdings Pty Ltd (or any other entity within the Total Tools Business) in place from January 2019 to 30 November 2020. (NB: if the franchise agreements with each franchisee are on substantively identical terms, then a single copy of the Total Tools Business’ standard form franchise agreement will be sufficient)

8.   For the period 1 July 2017 to 30 November 2020:

a.   store performance monthly reports as referred to in paragraphs 52 to 54 of the Dalton Affidavit;

b.   product reports as referred to in paragraph 55 of the Dalton Affidavit;

d.   monthly management reports (including supporting documents used for management reporting) as referred to in paragraph 62 of the Dalton Affidavit; and

e.   national brand reports as referred to in paragraph 57 of the Dalton Affidavit.

10.   The high-level reports reviewing the "success" referred to in paragraph 68, and manual reports referred to in paragraph 70(a), of the Dalton Affidavit in respect of the following specific trade promotions, events or campaigns of:

a.   any trade promotion, events or campaigns conducted on 7 or 8 February 2019 or in the period 27 to 29 March 2019;

b.   the "Biggest Ever Makita Sale" promotion commenced 1 February 2019;

c.   the free battery campaign commenced 22 February 2019;

d.   the Milwaukee car mat promotion commenced on or about 3 March 2019;

e.   any trade promotions, events or campaigns conducted by the Total Tools Business in previous years comparable to those referred to in paragraphs 9(a) to 9(d) above; and

f.   promotions within the documents referred to in category 3(f) to (dd).

12.   For the period 1 July 2018 to 30 November 2020:

a.   the register of price change notifications referred to in paragraph 76 of the Dalton Affidavit;

b.   rebate agreements referred to in paragraph 81 of the Dalton Affidavit; and

c.   National Supplier Agreements referred to in paragraph 75 of the Dalton Affidavit,

for each of the following suppliers:

d.   Whites International;

e.   Hordern & Co;

f.   Industrial Tool and Machinery;

g.   Repelec;

h.   Stanley Black & Decker;

i.   Apex Tool Group;

j.   Milwaukee; and

k.   SNA Europe.

12A.   The rebate calculations in respect of the Sales Data and in respect of the documents referred to in categories 12(b) and (c) above;

In each of the above categories, “document” means any record of information, and includes:

•   anything on which there is writing; or

•   anything on which there are marks, figures, symbols or perforations having a meaning for persons qualified to interpret them; or

•   anything from which sounds, images or writings can be reproduced with or without the aid of anything else; or

•   a map, plan, drawing or photograph.

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Decision last updated: 24 June 2021