Telnet Pty Ltd Trading as Osborne Computers Australia v Takapana Investments Pty Ltd Trading as Ipex Information Technology Group

[1994] FCA 449

TELNET PTY LIMITED TRADING AS OSBORNE COMPUTERS AUSTRALIA v. TAKAPANA
INVESTMENTS PTY LIMITED TRADING AS IPEX INFORMATION TECHNOLOGY GROUP; YOAV
SCHWALB; BRUCE GRAEME ISBISTER; WARREN BERNARD KIRCHNER and BRIAN GREGORY
No. VG297 of 1993
FED No. 449/94
Number of pages - 10
Practice and Procedure
(1994) 51 FCR 520

COURT

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
OLNEY J

CATCHWORDS

Practice and Procedure - application for leave to read into evidence transcript of evidence given in other proceedings - criteria necessary to justify granting of leave pursuant to O 33 r 5.

Practice and Procedure - documents produced on subpoena - implied undertaking as to use of documents - express undertaking as to confidentiality - whether party should be released from undertaking to enable documents to be used in subsequent proceedings.

Federal Court Rules, O 33 r 5

Trade Practices Act, ss 52, 84(2)

Crest Homes v Marks (1987) AC 829

Harman v Secretary of State for the Home Department (1983) AC 280

Holpitt Pty Limited v Varimu Pty Limited (1991) 29 FCR 576

Sentry Corporation v Peat Marwick Mitchell and Co (1990) 24 FCR 463

Springfield Nominees Pty Limited v Bridgelands Securities Limited (1992) 38 FCR 217

Wentworth v Rogers (No 12) (1987) 9 NSWLR 400

HEARING

MELBOURNE, 26 May 1994
#DATE 8:7:1994

Mr M. Jacobs QC (instructed by Levingstons Solicitors) appeared for the applicant.

Mr J.W.K. Burnside QC and Mr S.M. Anderson (instructed by Roth Warren) appeared for the first and second respondents.

Mr A. Garantziotis (instructed by Abbott Stillman and Wilson) appeared for the third, fourth and fifth respondents.

JUDGE1

OLNEY J The applicant's amended notice of motion dated 25 May 1994 seeks orders:

1. That pursuant to Order 33 rule 5(1) of the Federal Court Rules the applicant have leave to read into evidence as against the first, second, third and fourth respondents the transcript of the cross-examination of Messrs Schwalb, Isbister and Kirchner in proceeding NG 126 of 1992 being pages 123 - 272 and 275 - 287

(inclusive) of that transcript.

2. Alternatively, the evidence referred to in paragraph 1 above be admitted on the basis that it constitutes admissions against the interest of the first, second, third and fourth respondents.

3. That the applicant be permitted to tender as exhibits in this action those exhibits in proceeding NG 126 of 1992 listed in the schedule annexed hereto and marked "A".

4. That subject to provision of a similar undertaking in this proceeding the applicant be released from the undertaking given in proceeding NG 126 of 1992 (t/s page 244 and 245) that documents produced on a subpoena dated 23 June 1993 addressed to Mr Bruce Isbister will not be inspected by any other than the applicant's legal advisers.

5. That the costs of this notice of motion be costs in the cause.

1. It is unnecessary to reproduce in full the schedule referred to in paragraph 3 of the motion; sufficient to say that it refers to 13 exhibits tendered in proceeding NG 126 of 1992 including three confidential exhibits.

2. In order to establish the context in which the orders are sought it is necessary to say something about proceeding NG 126 of 1992; and also about the substantive application in these proceedings. As a matter of convenience proceeding NG 126 of 1992 will be referred to as the first proceeding, and proceeding VG 297 of 1993 will be referred to as the present proceeding.

THE FIRST PROCEEDING
4. In the first proceeding the applicants are Telnet Pty Limited and Osborne Computers Pty Limited. In reasons for judgment given on 10 March 1994 Jenkinson J found that the two applicants are in the same beneficial ownership and his Honour dealt with the matter as if they were one entity. They are hereafter respectively referred to as Telnet and Osborne. The respondent in the first proceeding is the same company as the first respondent in the present proceeding and is hereafter referred to as Ipex.

1. The following is a summary of the facts pleaded in the applicants' further amended statement of claim in the first proceeding: The applicants and Ipex are companies carrying on the business of the supply and distribution of computer equipment and components, technical support and software. They are direct competitors in the corporate, government and private markets. In the period January to April 1992 the applicants employed 14 named individuals (the employees) including employees named Isbister, Kirchner and Gregory. During that period Ipex, its servants or agents approached the employees in order to procure breaches of their existing employment contracts and in consequence thereof the applicants were deprived of the services of 7 of such employees, including Isbister, Kirchner and Gregory, who left their employment with the applicants without notice and joined the employment of Ipex, thereby causing the applicants to suffer loss and damage.

2. Telnet further says that Ipex infringed its copyright in two works namely, a volume known as the Osborne Sales Manual (the sales manual) and a volume entitled "January 1992 Price List" (the price list). It is further pleaded that Ipex detained or converted to its own use the sales manual and the price list and failed to return same upon request.

3. Telnet also alleges that Ipex engaged in misleading or deceptive conduct contrary to s 52 of the Trade Practices Act in that, by its employee Kirchner, it made false representations to a customer of the applicants concerning the financial standing and business practices of the applicants, thereby causing the applicants to suffer loss and damage.

4. Telnet says that the information in the sales manual and in the price list was at all material times confidential and that Ipex knew or ought to have known that such information was the information of the applicants and was confidential to the applicants and by reason thereof came under a duty to preserve the confidence in the information and not to use it to the detriment of the applicants' business or at all. It is said that in breach of the duty of confidence it owed to the applicants Ipex either made or obtained a copy of the sales manual and of the price list, used the same in the course of its business and disclosed the contents thereof to its employees.

5. The first proceeding was tried before Jenkinson J on 12 to 15 July 1993 when judgment was reserved. In the course of the trial counsel for Ipex called as witnesses, inter alia, Messrs Schwalb (a director of Ipex), Isbister and Kirchner. Each was cross-examined and in the course of their evidence a number of exhibits were tendered.

6. Jenkinson J gave judgment on 10 March 1994. His Honour dismissed all but one of the causes of action pleaded by the applicants. He did however find that Ipex in trade or commerce engaged in conduct, namely the making by Kirchner to one Evans of certain statements which were likely to mislead or deceive contrary to s 52(1) of the Trade Practices Act. In his reasons his Honour said that he was not persuaded that any director of Ipex or any superior of Kirchner in his employment by Ipex authorised the making of the statements, and although the statements were unauthorised, they were not outside the apparent scope of Kirchner's employment and by reason of s 84(2) of the Trade Practices Act the conduct of Kirchner was deemed to be the conduct of Ipex.

7. Further consideration of the proceeding, including the question of costs was adjourned to a date to be fixed.

8. Jenkinson J heard argument on the question of costs on 13 May 1994 and reserved his decision. On the same day Telnet sought to bring on a notice of motion in the present proceeding in terms similar to the amended motion referred to above, but same was adjourned to 26 May 1994.

THE PRESENT PROCEEDING
13. The proceeding was commenced on 21 July 1993. Telnet is the sole applicant. Ipex is the first respondent and Messrs Schwalb, Isbister, Kirchner and Gregory are respectively the second, third, fourth and fifth respondents.

1. Telnet claims that its former employees Isbister, Kirchner and Gregory, during the course of such employment, obtained certain confidential information which, contrary to a duty of fidelity and good faith said to be owed to Telnet, they made available to Ipex as a condition of them obtaining employment with Ipex, and as a result it is said Telnet has sustained loss and damage for which each of the respondents is liable.

2. It is also pleaded that Isbister and Kirchner with the knowledge of Schwalb created false internal audit sheets in respect of a tender submitted to a Queensland government department which was thereby misled and deceived, thus enabling Ipex to make a successful tender for the supply of computer products to the Queensland government whereby Ipex made substantial profits. It is said that but for the conduct complained of Telnet would have secured the business and made substantial profits.

3. It is further pleaded against Gregory that after accepting an offer of employment with Ipex but before he left Telnet's service, he removed or caused the removal of certain of Telnet's business records and destroyed or caused to be destroyed all of Telnet's business records from its computer.

THE CONFIDENTIAL EXHIBITS
17. On the morning of the fourth day of the trial in the first proceeding (namely 15 July 1993) the applicants' counsel called on a subpoena duces tecum that had been served on Isbister, requiring him to produce a large range of documents. Isbister's cross-examination was by then well advanced. Documents were produced in answer to the subpoena but in respect of some of the documents, namely those identified in the schedule to the notice of motion as confidential exhibits 1, 2 and 3, senior counsel for the applicants, at the request of counsel appearing for Ipex, gave an undertaking (the confidentiality undertaking) that access to those documents would be confined to himself, his junior and his solicitor. The documents referred to in the undertaking (the confidential exhibits) were tendered in the course of Isbister's cross-examination. When Isbister and later Kirchner, were cross-examined concerning the confidential exhibits, persons who were not entitled to access to the documents left the Court.

1. The confidential exhibits were not documents which were discovered in the first proceeding. They were not then relevant. They are relevant in the present proceeding and have been discovered. Ipex maintains its claim to confidentiality, a claim which Telnet does not contest.

2. Telnet now seeks leave to tender the confidential exhibits as evidence in the present proceeding and to be released from the confidentiality undertaking. It does however offer a new undertaking as to confidentiality in similar terms to that given in the first proceeding.

ORDER 33 RULE 5
20. Order 33 rule 5 of the Federal Court Rules provides:

5(1) A party may, with the leave of the Court, but saving all just exceptions, read evidence taken, or an affidavit filed, in other proceedings.

(2) Sub-rule (1) does not enable evidence taken, or an affidavit filed, in other proceedings to be read as evidence on any issue at a trial, except in relation to the proof of particular facts.

1. The only Australian authority to which reference has been made which has a bearing upon the operation of Order 33 r 5 is Wentworth v Rogers (No 12) (1987) 9 NSWLR 400, a decision of the NSW Court of Appeal. The corresponding provision of the NSW Supreme Court rules is in virtually identical terms. At p 423 of the report the court said:
   

Subrule (1) in effect reproduces a rule of long standing both in England and Australia. However, subr (2) is new. It is difficult to understand what subr (2) means. It precludes the evidence from being read on any issue at a trial except in relation to the proof of particular facts. But it is difficult to imagine what the evidence could be related to other than proof of particular facts, except some matter of opinion. However the evidence may not be given except by leave of the court.

...

More significantly, subr (1) has the qualification "saving all just exceptions". It has long been established that this subrule did not go to questions of admissibility. In particular it allows the evidence to be tendered only in proceedings between the same parties or their privies as were parties to the original proceedings, and where the issues are the same.

1. With respect, it may be that the Court of Appeal's difficulty with the prohibition against reading evidence given in other proceedings "except in relation to the proof of particular facts" could be resolved if the subrule were construed as being limited in operation to circumstances in which the particular facts sought to be proved are first identified by the party seeking leave. The subrule distinguishes on the one hand between "any issue at a trial", which I would understand to be a reference to an issue raised by the pleadings, and on the other, "the proof of particular facts", which would seem to be a reference to the facts sought to be proved in order to establish the party's case in respect of an issue.

2. In case it be later held that I have erred in my own understanding of the operation of subrule (2), I indicate that for my own part I would be slow to exercise the discretion conferred by subrule (1) without it being made known to the opposite party and to the Court what the particular facts are that the party seeking leave wishes to prove by the evidence given in an earlier proceeding and what are the issues as established by the pleadings to which those facts relate. Unless this is done the Court cannot reach a conclusion as to the relevance of the evidence sought to be admitted, nor can it judge whether that evidence is capable of providing proof of the facts sought to be proved.

THE MOTION
24. Two affidavits were filed in support of the motion. Both were sworn on 12 May 1994. Telnet's solicitor John Anthony Levingston has deposed to the circumstances under which the confidentiality undertaking was given at the trial in the first proceeding, and further says (in paragraph 6): Insofar as those tender documents the subject of the undertaking of confidentiality is concerned, and in order to avoid being precluded from using the transcript containing the cross examination in proceedings NG 126 of 1992 as evidence in these proceedings, I hereby give an undertaking of confidentiality on behalf of the Applicant and confirm that those tender documents will be confined to the Applicant's legal advisers unless otherwise greed (sic) by the parties, or by order of the court.

1. The second affidavit is sworn by Nicholas Anthony Egan, a solicitor employed by Telnet's solicitor. The affidavit deals with an exchange of correspondence between the various solicitors for the parties. The correspondence had to do with Telnet's desire to rely upon the evidence of Schwalb, Isbister and Kirchner given in the first proceeding. In the course of the correspondence the solicitors acting for Ipex and Schwalb requested that Telnet identify the particular passages in the transcript upon which Telnet sought to rely and asked for an explanation as to why those passages were relevant to the issues of fact in the present proceeding. Telnet's solicitor responded by advising that Telnet wished to rely upon the entire cross-examination of Schwalb, Isbister and Kirchner, but did not respond to the second part of the request, namely the request for an explanation as to why the passages sought to be relied upon were relevant to the issues of fact in the present proceeding. Indeed, Telnet's solicitor wrote:
   

"... we do not propose to enter into lengthy correspondence concerning which passages of the transcript relating to the cross-examination of your client we wish to rely upon".

1. A letter in similar terms was sent to the solicitors acting for Isbister, Kirchner and Gregory.

2. In my opinion, the respondents are entitled to know the particular facts which Telnet wishes to prove by the evidence in respect of which it seeks leave. It is only then that any assessment can be made as to the merits of the application.

3. In a written submission in support of the motion, counsel for Telnet observes (at para 1.4.2) that prior to the institution of the first proceeding Telnet was not in possession of evidentiary material to establish the facts which it now alleges in this case. It is said that such material was in the sole possession or knowledge of the "respondent individuals" (a term I take to mean the second, third, fourth and fifth respondents in the present proceeding) and the facts emerged during the cross-examination of Schwalb, Isbister and Kirchner.

4. In paragraph 2.3 of the submission (set out below) counsel has identified what I understand to be the particular facts which Telnet seeks to prove by the prior evidence in respect of which leave is sought.
   

The evidence now available to the applicant through the cross-examination of Messrs Schwalb, Isbister and Kirchner from the previous proceedings, and which was not available to the applicant prior to the institution of the previous action is as follows:

(a) The recruitment of Mr Isbister by Mr Yoav Avraham Schwalb on behalf of the respondent, at the time when Mr Isbister and the other employees were employees of the applicant occurred, on the understanding that Mr Isbister would bring with him:

(i) sufficient of the Osborne employees in order to enable the respondent to penetrate the Queensland, more particularly Townsville and Rockhampton, market; and

(ii) the applicant's trade secrets, including its pricing, and the fact that it was in the process of putting together tender packages in respect of the tenders referred to below.

(b) Alternatively that by a process of deceit, the first and second respondents with the assistance of the third and fourth respondents, obtained orders from the Queensland government and statutory bodies which orders the applicant would have obtained, but for the deceit.

1. The issues to which it is said the foregoing facts relate are not precisely identified in the submission although it is obvious that the facts asserted in sub-paragraphs (a)(ii) and (b), if proved, would be relevant to the causes of action pleaded by Telnet in the present proceeding. However, it is equally clear that these were not matters in issue between the parties in the first proceeding.

2. It is true that Schwalb gave evidence in the first proceeding in his capacity as a director of Ipex, and that at the time Isbister and Kirchner gave evidence they were employees of Ipex. However, the cross-examination of Isbister and Kirchner extended to matters which occurred both before and after the commencement of their employment with Ipex, and further, much of the cross-examination went to matters touching upon the respective witnesses' credit. It cannot be said that their evidence in the first proceeding was the evidence of Ipex in the sense that they spoke with authority to bind Ipex. And this is particularly so in respect of matters which were not in issue in that proceeding. I would refuse leave to read the transcript of the cross-examination of Isbister and Kirchner as evidence in the present proceeding for these reasons:
   

(i) They were not parties to the first proceeding and therefore their evidence does not touch upon any issue as between them and the applicant parties in that proceeding. Accordingly, it cannot be said that their evidence relates to the same issue in the present proceedings.

(ii) Their evidence was not given in any capacity which would make them privies of the respondent in the first proceeding, and accordingly the evidence cannot be said to be the evidence of the respondent in that proceeding so as to bind the respondent to their testimony; and in any event,

(iii) Their evidence does not relate to an issue that is common to both proceedings.

1. The evidence of Schwalb is in a somewhat different position. Schwalb swore two affidavits dated respectively 12 November 1992 and 7 May 1993, which he adopted as part of his evidence-in-chief. In both affidavits he identified himself as a director of Ipex. In the affidavit of 7 May 1993, he specifically deposes to the fact that he is authorised to make the affidavit on behalf of Ipex. In the circumstances it may well be said that Schwalb's evidence was indeed the evidence of Ipex, and that in appropriate circumstances the Court may give leave under Order 33 r 5(1). I would however refuse leave for the reason that the issues in the present proceeding in respect of which it is sought to read Schwalb's evidence were not issues between the applicant and the respondent in the first proceeding.

2. I turn now to the question of the confidential exhibits.

3. Counsel for Telnet concedes in his written submission (at para 7.5) that the general rule in Australia is that without the authority of the author of the document or without the leave of the Court, documents disclosed for the purpose of the previous proceedings cannot be relied upon in subsequent proceedings. Reference is made to Springfield Nominees Pty Limited v Bridgelands Securities Limited (1992) 38 FCR 217; Harman v Secretary of State for the Home Department (1983) AC 280; Sentry Corporation v Peat Marwick Mitchell and Co (1990) 24 FCR 463; Crest Homes v Marks (1987) AC 829. It is my understanding that all parties accept that an implied undertaking not to use documents produced in a proceeding for a collateral or improper purpose extends equally to documents produced on subpoena by a non party to the proceeding.

4. Telnet seeks to distinguish this case from the usual case by pointing out that whereas the documents in question which were claimed to be confidential in the first proceeding were not formally discovered in that proceeding, they have now been discovered in the present proceeding. It is said that this fact in itself should be sufficient to enable the documents to be referred to.

5. With respect, this reasoning cannot be sustained. The reason the documents were not discovered in the first proceeding is that they were not then relevant. They are relevant in the present proceeding and have been discovered. Having regard to the circumstances surrounding the commencement of the present proceeding (notably the fact that the application was filed some six days after the confidential exhibits were tendered in the first proceeding) and the general thrust of the submissions made on behalf of Telnet in support of the notice of motion (particularly paragraph 1.4.2, reference to which is made above), it is reasonably open to suppose that Telnet seeks to use the information made available to its legal advisers by reason of the production under subpoena of the confidential exhibits as the basis of its case. Whether or not this is so, and if so, whether it would amount to the use of the documents for a collateral or improper purpose are not matters which can be resolved on the material presently available. Accordingly, I draw no inferences nor do I make any findings in this regard. However, it would seem to me that those matters need to be addressed by Telnet if it wishes to seek the Court's indulgence to release it from its existing undertakings.

6. For Telnet it is said that there is no fetter on the use in a subsequent case of the transcript of the proceedings into which documents may have been read in open Court, but it is conceded the documents themselves may not be used without the consent of the author or the leave of the Court in subsequent proceedings. The fact is however, the evidence given in relation to the confidential exhibits was not given in open Court and although the trial judge made no specific order that the transcript should be in confidence, the obvious intention at the time was that none on the applicants' side other than the two counsel and the solicitor should be privy to that evidence. In these circumstances some reason needs to be established to justify a departure from the ordinary course. The mere fact that the documents have been discovered in the present proceeding is not, in my opinion, a sufficient reason.

7. In Holpitt Pty Limited v Varimu Pty Limited (1991) 29 FCR 576 Burchett J said at 579:
   

In my opinion, the Court's duty, in an application of this kind is to consider whether the Applicant has shown some circumstance which takes the matter out of the ordinary course, according to which production of documents pursuant to an obligation to make discovery involves the implied undertaking to the Court; and, if so, whether an exercise of the Court's discretion in favour of the application would be in the interests of justice.

1. There is no obvious reason which in the absence of further evidence or explanation compels a favourable response to this aspect of the application. In my opinion the most appropriate time to make such an application is at the trial, after the applicant has opened its case and exposed the nature of the evidence upon which it intends to rely.

CONCLUSION
40. The applicant has failed to make out a case that would justify an exercise of the Court's powers under O 33 r 5 and has failed to provide a basis upon which it should be released from either the implied undertaking arising by virtue of the production of the confidential exhibits under compulsory process or the specific undertaking given on its behalf on 15 July 1993.

1. The amended notice of motion dated 25 May 1994 will be dismissed with costs.