Wurth Australia Pty Ltd v Burgess - [2012] WASC 504

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: WURTH AUSTRALIA PTY LTD -v- BURGESS [2012] WASC 504

CORAM: CORBOY J

HEARD: 9 & 31 AUGUST, 12 SEPTEMBER 2012

DELIVERED : 21 DECEMBER 2012

FILE NO/S: CIV 2610 of 2009

BETWEEN: WURTH AUSTRALIA PTY LTD
Plaintiff
AND
PETER BURGESS
First Defendant
TERRY CHILDS
Second Defendant
CITY WORKSHOP SOLUTIONS PTY LTD
Third Defendant
PHILLIP IAN LINDSAY
Fourth Defendant

Catchwords:

Practice and procedure - Joinder of proposed additional defendants - Application to amend statement of claim - Whether a constructive trust may be imposed over profits and/or property derived from knowingly assisting in a breach of fiduciary duty - Whether confidential information can be traced - Whether joinder to existing proceedings permitted by O 18 r 4 Rules of the Supreme Court 1971 - Whether joinder necessary to determine all matters in dispute in the proceedings - Whether joinder permitted under O 18 r 6(2) where the causes of action alleged against the proposed additional defendants arose out of events that had occurred after proceedings had commenced - Whether parties can be joined to trace property received after proceedings commenced - Whether assignment of debt creates a new cause of action

Legislation:

Rules of the Supreme Court 1971(WA), O 18 r 4, O 18 r 6(2), O 21 r 5

Result:

Application to amend statement of claim and to join additional defendants to be further considered in light of questions raised in the reasons

Category: B

Representation:

Counsel:

Plaintiff:     Mr I Neil SC & Mr C Daly-Thomson
First Defendant             :     Mr S C Wong & Mr T Galic
Second Defendant         :     Mf S C Wong & Mr T Galic
Third Defendant           :     Mr S C Wong & Mr T Galic
Fourth Defendant          :     Mr S C Wong & Mr T Galic
4SH WA Pty Ltd           :     Mr T Galic
4SH Australia Pty Ltd    :     Mr T Galic
Jenmec Pty Ltd             :     Mr T Galic
Harlequinl Pty Ltd        :     Mr T Galic
Vernonc Pty Ltd           :     Mr T Galic

Solicitors:

Plaintiff:     Evans Ellis Lawyers by their Perth agent Jackson McDonald
First Defendant             :     Westmont Legal
Second Defendant         :     Westmont Legal
Third Defendant           :     Westmont Legal
Fourth Defendant          :     Westmont Legal
4SH WA Pty Ltd           :     Galic & Co
4SH Australia Pty Ltd    :     Galic & Co
Jenmec Pty Ltd             :     Galic & Co
Harlequinl Pty Ltd        :     Galic & Co
Vernonc Pty Ltd           :     Galic & Co

Case(s) referred to in judgment(s):

Alinta Asset Management Pty Ltd v Essential Services Commission [2007] VSC 32
Amon v Raphael Tuck & Sons Ltd [1956] 1 QB 357
APT Finance Pty Ltd v Bajada [2008] WASCA 73
Barnes v Addy (1874) LR 9 Ch App 244
Birtles v Commonwealth of Australia [1960] VR 247
Brandsma & Crockett Pty Ltd v Heindal Pty Ltd [2002] WASCA 96; 26 WAR 323
Carob Industries Pty Ltd (in liq) v Simto Pty Ltd [2000] WASCA 362; 23 WAR 515
Catlin v National Australia Bank Ltd [2004] WASC 135
Cheng Chih Tiao v Sheng Chin Lai [No 2] [2010] WASCA 189
Elovalis v Elovalis [2008] WASCA 141 (S)
Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; 230 CLR 89
Foskett v McKeown [2000] UKHL 29; [2001] 1 AC 102
Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6; 200 FCR 296
Homestyle Pty Ltd v City of Belmont [1999] WASCA 59
Ketteman v Hansel Properties [1987] AC 189
Lois Nominees Pty Ltd v Hill [2011] WASC 53
Martin Bruce Jones as Receiver and Manager of Miami Waterfront Developments Pty Ltd v Miami Waterfront Developments Pty Ltd [2012] WASC 483
Morgan v Banning (1999) 20 WAR 474
News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410
Pegang Mining Co Ltd v Choong Sam [1969] 2 MLJ 52
Re Global Finance Group Pty Ltd (in liq); Ex parte Read and Herbert [2002] WASC 63; 26 WAR 385
Renovation & Finance Co Pty Ltd v Kott Gunning (a firm) [2006] WASC 29
The Hancock Family Memorial Foundation Ltd v Fieldhouse [No 3] [2010] WASC 223
United States Surgical Corporation v Hospital Products International Pty Ltd [1982] 2 NSWLR 766
Vandervell Trustees Ltd v White [1971] AC 912
Water Authority of Western Australia v AIL Holdings Pty Ltd (No 2) (1992) 10 WAR 233
Yorkshire Regional Health Authority v Fairclough Building Ltd [1996] 1 All ER 519

CORBOY J:

The application by Wurth Australia

The proceedings

Wurth Australia carries on business as a distributor of assembly, mechanical, automotive and consumable products. Mr Burgess and Mr Childs were employees of Wurth Australia. In September 2009, Wurth Australia commenced proceedings against Mr Burgess, Mr Childs and City Workshop Solutions (CWS). Subsequently, it amended the writ of summons to add two employees of CWS, Mr Wetherall and Mr Lindsay, as defendants.
The first version of the statement of claim (filed and served in April 2010) alleged, among other things, that:
(a)Mr Burgess and Mr Childs:
(i)'removed' information that was confidential to Wurth Australia (referred to in the statement of claim as 'the Confidential Information') from laptop computers that had been supplied to them and/or copied the information to external storage devices;
(ii)removed and copied other confidential information contained in various Wurth Australia documents (referred to in the statement of claim as 'the Further Confidential Information');
(iii)solicited clients of Wurth Australia using the confidential information that had been accessed and copied;
(iv)'supplied' some or all of the confidential information to one or more of CWS, Mr Wetherall and Mr Lindsay;
(v)breached their contracts of employment by copying and supplying the confidential information to CWS, Mr Wetherall and Mr Lindsay; further or alternatively, breached s 182 and/or s 183 of the Corporations Act 2001 (Cth);
(vi)owed fiduciary duties to Wurth Australia which they breached by removing, copying and supplying information that was confidential to CWS, Mr Wetherall and Mr Lindsay.
(b)Each of the defendants conspired to use the Confidential Information and the Further Confidential Information and in doing so, acted wrongfully and with intent to injure Wurth Australia and engaged in unlawful means.
(c)Mr Wetherall and Mr Lindsay knowingly assisted Mr Burgess and/or Mr Childs to breach their fiduciary duties; further or alternatively, they received the Confidential Information and/or the Further Confidential Information with knowledge that the information had been obtained unlawfully; further or alternatively, they were concerned in the contraventions of the Corporations Act by Mr Burgess and/or Mr Childs.
It is to be noted that there was no allegation that CWS knowingly participated in the alleged breaches of fiduciary duty by Mr Burgess and/or Mr Childs. Further, Wurth Australia claimed an account of profits by all of the defendants apart from CWS. It also claimed equitable and common law damages against all of the defendants. There was no claim that any defendant held property as a constructive trustee for Wurth Australia.
Wurth Australia amended its statement of claim in May 2010 and November 2011. The amendments were not material to the application that is considered in these reasons. Wurth Australia also subsequently discontinued its claim against Mr Wetherall.

The application

Wurth Australia has now applied for:
(a)leave to file and serve the proposed further amended statement of claim annexed to the affidavit of Christian Daly-Thomson sworn on 5 June 2012 (annexure 'CDT-14') (the Minute);
(b)leave 'to add the six new defendants referred to in the [Minute]' - 4SH WA Pty Ltd, 4SH Australia Pty Ltd, Jenmel Pty Ltd, Harlequinl Pty Ltd, Vernonc Pty Ltd and Theo Förch GmbH & Co KG;
(c)an order that the trial of the action be split 'between liability and quantum, by … first deciding the question of declaratory relief in the Prayer for Relief of the [Minute] and … if liability in any of the Defendants is found, then assessment of quantum loss and/or accounting for profits';
(d)an order that the existing defendants pay the costs of the application.

The amendments proposed in the Minute

The Minute seeks to amend the allegations made against the defendants by alleging that:
(a)Mr Burgess and Mr Childs owed a duty of confidence in equity to Wurth Australia (referred to in the Minute as the 'Equitable Confidential Information Duty') which they breached by copying and/or supplying and/or disclosing the Confidential Information and the Further Confidential Information;
(b)CWS was the alter ego of Mr Burgess and Mr Childs and it possessed their knowledge (par 31A(a) of the Minute);
(c)CWS knowingly assisted Mr Burgess and/or Mr Childs to breach their fiduciary duties and their 'Equitable Confidential Information Duties' (par 31A(d));
(d) CWS 'acquired profits and/or property' by reason of the breaches of duty by Mr Burgess and/or Mr Childs (par 31B).
The prayer for relief has been amended to seek, among other things:
(a)declarations that Mr Burges and/or Mr Childs hold on constructive trust for Wurth Australia the profits and/or property that they have acquired by reason of the alleged breaches of the Equitable Confidential Information Duties and/or their fiduciary duties;
(b)declarations that CWS holds on constructive trust for Wurth Australia the profit and/or property that it has derived from the breaches of fiduciary duty and/or the Equitable Confidential Information Duty by Mr Burgess and/or Mr Childs;
(c)an order that CWS restore to Wurth Australia the profits and/or property that it holds as constructive trustee.
The amendments made in the Minute allege as against the proposed additional defendants (other than Theo Förch) that:
(a)Each or alternatively, one or more of the proposed defendants 'succeeded' to all or part of the business of CWS (the parties referred to the proposed defendants, apart from Theo Förch, as the 'successor entities'). Particulars of that allegation are merely foreshadowed.
(b)The spouses of Mr Burgess and Mr Childs were directors of the successor entities.
(c)Each, alternatively any one or more of the successor entities, 'have acquired profits and/or property from [CWS] that [CWS] acquired in the circumstances set out in paragraphs 31A and 31B hereof.' Again, particulars of that allegation are merely foreshadowed.
The relief claimed against each of the successor entities is:
(a)a declaration that its holds such profits and/or property that it had acquired from CWS as CWS had acquired from the alleged breaches of duty by Mr Burgess and/or Mr Childs on constructive trust for Wurth Australia;
(b)an account of the profits referred to in par (a) above;
(c)an order requiring the successor entities to transfer to Wurth Australia the property referred to par (a) above.
The Minute further alleges as against Theo Förch that:
(a)Theo Förch was at all material times an entity registered in the Federal Republic of Germany.
(b)Theo Förch entered into an agreement with CWS by which it was agreed that CWS would sell and distribute products manufactured by Theo Förch in competition with Wurth Australia. The date of the agreement is not pleaded except that it is alleged to have been made after certain communications were exchanged between Mr Burgess and Mr Childs in July 2009. It is said that the existence of the agreement may be inferred from matters that occurred both prior to and following the commencement of the proceedings.
(c)Theo Förch knowingly assisted Mr Burgess and/or Mr Childs to dishonestly and fraudulently breach fiduciary and equitable obligations of confidence and fidelity that they owed to Wurth Australia.
(d)Theo Förch acquired profits by reason of the breaches of duty by Mr Burgess and/or Mr Childs.
As against Theo Förch, Wurth Australia seeks:
(a)a declaration that Theo Förch knowingly assisted Mr Burgess and/or Mr Childs in breaches of fiduciary and equitable duties that they owed to Wurth Australia;
(b)a declaration that Theo Förch holds on constructive trust for Wurth Australia any profits and/or property that it has derived from the breaches of duty by Mr Burgess and/or Mr Childs;
(c)a declaration that Theo Förch restore to Wurth Australia the profits and/or property that it holds as constructive trustee for Wurth Australia;
(d)alternatively, an order that it pay damages to Wurth Australia for knowingly assisting Mr Burgess and/or Mr Childs in their breaches of duty.
The summons issued by Wurth Australia did not include an application for leave to serve an amended writ on Theo Förch outside Australia (see O 5 r 9 and O 10 of the Rules of the Supreme Court 1971 (WA) (RSC)). Further, the parties deferred argument on the application for a separate and preliminary determination of the issues relating to the alleged liability of the defendants (and if joined, the proposed additional defendants).
The defendants opposed the application for leave to amend the statement of claim in terms of the Minute and the proposed joinder of the successor entities. The successor entities opposed the application for them to be joined to the action.
I have concluded that the application to the amend the statement of claim and join the successor entities should not be presently allowed but rather, that the parties should, in fairness, be given an opportunity to consider and if necessary, provide further submissions on a number of the matters raised in the reasons that follow. Those matters were not canvassed at the hearing of the application and they require, in my view, further consideration before the application to amend the statement of claim and join the successor entities can be finally determined.
I am concerned about the management of this action generally and in particular, about ensuring that the question of who should be parties to the claims made by Wurth Australia is resolved as speedily and economically as possible. I have set out in some detail my understanding of the principles relevant to the determination of the amendment and joinder applications and the issues that arise in the hope that the parties may be able to meaningfully confer with a view to agreeing some or all of those issues.
Wurth Australia has acknowledged that the Minute requires further amendment in at least one respect. It is possible that it may conclude that other amendments are necessary in light of these reasons. In any event, I consider that the next step should be for Wurth Australia to file a minute of any further amended statement of claim which it seeks to have stand as the statement of claim if the amendment and/or joinder applications cannot be resolved by consent.

The evidence in the application

The evidence adduced by Wurth Australia

Wurth Australia relied on three affidavits made by Mr Daly‑Thomson (sworn on 5 June, 30 July and 8 August 2012) and on an affidavit made by Andrew Wetherall in support of its application. Mr Daly‑Thomson is a solicitor employed by the solicitors who appear for Wurth Australia in the proceedings. As previously noted, Mr Wetherall had been a defendant to the action. He was a former employee of Wurth Australia.
The defendants objected to most of Mr Daly‑Thomson's second and third affidavits and to the affidavit of Mr Wetherall. The primary objection was that the affidavits were filed and served some time after the date allowed by a direction of the court. Objections were also taken to parts of Mr Daly‑Thomson's second affidavit (sworn on 30 July 2012) on the ground that they contained commentary and conclusions.
It is, of course, important that parties adhere to interlocutory directions that are intended to ensure that cases are efficiently managed. However, I have concluded that there was no prejudice to the defendants by the late filing of the affidavits and that they ought to be received having regard to the nature of the application.
The objections to particular statements contained in Mr Daly‑Thomson's second affidavit were made in a letter dated 6 August 2012 from the defendants' solicitors to Mr Daly‑Thomson (annexure 'GJ-13' to the affidavit of Gavin Jahn). I accept each of the objections referred to in that letter except for the objection to par 59 of Mr Daly‑Thomson's affidavit. The statements made in that paragraph are a summary of information extracted from documents that have been discovered by the defendants in the proceedings. Although the form of the statements invites an objection, I have concluded that par 59 should be received having regard to the interlocutory nature of the application. I note that there was no suggestion in the affidavit subsequently filed by Mr Burgess that the summary compiled by Mr Daly-Thomson was inaccurate. I have otherwise taken the defendants' objection into account in reading Mr Daly‑Thomson's affidavit.
Mr Daly‑Thomson referred to and attached to his affidavit made on 30 July 2012 various documents from which he alleged that it could be inferred that:
(a)Mr Burgess and Mr Childs met with Wolfgang Heinrich, BU Manager International (Emerging Markets) for Theo Förch in July 2009 in Hong Kong. Mr Burgess and Mr Childs were employees of Wurth Australia at that time (par 4).
(b)Emails were subsequently exchanged between Mr Childs and Mr Heinrich about establishing an entity (CWS) to compete with Wurth Australia by distributing products manufactured by Theo Förch (par 4).
(c)Theo Förch entered into an agreement with CWS to distribute Theo Förch products in Australia some time prior to 17 September 2009 (par 10). CWS commenced distributing products manufactured by Theo Förch from some time around mid to late September 2009 (par 11). (Mr Burgess and Mr Childs allege in their defence that their employment with Wurth Australia was terminated on 14 and 3 August 2009 respectively.)
(d)The successor entities were incorporated on 20 and 21 June 2011 (pars 14 and 15).
(e)4SH WA had subsequently issued an invoice on Theo Förch letterhead (par 20).
(f)Mr Burgess and Mr Childs were listed as being managers of Theo Förch Australia on a Theo Förch website (par 24). Further, the domain name ' was registered in the name of 4SH WA (pars 25 to 30).
(g)The spouses of Mr Burgess and Mr Childs were directors of Harlequinl, Jenmel, 4SH WA, 4SH Australia and Vernonc and the companies were related through shareholdings in each other (pars 31 to 44).
(h)BAS statements for CWS that had been discovered in the proceedings indicated that there had been a substantial decrease in the sales reported by CWS in the July to September 2011 quarter and subsequently (par 59).
Mr Wetherall's affidavit contained a number of statements relating to the allegations that Mr Burgess and Mr Childs had breached duties of confidence and fidelity owed to Wurth Australia. Those matters were only indirectly relevant to the application by Wurth Australia and it is not necessary to summarise the effect of that part of Mr Wetherall's affidavit. So far as his evidence was immediately relevant to the application, Mr Wetherall stated that Mr Burgess and Mr Childs had apparently met with Mr Heinrich in Germany in early 2009 (par 28). Further, Mr Wetherall was aware in mid August 2011 of a statement made on a Theo Förch website to the effect that plans had been begun to 'bring Förch to Australia' in early 2009 (pars 31 and 32).

The defendants' evidence

The defendants filed and served two affidavits in opposition to the application by Wurth Australia: the affidavit of Mr Jahn which attached correspondence exchanged with the solicitors for Wurth Australia concerning the application and the affidavit of Peter Burgess sworn on 18 July 2012. Mr Burgess deposed to difficulties that had been experienced by CWS in conducting its business as a consequence of the proceedings commenced by Wurth Australia. The purpose of that evidence was to found a submission that the application to join the successor entities should be refused on the ground that it would introduce further delay in completing the interlocutory steps necessary to prepare the action for trial.

The parties' submissions and the issues raised

The proposed amendments

The written submissions of Wurth Australia were directed almost entirely to the application to join the successor entities to the action. The amendments proposed in the Minute were only briefly mentioned in that context (par 17 of the submissions):
… where CWS is a party, as the recipient of confidential information and for the knowing involvement in other contraventions, then in order to have the matter 'effectively and completely determined and adjudicated upon' there is no warrant to exclude the [successor entities] who are likewise knowing recipients under the second limb of Barnes v Addy …
I have assumed that the reference in that submission ought to have been to the first limb of Barnes v Addy (1874) LR 9 Ch App 244.
Notwithstanding the submission, the solicitors for Wurth Australia stated in correspondence exchanged with the defendants' solicitors prior to the hearing that the application to join the successor entities did not rely on either limb of Barnes v Addy (letter dated 24 July 2012; annexure 'GJ-2' to Mr Jahn's affidavit). Rather, it was said that Wurth Australia intended to allege that:
… the [successor entities] have directly acquired profits and/or property from [CWS], which CWS acquired in the circumstances set out in paragraphs 31A and 31B of the [Minute]. The [successor entities] obtained these profits and/or property from [CWS] via the creation of a corporate construct intended to replace [CWS] as the entity through which the 'CWS' and/or 'Förch' and/or 'Förch‑Australia' business … traded.
The solicitors for Wurth Australia expanded on that statement in subsequent correspondence (letter dated 27 July 2012; annexure 'GJ‑4' to Mr Jahn's affidavit). It was said that Wurth Australia alleged that:
(a)Mr Burgess and/or Mr Childs and/or CWS had or was in the process of having the property and assets 'associated with' CWS, including its business and its profits, transferred to one or more of the successor entities;
(b)a portion of the profits enjoyed by CWS were derived from contraventions by Mr Burgess and Mr Childs of obligations that they owed to Wurth Australia and so it followed that 'any transfer of the kind we describe' would also involve knowing contraventions of obligations to Wurth Australia by the successor entities;
(c)the successor entities were parties related to Mr Burgess, Mr Childs and CWS according to the definition of 'related parties' contained in s 228 of the Corporations Act.
In their written submissions, the defendants complained that they were 'at a loss as to the basis upon which the plaintiff seeks the remedial constructive trust against the proposed parties' following the advice by Wurth Australia that it did not rely on a claim under either limb of a Barnes v Addy. They also contended that the pleading did not disclose a reasonable cause of action for a knowing participation claim (if that was what was intended to be pleaded) as no allegation had been made that the successor entities had knowledge of the alleged breaches of fiduciary duty by Mr Burgess and/or Mr Childs.
The successor entities opposed the joinder application primarily on the ground that the Minute failed to disclose any reasonable cause of action. They complained that, in addition to the failure to plead knowledge, no particulars had been provided in the Minute of the allegation that they had succeeded to the business of CWS or of the allegation that they had derived profits.

The application to join the successor entities

Wurth Australia's primary contention was that O 18 r 4 RSC conferred power on the court to grant leave for the successor entities to be joined as defendants. It relied, in the alternative, on the power conferred by O 18 r 6(2).
Order 18 r 4(1) provides that two or more persons may be joined together in one action as plaintiffs or as defendants with the leave of the court or where the circumstances identified in pars (a) and (b) are established (in which case, leave is not required). The defendants and the successor entities contended that the power conferred by the rule could only be exercised on an application made prior to the commencement of proceedings; the rule did not permit the court to add parties to an existing action. They relied on the decision of Beech J in Lois Nominees Pty Ltd v Hill [2011] WASC 53 for that contention.
Wurth Australia did not refer to Lois Nominees in its written submissions. It made no further submission on the proper construction of O 18 r 4 at the hearing of the application. However, it formally maintained the position adopted in its written submissions that the rule conferred a discretion on the court to grant leave for parties to be joined to an existing action.
These proceedings were commenced by writ dated 14 September 2009. The successor entities were incorporated in June 2011. Consequently, the facts alleged against the successor entities occurred after the proceedings had been commenced. That raised a further question about whether the court could grant leave under O 18 r 6(2) for the successor entities to be joined so that Wurth Australia could prosecute claims that had arisen after the proceedings had been commenced.
The parties were given leave to provide supplementary submissions on that question. The defendants and the successor entities provided further submissions but Wurth Australia chose not to do so. It did, however, address the issue in its oral submissions at the hearing of the application. In particular, it contended that pars (a) and (b) of O 18 r 6(2) were to be read disjunctively. The questions of whether a person had been improperly or unnecessary joined as a party or whether a person had ceased to be a proper or necessary party (O 18 r 6(2)(a)) were to be determined by reference to the matters put in issue at the commencement of proceedings. However, there was no temporal limitation on the power to order a person to be joined as an additional party under par (b) of the rule; the court could grant leave for a party to be joined so as to ensure that all matters in dispute might be effectually and completely determined and adjudicated upon even though the disputed matters concerned events and circumstances that had occurred and arisen after the proceedings had been commenced (ts 75). The lack of any temporal requirement was apparent from the words 'is necessary' in par (b).
It was also contended that the claims made by Wurth Australia against the successor entities were in the nature of tracing claims. The application to join the successor entities was said to be analogous to an application to join or substitute a party where there had been an assignment of a debt: see, for example, APT Finance Pty Ltd v Bajada [2008] WASCA 73.
The defendants focussed in their supplementary submissions on the consequences of granting leave to join the successor entities. It would then be necessary for Wurth Australia to amend the indorsement to the writ as well as its statement of claim. However, the indorsement and the statement of claim could not be amended to plead causes of action that had accrued after the proceedings had been commenced. A cause of action must be complete when the proceedings are instituted (Catlin v National Australia Bank Ltd [2004] WASC 135) and O 20 r 10 did not permit a cause of action that had arisen after the inception of proceedings to be introduced by amendment: Water Authority of Western Australia v AIL Holdings Pty Ltd (No 2) (1992) 10 WAR 233.

The proposed claims against CWS and the successor entities

As has been indicated, there was some uncertainty about the legal basis on which it is alleged that each of the successor entities were liable to Wurth Australia. In addition to the matters referred to earlier, the relief claimed proprietary and personal remedies (a declaration that the successor entities held profits and/or property as constructive trustees and an account of profits). It was not clear whether those remedies were claimed in the alternative or whether, for example, the constructive trust was claimed as an ancillary remedy to the account of profits.
Senior counsel for Wurth Australia stated at the hearing of the application that:
(a)The claim sought to be made against the successor entities was a claim under the first limb of Barnes v Addy (ts 72).
(b)The pleading of the claims proposed to be made against the successor entities required a further amendment to allege 'notice on the part of the successor entities' and the amendment, once made, 'takes us into the first limb of Barnes v Addy' (ts 70). Further, Wurth Australia did not wish to plead a claim based on a breach of a duty of confidence by the successor entities - 'we had wished to make a claim pleading notice of knowing receipt' (ts 71; the court's power to grant relief against third parties to whom confidential information had been further disclosed is well established even if there remains uncertainty about the circumstances in which the jurisdiction may be exercised - see Aplin and others, Gurry on Breach of Confidence - the Protection of Confidential Information (2nd ed 2012) at 7.103 and following). Wurth Australia also did not seek to allege a remedial constructive trust of the kind recognised in Lac Minerals Ltd v International Corona Resources [1989] 2 SCR 574 (ts 70-71).
(c)It was alleged that the successor entities had succeeded to the business of CWS and 'in so succeeding to that business … are using income and property acquired, we say, ultimately in breach of the original fiduciary obligation' (ts 73). Further, the claim against the successor entities was based on the following primary facts: Wurth Australia possessed confidential information; Mr Burgess and Mr Childs owed fiduciary obligations in relation to the information; Mr Burgess and Mr Childs 'took' and used the confidential information in breach of their duties; the use of the information 'embraced [CWS] such that [CWS] took the information subject to the claims that might be made in relation to the information and the proceeds that might be generated by its use under the first and second limbs of Barnes v Addy'; a bundle of rights were attached to the information and the income produced by that information and those rights 'have travelled with the information and the income through into the hands of the successor entities' (ts 76).
Those submissions clearly indicated that Wurth Australia intended to make a claim against the successor entities under the first (and possibly, second) limb of Barnes v Addy. The last proposition in the formulation of Wurth Australia's case suggested that a tracing claim may also have been intended, although it was not clear whether that claim was regarded as being separate and alternate to the proposed claim for knowing participation.
In my view, there were questions raised by the pleading of the claims made in the Minute against CWS and the successor entities that went beyond the failure to allege that the successor entities had knowingly participated in a breach of fiduciary duty by Mr Burgess and/or Mr Childs. Those questions were not canvassed in the parties' submissions - in particular, they were not the subject of any complaint by the defendants or the successor entities. They were questions that might be ordinarily deferred to trial in the interests of case management. However, I do not consider that such an approach can be taken in this instance, at least, to the extent that the questions are relevant to the issues that must be determined on the joinder application.
Information is not property for the purpose of a claim under the first limb of Barnes v Addy: Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; 230 CLR 89 [118] ‑ [120]. Consequently, it was not open to Wurth Australia to allege that CWS was a knowing recipient of the Confidential Information and the Further Confidential Information. Consistent with that position, Wurth Australia alleged in the Minute that CWS knowingly assisted in the breaches of fiduciary duties pleaded against Mr Burgess and Mr Childs (and see Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6; 200 FCR 296[243] on the significance of the allegation made in the Minute that CWS was the alter ego of Mr Burgess and Mr Childs for a knowing participation claim).
It is alleged that CWS acquired profits and/or property as a result of the breaches of fiduciary duty by Mr Burgess and/or Mr Childs. The relief claimed includes a declaration that CWS holds those profits and/or property on a constructive trust for the benefit of Wurth Australia. That trust property is then the subject of the further claims pleaded against the successor entities - primarily, a claim under the first limb of Barnes v Addy that the successor entities received the property (presumably with knowledge that it was trust property derived from the alleged breaches of fiduciary duty by Mr Burgess and/or Mr Childs) and possibly also, a claim that the property may be traced into the hands of the successor entities independently of any claim for knowing receipt. As the Full Federal Court in Grimaldi emphasised, tracing requires a 'proprietary base' (at [560]):
In his book The Law of Tracing, Prof Smith makes the important but elementary point (at 299) that:
'The process of tracing is simply the proof of a series of exchanges. The process cannot create rights ex nihilo. What it can do is allow rights to be transmitted from one asset to another.'
[Prof Smith] goes on to indicate that, if you wish to trace from asset A into asset B (as its traceable proceeds), you must first establish you have propriety rights in asset A. You must establish your 'proprietary base'. And thus it is said … that:
'[I]n making a proprietary claim, the plaintiff must separately establish (a) the source of his proprietary rights in the first instance, and (b) his ability to trace from the subject matter of his original propriety rights into the subject matter to which he now makes a claim'.
It may be that the allegation that CWS held profits and/or property on a constructive trust was intended to provide the proprietary base required for a tracing claim.
Several questions which have not been canvassed in the parties' submissions arise from the claim that CWS holds the profits and/or property derived from the alleged breaches of fiduciary duty by Mr Burgess and/or Mr Childs as a constructive trustee:
(a)Can a proprietary remedy be claimed against a knowing assistant or are only in personam remedies available against the assistant? In Grimaldi, the Full Federal Court noted that the 'presumptive rule' that was applied where a fiduciary had obtained an advantage from a breach of duty was that the fiduciary was required to account for the advantage and that 'in equity the appropriate remedy is by means of a constructive trust' [510]. However:
'… a like rule in relation to the award of proprietary relief, has not as yet been enunciated in relation to a knowing assistant, notwithstanding that it is well accepted that an assistant 'is liable to account … for any benefit he has received as a result of [knowing] participation' in a breach of fiduciary duty … The likely reason for reluctance in the too ready equation of a third party assistant with a fiduciary is that the fiduciary has undertaken to act in the interests of the person he or she has then wronged. The assistant has not … This is not to say that a constructive trust, rather than an account of profits, may not ordinarily be the appropriate remedy in receipt cases' [510].
However it appears that the Full Federal Court accepted at other points in its judgment that a constructive trust might be imposed over property that had been obtained by a person who knowingly assisted a breach of a trust or fiduciary duty: see, in particular, at [555].
(b)What, if any, are the consequences of the discretionary nature of the remedy for the application to join the successor entities? The Full Federal Court in Grimaldi emphasised the remedial and discretionary nature of the constructive trust imposed over property received by a third party in breach of trust or a fiduciary obligation - see at [504] and following. So for example, the Full Court cited the observation of the High Court in John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd [2010] HCA 19; 241 CLR 1 at [128] that 'a constructive trust ought not to be imposed if there are other orders capable of doing full justice'. Consequently, there is no entitlement to a proprietary remedy and obviously, the trust only arises at the point where relief is granted. Further, it may be that the trust property is only identified at trial. Are those matters that might, in turn, influence the exercise of the court's discretion to join the successor entities assuming that the jurisdictional requirements for a joinder had been established?
(c)Can the profits derived by CWS be held on constructive trust? There are ambiguities and difficulties with the pleading that CWS holds as a constructive trustee any profits that it had derived from the alleged breaches of duty by Mr Burgess and/or Mr Childs that are, perhaps, disguised by the apparent simplicity of the relevant pleas. Those difficulties and their consequences for the amendment and joinder applications are best explained by reference to the relief sought against the successor entities. That relief is further considered immediately below.
As has already been noted, a possible reason for claiming a constructive trust over any property or profits derived by CWS from the alleged breaches of duty by Mr Burgess and/or Mr Childs is to provide a proprietary base for the purpose of tracing property and/or profits into the hands of the successor entities. It is not entirely clear whether this device will overcome the difficulty that information is not property and so cannot be followed or traced. Moreover, it might be argued that the observation of Nourse LJ in Satnam Investments Ltd v Dunlop Heywood Ltd (1999) 3 All ER 652 at 671 suggests that information cannot be traced into property claimed to have been acquired through the misuse of confidential information even if information could be regarded as property.
Wurth Australia does not seek as part of the relief claimed against CWS an account of any profits that it may have derived from the alleged breaches of duty by Mr Burgess and/or Mr Childs. However, the relief claimed against the successor entities (pars pars U and V of the prayer for relief) is:
(a)a declaration that the successor entities hold on a constructive trust such profits as they acquired from CWS as CWS acquired through the alleged breaches of duty by Mr Burgess and/or Mr Childs;
(b)an order that an account be taken of the profits acquired by the successor entities;
(c)an order that the successor entities pay to Wurth Australia any profits found to have been acquired on the taking of the account.
The effect of the relief claimed against the successor entities is that the account that is sought is of the profits that are the subject of the claimed constructive trust, the property of that trust being, in turn, the profits said to have been acquired by CWS through the alleged breaches of fiduciary duty by Mr Burgess and/or Mr Childs and which are the subject of the constructive trust sought to be imposed on CWS. Consequently, it appears, on unravelling the relief claimed, that it is necessary for an account of any profits derived by CWS to be taken even though an order to that end has not been sought. That would, in my view, be necessary in any event as it is most unlikely that any profit derived by CWS would be solely attributable to the misuse of the Confidential Information and the Further Confidential Information. An enquiry into the allowance to be made for the personal skill, expertise, exertion and funds contributed by CWS would be required to ascertain the actual profit that might be the subject of the constructive trust sought to be imposed on CWS.

It further appears that the relief sought impliedly contemplates remedies being granted sequentially: an account of profits to ascertain the profit derived by CWS from the alleged breaches of duty by Mr Burgess and/or Mr Childs; a declaration that CWS holds the amount so determined on a constructive trust for Wurth Australia; and a further declaration that the successor entities hold the same amount (the same profit) on constructive trust for Wurth Australia. However, the same property cannot be the subject of different trusts with different trustees.
Further, it is not clear why a constructive trust would be declared over any profits found on the taking of an account to have been derived from the alleged breaches of duty by Mr Burgess and/or Mr Childs. Why would the court not just order, as it would ordinarily do, that the profits be paid to Wurth Australia by whichever party was found to have derived the profit? It is suggested in Young, Croft & Smith, On Equity (2009) that an account of profits may be supported by 'ancillary proprietary relief' in the form of a constructive trust or an equitable lien to assist in the remedy provided by the account, reference being made to the decision at first instance in United States Surgical Corporation v Hospital Products International Pty Ltd [1982] 2 NSWLR 766, 816. As the judgment of McLelland J in that case made clear, an equitable lien over assets held by a defaulting fiduciary or third party participant in a breach of trust or fiduciary duty may be ordered in aid of an account of profits. However, there is nothing in his Honour's reasons ‑ and nothing that is immediately apparent as a matter of principle ‑ to suggest that a constructive trust would ordinarily be recognised in respect of the amount found to be payable on the taking of the account (and see, for example, the comments of Mason J in Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 110).
It should be stressed that the matters to which I have referred are deliberately posed as questions. I have not expressed a concluded view on any question and it may be that some or all of the questions that have been identified will fall away on a more detailed explanation of the basis on which the Minute has been pleaded. However, these matters have been raised for two reasons.
First, they may expose difficulties with the pleading that should be resolved before any application to join the successor entities is determined, especially as it is acknowledged that the Minute requires further amendment. I also accept, in that context, the submission made by the successor entities that the allegation that they 'succeeded' to the business is ambiguous - both as to what is meant by succeeding to the business or part of the business of CWS and as to who succeeded to the business (I realise that Wurth Australia says that it does not know which of the successor entities may have succeeded to the business of CWS but I also note that no pre-action discovery has been sought). Further, the ambiguity may provide a further dimension to the questions that have been raised above. For example, it is not clear, in light of the submissions made at the hearing of the application, whether the profits and/or property that are the subject of the claims against the successor entities are confined to whatever was acquired immediately on their succession to the business or part of the business of CWS or whether it is alleged that they derived profits and/or property from a misuse of the Confidential Information and/or the Further Confidential Information following their succession to the business or part of the business of CWS.
Second, it is not entirely clear whether there is, within the allegations pleaded in the Minute, the adumbration of a claim against the successor entities in equity for breach of confidence. Such a claim might avoid some or all of the questions that have been raised above. However, it is likely that the claim would also raise different questions concerning whether the jurisdictional basis for joining the successor entities had been established. That is a further reason why the pleading of claims proposed to be made against the successor entities should be settled before the joinder application is finally determined.

Order 18 r 4 RSC

Jenkins J in Renovation & Finance Co Pty Ltd v Kott Gunning (a firm) [2006] WASC 29 and Beech J in Lois Nominees held that O 18 r 4 does not confer power on the court to grant leave for additional parties to be joined to existing proceedings. The power conferred by the rule is limited to granting leave for parties to be joined to proceedings that are proposed where the conditions specified inO 18 r 4(1)(a) and (b) cannot be established.
A judge of first instance will follow another first instance decision of the court as a matter of judicial comity unless persuaded that the decision was wrong. I do not consider that the decisions of Jenkins J in Renovation & Finance and Beech J in Lois Nominees were wrong. Rather, I agree with the reasoning of Beech J in Lois Nominees (his Honour agreeing with the conclusion reached by Jenkins J in Renovation & Finance for the reasons given by her Honour except on one aspect). Consequently, I accept the submission made by the defendants and the successor entities that the court cannot grant leave under O 18 r 4 for the successor entities to be joined as defendants.

The scheme provided by the Rules of the Supreme Court for amendments

Order 21 r 5 RSC confers a general power on the court to allow a plaintiff to amend its writ and any party to amend its pleadings. However, the rule is expressed to be subject to O 18 r 6, r 7 and r 8. In Lois Nominees, Beech J held that an amendment to add a party was governed entirely by O18 r 6, r 7 and r 8; that is, the power to permit an amendment conferred by O 21 r 5 did not apply in relation to a proposed amendment to add or remove a party. Accordingly, the consequential amendment to the writ on leave being granted under O 18 r 6(2) is effected pursuant to O 18 r 8(1).
In Lois Nominees, Beech J summarised the scheme created by O 18 and O 21 as follows [82]:
Order 21 governs amendment generally. Amendment to add a new party requires leave: O 21 r 1(3). The court has general power under O 21 r 5 to permit amendment of a writ or statement of claim on such terms as are just. That general power is subject to, among other things, O 18 rr 6, 7 and 8. That means that the general discretion to permit amendment does not apply to an application to amend so as to add a new party. Applications to add a new party are governed by O 18 rr 6, 7 and 8. Order 18 r 4 is not directed to amendment of a writ or statement of claim. It concerns joinder of parties. It does not itself permit amendment of a writ or statement of claim to add new parties.

Order 18 r 6(2)(b)

Some propositions concerning O 18 r 6(2)(b)

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).

Joinder following the assignment of a debt

In ATP Finance, a lender commenced proceedings to recover amounts allegedly owing under various loans. The lender had assigned the debts prior to commencing proceedings. Further assignments of the debts occurred after the writ was issued. However, notice of the assignments was only given to the debtor once the proceedings had been on foot for some time.
After notice of the assignments was given, the lender applied under O 18 r 6(2) for an order that it cease to be the plaintiff in the action and that the final assignee in the chain of assignments be added as plaintiff. The application was refused on the ground that the assignee had no cause of action against the debtor until the assignment of the debts and that it was not possible to substitute as plaintiff an entity that had no cause of action against the defendant at the time that the proceedings were commenced. The Court of Appeal allowed an appeal by the lender holding that the court had power to substitute the assignee as plaintiff under O 18 r 6(2) and O 18 r 7.
As previously noted, Wurth Australia contended that the decision in APT Finance indicated that there was no limitation on O 18 r 6(2)(b) of the kind suggested by the defendants and the successor entities. However, the Court of Appeal noted in APT Finance that the assignee of a debt that sought to be substituted for the assignor as plaintiff in proceedings on the debt was simply succeeding to an existing cause of action [37] (and see Yorkshire Regional Health Authority v Fairclough Building Ltd [1996] 1 All ER 519, 522 ‑ 523 (Millett LJ)). Consequently, the effect of an assignment of a debt after the commencement of proceedings to recover the debt was not to create a new cause of action. Rather, the assignee acquired sole right to an existing cause on giving notice of the assignment to the debtor (so the assignment took effect as a valid legal assignment rather than merely as an assignment in equity); see also the discussion of the effect of a legal assignment of a chose in action in Carob Industries Pty Ltd (in liq) v Simto Pty Ltd [2000] WASCA 362; 23 WAR 515.
Millett LJ and Evans LJ in Yorkshire Regional Health Authority drew a distinction between the substitution of a party under the then English equivalent of O 18 r 7 and the addition of a party under the equivalent rule to O 18 r 6. Millett LJ noted that the addition of a new party to existing proceedings was a convenient alternative to bringing a separate action and consolidating the two proceedings. He continued (at 523):
Where the addition of a new party is combined with an order that an existing party to the proceedings cease to be a party, the new party is often described as being substituted for the existing party. This kind of substitution is, however, very different from that effected under Ord 15, r 7. It is available as an alternative to the bringing of a separate action when a new party has not succeeded to any claim or interest already represented in the existing proceedings. It necessarily involves a new cause of action.
However, neither Millett LJ nor Evans LJ discussed whether the new cause of action must necessarily have accrued prior to the commencement of the proceedings for a joinder to be effected under the equivalent of O 18 r 6.

Further consideration of the application to join the successor entities

The power conferred by O 18 r 6(2)(b)

As the defendants and the successor entities emphasised, O 18 r 8 allows for an amendment to the writ to add the new party. It does not refer to the consequential amendments that might be required to the indorsement to the writ and/or the statement of claim. The power to make those amendments is contained in O 21, read, in particular, with O 20 r 10.
The principle of 'relation back' applies to an amendment to an indorsement or statement of claim. Consequently, a claim may not be added by amendment where the cause of action did not exist at the time that the writ was issued: see, for example, AIL Holdings Pty Ltd (No 2).However, there is no relation back on the joinder of an additional defendant under O 18 r 6(2)(b) so that, for example, time for limitation purposes runs from the date of service of the amended writ and not from the date on which the proceedings were actually commenced: Morgan v Banning (1999) 20 WAR 474; Ketteman v Hansel Properties [1987] AC 189 and Brandsma & Crockett Pty Ltd v Heindal Pty Ltd [2002] WASCA 96; 26 WAR 323. The joinder takes effect on the service of the amended originating process on the defendant. A plaintiff is joined as a new or additional party on the amendment to the writ being effected under O 18 r 8.
Consequently, the question that arises is whether a person can be joined as a defendant to a cause or matter to enable a cause of action that accrued after the commencement of the proceedings to be prosecuted as the initiating process is taken to have been issued against that person at the time that it is amended (assuming that the requirements of O 18 r 6(2)(b) have been satisfied). The parties did not address that question in their submissions nor did they consider what, if any, effect the different rules relating to the relation back principle might have where the writ is amended to join additional parties. It is a question that appears to be central to the determination of the application to join the successor entities.
No distinction was drawn by the parties between a claim for knowing receipt and the tracing of property in equity. However, it is possible that the distinction is relevant in this context. Tracing is a process and not a claim or remedy: see the observations of Millett LJ in Foskett v McKeown [2000] UKHL 29; [2001] 1 AC 102, particularly at 128, and McLure J (as her Honour then was) in Re Global Finance Group Pty Ltd (in liq); Ex parte Read and Herbert [2002] WASC 63; 26 WAR 385 [93] and following. It may be that a person could be joined as a defendant under O 18 r 6(2)(b) where the plaintiff only seeks to follow or trace property into the hands of that person even if:
(a)the property was received after the commencement of the proceedings; and
(b)the rule, on its proper construction, does not allow a defendant to be joined to enable the plaintiff to prosecute a cause of action that arose after the proceedings were commenced.
Again, the parties did not address that question in their submissions, although it is not clear whether Wurth Australia is making a tracing claim against the successor entities independently of a claim for knowing participation. The question should be further considered if a tracing claim is intended.

The future conduct of the application

As I indicated at the outset, I consider that the parties should be given an opportunity to consider the matters raised in these reasons before the application to amend the statement of claim and to join the successor entities is finally determined. There should be conferral between the parties' advisors. I will then make directions for a further hearing of the applications if no agreement can be reached by conferral. It would assist conferral and any further hearing of the application if Wurth Australia first filed an amended minute of its proposed statement of claim.