Body Corporate Administration Limited v Mehta HC Auckland CIV 2009-404-6656
[2010] NZHC 887
•10 May 2010
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2009-404-6656
BETWEEN BODY CORPORATE ADMINISTRATION LIMITED Plaintiff
ANDCYRUS MEHTA First Defendant
ANDSTRATA TITLE ADMINISTRATION LIMITED
Second Defendant
Hearing: 22 April 2010
Appearances: P J Wright and D Reid for plaintiff
R J Thompson for first defendant
M I S Phillipps for second defendant
Judgment: 10 May 2010
JUDGMENT OF ALLAN J
In accordance with r 11.5 I direct that the Registrar endorse this judgment with the delivery time of 3.00pm on Monday 10 May 2010
Solicitors/counsel:
J Wright, Auckland [email protected]
Madison Hardy, Auckland [email protected] Richard Thompson, Auckland [email protected] M I S Phillipps, Auckland [email protected]
James Keat, Auckland
BODY CORPORATE ADMIN LTD V C MEHTA AND ANOR HC AK CIV 2009-404-6656 10 May 2010
[1] In recent years there has been substantial growth in the number of buildings which are subject to the provisions of the Unit Titles Act 1972 (the Act). Such buildings are principally, but not exclusively, apartment blocks. Management is undertaken in each case by a body corporate, established pursuant to the Act. Owners of unit title properties become members of the relevant body corporate. The administration of many bodies corporate is in turn undertaken by companies set up for the purpose of providing specialist body corporate services.
[2] The plaintiff (BCA) and the second defendant (STA) are leading providers of such services to bodies corporate. It is common ground that competition within the body corporate services market is intense.
[3] Mr Mehta was employed by BCA until 31 October 2008, when his employment was terminated upon the ground that he was thought to be intending to set up in business in opposition to his employer. On 20 November 2008, he commenced employment with STA. Soon thereafter, the management of BCA became concerned that, prior to the termination of his employment, Mr Mehta may have copied confidential documents and subsequently made them available to his new employer.
[4] On 12 October 2009, almost a year after the termination of Mr Mehta’s employment, BCA commenced the present proceeding, and applied for a range of orders by way of interim relief. On 21 October 2009, Hugh Williams J granted a search order pursuant to r 33.2, together with interim injunctions which, inter alia, restrained STA from dealing with any of BCA’s existing customers pending further order of the Court. The search order was implemented on 23 October 2009 at the business premises of STA and at Mr Mehta’s home address. Some 107 pages of hard copy material were seized. They remain in the hands of an independent solicitor. Certain material on STA’s computers was cloned. The material so obtained is presently in the custody of BCA’s forensic computer specialist, Mr B C McKenzie.
[5] STA now applies to discharge the search order, and seeks the return of all documents and materials obtained pursuant to it. For its part, BCA seeks to
perpetuate until trial of the proceeding, the order prohibiting the defendants from approaching, soliciting or otherwise dealing with BCA’s existing customers in respect of the provision of body corporate services. All applications are opposed.
Background
[6] Mr Mehta was initially employed by BCA in or about July 2003. Between about October 2005 and June 2007, there was an extended break in his employment. Mr Mehta says that he resigned and was later re-employed. BCA says he was simply on extended sick leave. The dispute as to that point is immaterial for present purposes.
[7] Mr Mehta was one of approximately ten property administrators employed at any one time by BCA. They undertook a range of responsible duties, but were under the overall supervision of BCA’s director (Mr Kwok) and/or its general manager (Ms Beaton). Mr Mehta’s principal duties included:
a) Credit control, including the enforcement of levies imposed upon unit owners by bodies corporate which were customers of BCA;
b)The organisation and conduct of body corporate committee meetings, annual general meetings and extraordinary general meetings;
c) Liaison with contractors in order to obtain quotes to effect building maintenance and repairs in accordance with body corporate approvals;
d)Liaison with body corporate committees in respect of building, maintenance and repair and the on-going management of bodies corporate.
[8] On the morning of 31 October 2008, a co-employee of Mr Mehta, a Mr Wang, told Ms Beaton that Mr Mehta intended to set up his own body corporate business in competition with BCA. Mr Kwok and Ms Beaton then met Mr Mehta. During the course of that meeting, Mr Mehta was dismissed. Ms Beaton removed
his belongings from his desk and work station and he was escorted from BCA’s premises.
[9] Mr Mehta took immediate steps to find new employment. In particular he approached Hays Specialist Recruitment. Within a short time he secured an interview with representatives of STA, and on 20 November 2008 he commenced employment with that company as a marketing assistant.
[10] It is not in dispute that natural growth has slowed significantly for participants in the body corporate services market. Over the last year or two there have been fewer building completions and there is less activity in respect of the development of new projects. Market players are therefore actively focused on endeavouring to attract the customers of their competitors. Part of Mr Mehta’s duties with STA concerned the attraction of new customers from competitors, including BCA.
[11] On or about 1 December 2008, as part of its drive for new business, STA wrote to all 6000 owners of properties for which STA carried out body corporate services, the aim being to induce other bodies corporate in which those owners might also have an interest to move to STA. This initiative, and other STA marketplace activities, raised concerns in the minds of BCA’s management.
[12] On 16 December 2008, BCA’s lawyers wrote to STA expressing BCA’s fears that Mr Mehta had taken with him to STA confidential information that belonged to BCA, and seeking an appropriate written undertaking in respect of BCA’s confidential information. Such an undertaking was given by STA on 22 December
2008.
[13] The letter of 16 December 2008 reads:
1.We act for Body Corporate Administration Limited (“BCA”) and have instructions to write to you regarding Mr Mehta’s employment with you. We hereby put you on notice that Mr Mehta was employed by BCA and that since Mr Mehta’s resignation, several clients of BCA have contacted it to advise that Mr Mehta has approached them with a proposal to entice them to change their body corporate secretary from BCA to Strata.
2.BCA is concerned that Mr Mehta is using its confidential information, specifically, information relating to its clients and pricing information, in breach of his obligations to BCA. BCA is also concerned Mr Mehta has collected this information in breach of his obligations of fidelity and good faith while employed by BCA, for the purpose of later soliciting the business of BCA clients.
3.Our client has grounds to take legal action on the basis of this breach, seeking both an injunction and substantial damages. Before commencing proceedings, we are instructed to request that you immediately remedy this breach by taking the following steps:
3.1 Provide a written undertaking to BCA in the following terms:
a.That you do not have any confidential information owned by BCA in your possession or control, either in electronic or hard copy form;
b.That you have not disclosed, copied or distributed any confidential information belonging to BCA to any third parties other than in the course of your duties for BCA;
c.That you will continue to honour your obligations of confidentiality and will not disclose, copy or distribute BCA’s confidential information to any third parties;
d.That any confidential information belonging to BCA but stored on any computer or other electronic device owned by you has been permanently deleted. BCA reserves the right to request written confirmation from a qualified expert as to the permanent deletion of such information.
3.2If you have any confidential information belonging to BCA in your possession or control, please return it to this office immediately.
4.Should you fail to comply with this request within five working days, our client reserves the right to take immediate steps in pursuit of legal remedies for your knowing participation in the breach.
5.We note that we have also written to Mr Mehta to remind him of his obligations to our client, and advise that our client reserves the right to join Strata as a party to any legal proceedings.
[14] The reply from Mr Lockyer, a director of STA, was in the following terms:
I write with reference to your letter of 16 December 2008. Please direct any further correspondence relating to this matter to the writer.
It is our understanding that Mr Mehta did not resign but was dismissed by
Body Corporate Administration Ltd (BCA).
With respect to paragraph 3.1 of your letter I hereby undertake on behalf of
Strata Title Administration Ltd that Strata does not have any confidential
information owned by BCA in our possession or control, either in electronic or hard copy form.
our requests detailed in paragraph 3.1(b) (c) and (d) appear to be misdirected and should be directed to Mr Mehta to provide the undertaking (you may have already done this in your letter to him) as you refer to “other than in the course of your duties for BCA” and “continue to honour your obligations of confidentiality …”. I do not see how Strata has any duty or obligation to BCA. Notwithstanding this, all correspondence Mr Mehta, as our new marketing assistant, sends from our office is under my supervision and using information obtained by Strata that is available in public documents.
We are concerned with the potential allegation against our new employee in paragraph 3.1(b) (c) and (d) and ask you to provide our office with a copy of Mr Mehta’s employment contract with BCA including any signed confidentiality documents so that Strata can assist in making sure that Mr Mehta is not in breach of any obligation to BCA.
[15] Between February and May 2009, STA succeeded in attracting three bodies corporate from BCA. They were respectively Body Corporate 205539, relating to
1C Rankin Avenue, Body Corporate 206058, relating to 51 Lenore Road, and Body
Corporate 183772, relating to 43 Fruitvale Road.
[16] Over this period, the management of BCA became aware that Mr Mehta had been active in discussions with representatives of other bodies corporate as well. Management formed the view that Mr Mehta may have been assisted in his marketing work for STA by virtue of his suspected retention of documents and information that were confidential to BCA.
[17] BCA instructed a forensic IT expert, Mr Wendt-Thorne, to investigate and report upon the extent of Mr Mehta’s computer access during the weeks preceding his dismissal by BCA. A report provided by Mr Wendt-Thorne on 3 June 2009 revealed a substantial increase in computer activity by Mr Mehta, during the period preceding the termination of his employment. Mr Kwok concluded that Mr Mehta must have taken with him to STA information that was confidential to BCA, and that further investigations were warranted. He said:
20.On or about 3 June 2009 Adam Thorne (Mr Thorne) provided BCA with user activity reports recorded against the user account ‘Cyrus’ which detail the confidential information which Mr Mehta accessed, printed and I believe and BCA believes removed from BCA’s premises prior to his employment ending (‘the activity reports’).
21.After I received those activity reports on or about 3 June 2009 it became clear that Mr Mehta had accessed and printed a large amount of BCA’s confidential information. I was particularly concerned with the number of properties Mr Mehta, as an employee of the second defendant, had accessed when he had no dealings with those properties while he was working for BCA. I became focused on gathering and presenting BCA’s evidence showing that Mr Mehta and the second defendant were using that information to contact BCA’s clients and undercut BCA.
[18] In July and August 2009 there were further instances of what BCA regarded as evidence of Mr Mehta’s attempts to target BCA administered properties.
[19] Ultimately, on 12 October 2009, this proceeding was commenced, and on 21
October 2009 BCA obtained the orders to which I have earlier referred.
[20] The search order is now wholly executed. As earlier noted, the independent solicitor holds some 107 pages of documents taken from STA’s premises, and Mr McKenzie retains documentary material held in electronic form in consequence of the cloning and copying exercise conducted during the course of the Court ordered search.
[21] In addition to the search order, the Court made orders (the paragraph 12 orders) on 21 October 2009 prohibiting STA and Mr Mehta from:
a.Accessing or using in any way whatsoever the applicant’s confidential information in whatever form or delivering any such information to any other person in any form;
b.approaching, soliciting or otherwise dealing with, whether directly or indirectly, any person in respect of body corporate secretary services or building management services or similar, being a person to whom the applicant provides those services at the date of this order.
[22] On 29 October 2009, as earlier directed by Hugh Williams J, a judicial conference took place following execution of the search order. A further conference was then directed to take place on 6 November 2009, but in the meantime his Honour noted that the STA had evinced an intention to apply to set aside the search order.
[23] On 5 November 2009, Mr McKenzie filed his first report following examination of the electronic data obtained by him in consequence of the 23 October search. Having read that report, the Judge directed a further conference on 12
November 2009.
[24] On that occasion, and after discussion with counsel, Hugh Williams J directed Mr McKenzie to continue with certain aspects of his investigation, and to report to the Court prior to 26 November 2009 when the case was next to be called before His Honour. Certain directions were also given in respect of hard copy documents held by the independent solicitor, Mr Cogswell.
[25] On 25 November 2009, Hugh Williams J made further timetable directions by consent, in respect of STA’s present application, which had by then been filed.
[26] On 8 April 2010, Mr McKenzie filed a further report, in which he advised that he had identified some 389 documents that appeared to be connected to a BCA customer, and a further 967 documents that were obviously connected to a BCA customer. An additional 435 documents, identified following filtering, appeared to have no obvious connection to a BCA customer.
[27] At the conclusion of his report, Mr McKenzie recommended that:
a) documents identified in the group of 967 (category 3) which he considered were obviously connected to a BCA customer, should be provided to the Court and that the Court should consider their relevance and release them if appropriate;
b)the Court also consider the 389 documents (category 2) which appeared to be connected to a BCA customer, with a view to determining their possible relevance.
The present applications
[28] In its statement of claim the plaintiff pleads against Mr Mehta breaches of a duty of confidence, against STA misuse of BCA’s confidential information, and against both defendants, conspiracy to injure BCA’s business by unlawful means.
[29] In its notice of application dated 12 November 2009, STA seeks orders:
a) discharging the search order made on 21 October 2009; and
b)for the return to STA of all the documents, materials, things or information obtained by BCA pursuant to the search order.
[30] In the alternative, STA seeks an order varying the search order to the extent necessary to meet the interests of justice, including orders:
a) discharging paragraph 12 of the search order; and
b)for the return of any documents, materials or information obtained by BCA pursuant to the search order, which are not otherwise discoverable to the plaintiff or are otherwise confidential, commercially sensitive or privileged.
[31] The grounds upon which the application is made are that:
a) the search order was obtained in bad faith;
b)there was material non-disclosure on the part of the plaintiff when seeking and obtaining the search order;
c) the order was obtained in circumstances amounting to an abuse of process;
d) the order should not have been made;
e) STA does not have, and has not used, any confidential information of the plaintiff.
[32] The orders sought by STA are opposed by BCA on the grounds that:
a) the search order was not obtained in bad faith;
b)there was no material non-disclosure by the plaintiff, or if there has been (which BCA denies) it was inadvertent and not such as to justify setting aside or varying the order;
c) there has been no abuse of process, and it was appropriate that the order be made;
d)BCA believes STA has, or has by imputation, the plaintiff’s confidential information and Mr McKenzie’s investigation is not yet complete;
e) no purpose would be served by setting aside the search order, which has been fully executed;
f) STA’s purpose in making its application appears to relate to the plaintiff’s undertaking as to damages.
Legal principles
[33] There is no dispute as to the applicable legal principles. An executed search order will not ordinarily be discharged prior to trial, unless the order has been obtained mala fide, or on material non-disclosure, or if there are other special circumstances which clearly demonstrate the need for immediate relief: D B Baverstock Ltd v Haycock [1986] 1 NZLR 342 and Anvil Jewellery Ltd v Riva Ridge Holdings Ltd [1987] 1 NZLR 35. In Fujitsu General NZ Ltd v Melco NZ Ltd (2002)
16 PRNZ 395, in approving the approach adopted by Henry J in Baverstock, the
Court of Appeal remarked at [10] that cases in which it would be appropriate to discharge an executed order prior to trial would be rare.
[34] Gault J, delivering the judgment of the Court of Appeal in Fujitsu, said at [8]:
Much of the material in the affidavits, and in the written argument of counsel was directed more to whether the Anton Piller orders should have been made and to whether, in the light of the “total picture” now available such orders could be justified. Neither represents the correct approach. The “total picture” will emerge only at trial and an application to discharge an executed Anton Piller order does not present an occasion for the parties to contest, by affidavit, the very issues that are for trial. In WEA Records Ltd v Visions Channel 4 Ltd [1983] 2 All ER 589, 594 Donaldson MR, with whom the other members of the Court agreed, said:
In the instant case the Anton Piller order is spent in the sense that it has been executed. However, the defendants seek to go back to the beginning of the action saying that, regardless of whether the fruits of the order are such as to show that it was abundantly justified, the judge had insufficient material to justify his action at the ex parte stage. They therefore invite us to set the ex parte order aside and to order the return of the affidavits to the two personal defendants and the seized material to the defendants’ solicitors.
I regard this as wholly absurd. The courts are concerned with the administration of justice, not with playing a game of snakes and ladders. If it were now clear that the defendants had suffered any injustice by the making of the order, taking account of all relevant evidence including the affidavits of the personal defendants and the fruits of the search, the defendants would have their remedy in the counter-undertaking as to damages. But this is a matter to be investigated by the High Court judge who is seized of the matter, and only when he has reached a decision can this court be concerned.
See also Booker McConnell plc v Plascow [1985] RPC 425, 435.
[35] An application for discharge does not therefore represent an opportunity for a defendant to seek to revisit the grounds upon which the search order was originally granted, and Mr Phillipps does not seek to do so. The available grounds for discharge prior to trial are, as earlier discussed, limited in scope. It is for STA to persuade the Court that one or more of those grounds justifies the Court in taking the unusual step of discharging, at this point, an executed search order.
[36] In contrast, BCA bears the onus of establishing that the interim prohibition or restraining order, incorporated in paragraph 12 of the search order, ought to remain in force. Although BCA was successful in obtaining an interim order on a without
notice basis, it is required to show that in the circumstances as they now exist, it is appropriate that the orders remain in force: Carter Holt Holdings Ltd v Fletcher Holdings Ltd [1980] 2 NZLR 80 at 84; Automatic Parking Coupons Ltd v Time Ticket International Ltd (1996) 10 PRNZ 538 at 539.
[37] The proper approach to the determination of interim injunction applications is now well established. The principles were conveniently summarised by Fisher J in Peters v Collinge [1993] 2 NZLR 554 at 556–557:
On such applications the Courts do not attempt finally to determine the parties' rights. Instead the Courts customarily traverse a series of questions in turn. The first is whether the plaintiff has established a serious question to be tried. If so, the second is where the balance of convenience lies with particular reference to the adequacy of damages to either party if ultimately successful at trial. The third is whether the result is affected by a series of discretionary considerations including the relative strengths of the parties' cases, any undue delay by the plaintiff, tentative preference for status quo and the conduct of the parties. At the end of the exercise the Court must stand back from those details and ask where the justice of the case lies: Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR
129, 142.
Mala fides - abuse of process
[38] The case for STA is that BCA was motivated to apply, without notice, for search orders and injunctive relief, by reason of personal jealousy and illegitimate commercial considerations.
[39] Ms Beaton was formerly married to Mr Chapman-Smith, who is the sole director and majority shareholder of STA. They married in 1985 and have one child. Following separation, Ms Beaton became the owner of Mr Chapman-Smith’s shares in BCA, which by that time was the largest body corporate secretariat in New Zealand. A year or so later, Mr Chapman-Smith founded STA.
[40] So the principal parties in the proceeding are not only commercial rivals in a fiercely contested industry, they are each managed by persons who were formerly husband and wife and who separated, the Court is given to understand, in somewhat acrimonious circumstances.
[41] Of itself, that personal background could not possibly justify a conclusion that BCA was simply driven by ill will at a personal level. Commercial rivalries are often pursued with a vigour driven, at least in part, by personal antagonism.
[42] In addition however, Mr Phillipps relies upon aspects of the difficult commercial relationship between BCA and STA. He argues that the evidence demonstrates that BCA could not properly have held the view that Mr Mehta had removed confidential information from BCA’s premises, or that any such information was being utilised by STA in a manner adverse to the plaintiff’s interests.
[43] Neither, he argues, was BCA entitled to claim that STA was liable to destroy or conceal evidence of alleged unlawful behaviour. It is suggested also that the plaintiff’s delay in issuing the proceeding (almost a year elapsed after Mr Mehta joined STA before filing) is indicative of bad faith.
[44] In developing these contentions, Mr Phillipps argues that, having received STA’s written assurances in Mr Lockyer’s letter of 22 December 2008, it was incumbent on BCA, before proceeding, to make further inquiries of STA in the context of the plaintiff’s apparently heightened concerns.
[45] I do not regard BCA’s failure to put STA on notice for a second time as indicative of bad faith on the part of the plaintiff. For obvious reasons, a plaintiff who sues for breach of confidential information obligations will often refrain from putting defendants on notice before seeking a search order, for fear that relevant evidence will be destroyed or concealed. Further, the mere fact that a formal written assurance had earlier been received by BCA did not place upon it an obligation to obtain further updated assurances as matters unfolded.
[46] Mr Phillipps is critical also of BCA’s deployment of the Wendt-Thorne report. BCA management considered that the report (which provided detail of the reports and other materials accessed by Mr Mehta on a client by client basis) was not capable of justifying BCA’s fears that Mr Mehta may be holding information on as many as 400–450 of the properties under BCA’s management. Mr Lockyer
characterised that claim as “outrageous” because it had been made: “ …without any basis or foundation whatsoever”.
[47] In evidence Mr Mehta explained in detail why it was that during the latter months of 2008 he had occasion to access the computerised records of a number of bodies corporate with which he was not ordinarily associated. It is unnecessary to discuss the detail of his explanation, except to say that BCA management do not accept the validity of what he has to say. They take the view that the scale and scope of the computer activity in which Mr Mehta engaged was, of itself, sufficient to give rise to properly held suspicions as to his ultimate intentions.
[48] Mr Phillipps points out that the Wendt-Thorne report discloses earlier periods of heightened activity in respect of Mr Mehta’s access to BCA’s computerised records (although not at the level achieved just prior to his departure from the plaintiff’s employ). Mr Phillipps contends also that BCA’s limited disclosure of the Wendt-Thorne report to the Court is indicative of bad faith on the part of BCA management. The same allegation is made in respect of the plaintiff’s failure to disclose STA’s assurances of December 2008, the detail of certain Court proceedings in which BCA was involved at relevant times, and the history of communications between the parties with respect to clients which had moved from BCA to STA.
[49] I deal with the issue of non-disclosure as a discrete question below. The non- disclosure point is relevant for present purposes because Mr Phillipps claims that the plaintiff’s omissions were deliberate and intended to paint a distorted picture of STA’s business activities, insofar as they concerned BCA. He argues also that the delay of almost a year between commencement of Mr Mehta’s employment by STA in November 2008 and the issue of this proceeding in October 2009, provides further evidence of BCA’s lack of good faith. In particular, he refers in this context to the delay between June 2009 when BCA received the activity report from Mr Wendt- Thorne and the filing of the proceeding in October 2009.
[50] It is to be remembered that an allegation of bad faith impugns the honesty of the person or persons at whom it is aimed. In other words, it is their subjective state of mind which must be assessed. It is not open to the Court simply to identify
aspects of the plaintiff’s case which ought to have been better organised or more fully disclosed, and to infer from any identified shortcomings that BCA management were not acting in good faith.
[51] It is true that BCA’s initial assumption that Mr Mehta must have been in communication with STA prior to the termination of his employment with BCA may prove to have been ill-founded. There is evidence to suggest that there was no connection between Mr Mehta and STA until some time in November 2008, when a recruitment agency introduced him to STA. But that has no bearing on the question of whether BCA management were acting in good faith. Even if it can be shown that Mr Mehta had nothing to do with STA until after his employment with BCA concluded, it remains open to BCA to establish, if it can, that there have been breaches of Mr Mehta’s on-going obligations to BCA in respect of confidential information, and that STA was a party to those breaches.
[52] A party which asserts a want of good faith against an adversary assumes a high burden of proof. Mr Phillipps asks the Court to have regard to a collection of circumstances which, of themselves, do not suggest a want of good faith, and to make a finding of bad faith against BCA in the light of those circumstances considered together.
[53] I am not prepared to do that. I am far from satisfied that BCA management was not acting in good faith. Indeed, the extensive delay between November 2008 and October 2009 might properly be regarded, as Mr Wright submits, as indicative of a careful approach to the litigation on the plaintiff’s part, rather than an absence of good faith.
[54] I turn therefore to the allegation of material non-disclosure which, if made out, constitutes a separate ground which might justify discharge.
Material non-disclosure
[55] An applicant for interim relief without notice is under a duty to the Court to make full disclosure of all material facts, including any defence of which the
applicant may be aware. Non-compliance with that obligation will normally deprive the applicant of the benefits of the order without consideration of the merits: Lloyds Bowmaker Ltd v Britannia Arrow Holdings Plc [1988] 3 All ER 178; Euro-National Corp Ltd v Petricevic Financial Services Ltd (1989) 2 PRNZ 351.
[56] Even innocent errors can lead to discharge, but the non-disclosure must be material and the Court must approach an allegation of material non-disclosure on a realistic basis: Yang v Chen HC Auckland CIV-2007-404-1751, 17 July 2008 at [49].
[57] In particular, the Court is entitled to take into account, in considering an application for discharge on the grounds of material non-disclosure, the extent of the claimed materiality. Where the material concerned is relevant in a broad sense but of only limited overall significance, the Court will often decline to discharge the orders concerned: Fujitsu at [37].
[58] Mr Phillipps asserts that BCA has failed in several material respects to make proper disclosure. First, it is argued that BCA ought to have disclosed to the Court the former personal relationship between Ms Beaton and Mr Chapman-Smith. As earlier observed I am unable to understand the relevance of that information, which at best would have served merely to provide interesting personal background material. I accept Mr Wright’s submission that the former relationship between those parties was not material in the context of this case.
[59] Then there is the letter of 16 December 2008 from BCA’s lawyers to STA, and the response of 22 December 2008 from Mr Lockyer. Neither letter was disclosed to the Court. Mr Wright argues that the non-disclosure was both immaterial and inadvertent. Following his dismissal, Mr Mehta sought compensation from BCA and threatened to commence personal grievance proceedings. BCA obtained legal advice on that issue, and also upon its concern at that time that Mr Mehta may have taken away confidential information that belonged to his former employer. Although BCA received the response of 22 December 2008 from STA, it did not obtain a reply from Mr Mehta to a similar letter addressed to him. BCA eventually decided not to pursue the issue, there being no further
evidence at that time of Mr Mehta’s supposed breaches. Consequently, BCA simply filed away the correspondence, including STA’s letter of undertaking.
[60] BCA’s concerns were revived in the context of later marketplace activity, including Mr Mehta’s approaches to representatives of BCA’s body corporate customers. Those concerns culminated in the commissioning of Mr Wendt-Thorne’s report of June 2009. At that stage, BCA’s deponents say, they had forgotten about the earlier correspondence, and in particular, STA’s undertaking.
[61] In my opinion, Mr Wright is correct when he submits that the December
2008 correspondence, although relevant, was not material in the sense that non- disclosure must inevitably lead to discharge. I accept that the failure to disclose the undertaking was inadvertent. Had the material been placed before the Court it would not have played any significant part in the Court’s assessment. It is relatively routine for breaches of duty in respect of confidential information to be established despite the giving of prior undertakings.
[62] In Fujitsu the Court of Appeal maintained a search order in circumstances where there had been an earlier formal denial of breach. I do not regard BCA’s failure to disclose the December 2008 correspondence as constituting a breach of the disclosure obligations sufficient to justify discharge of the search order.
[63] Mr Phillipps submits further that BCA ought to have disclosed the detail of litigation involving BCA as a defendant, where the issue was its refusal to hand over the file of a body corporate which wished to change from BCA to STA. The fact, but not the detail, of this litigation was disclosed to the Court at the time of the initial application.
[64] I do not regard that litigation as material. Ultimately it emerged that BCA was right to retain the file in the first instance, because the meeting at which the body corporate concerned passed the resolution for change of secretary was inquorate. Thereafter, it appears that BCA might have been somewhat intransigent in respect of the timing of the file transfer, but none of this was material to the issues before this Court in this proceeding.
[65] Neither, as Mr Wright submits, was it relevant to place before the Court the detail of several instances in which STA was a defendant at the suit of a body corporate.
[66] The next complaint concerns the extent to which BCA disclosed to the Court the detail of interaction between it and STA during the early part of 2009. Several clients moved from BCA to STA during this period. The detail of some of these transfers appears in the plaintiff’s affidavits.
[67] Mr Phillipps argues that much more ought to have been placed before the Court, including the detail of body corporate meetings, and the production of such documents as letters passing between parties, notices of meetings at which a change of body corporate secretary was contemplated, and correspondence emanating from BCA’s lawyer, accompanying various body corporate files.
[68] It is common ground that the applicable legislation requires a body corporate secretary to be given prior notice of any meeting at which the body corporate proposes to consider a resolution for a change of secretary. In consequence, representatives of BCA attended several body corporate meetings at which such resolutions were considered.
[69] Mr Phillipps says such evidence was relevant in two respects. First, it served to demonstrate the extent of interaction between BCA and STA so as to illustrate the degree of intense competition between them, and to show that BCA was necessarily aware of STA’s marketing activities by reason of its entitlement to receive formal notice of any proposal by a body corporate to move from BCA to STA. The second aspect concerns delay. Mr Phillipps argues that, had all of the relevant documents been placed before the Court, they would have served to demonstrate that the plaintiff had been guilty of significant delay which might have served to dissuade the Judge from granting the plaintiff either a search order or interim prohibitory relief.
[70] I will deal with the question of delay separately. Apart from delay considerations, I do not believe BCA’s failure to place before the Court the documents of which Mr Phillipps complains, amounts to material non-disclosure.
The documents concerned added nothing material to the detail placed before the Court by way of affidavit evidence from a variety of deponents. To be fair to Mr Phillipps, he did not press this aspect of the argument strongly. Rather, his concern lay principally with BCA’s alleged delays, to which I now turn.
[71] Mr Phillipps’ argument is that, had all the material been placed before the Court, it would have been apparent to the Judge that by mid-June at least, BCA had access to a great deal of evidence which ought to have been the subject of an approach to the Court much earlier than October 2009.
[72] Mr Phillipps points out that Mr Kwok says that BCA was very concerned about Mr Mehta’s activities with respect to existing BCA clients, and that after December 2008 there was a need to spend a great deal of time on client relations, and more particularly, in coping with STA’s approaches to those clients. STA’s marketing activities continued through the early part of 2009 and BCA had received Mr Wendt-Thorne’s report by early June. Yet nothing was filed until October 2009. Mr Phillipps submits that such delay is not consistent with BCA’s allegation of feared serious losses.
[73] Against that background, Mr Phillipps further submits that the Court ought to have been provided with more detailed information which both drew its attention to the delay, and gave an appropriate explanation for it. In the absence of such material, he argues, the Court ought now to accede to the plaintiff’s argument that both the search order and the orders appearing in paragraph 12 should be discharged.
[74] In reply on the delay point, Mr Wright submits that the Court’s attention was specifically drawn to the question in the earlier detailed memorandum of counsel filed along with the other papers. The following passage appears in counsel’s memorandum:
94. The plaintiff has taken time to bring this application because of the fact that the plaintiff had not been aware that it could obtain details of the first defendant’s accessing and printing information contained in its internal databases.
95. The plaintiff has subsequently taken a very cautious approach to the application and in particular to the gathering of evidence in support of it
because of the high standard of proof required (a strong prima facie case – r 33.3(a)) and because of the serious nature of the intervention that will follow the making of any order sought.
96. Delay may be a discretionary factor going against granting an order but it is submitted that this will only be so where the delay will entail prejudice to the defendant by unfairly disrupting the defendant’s dealings with other persons.
97. Where the order will only affect a defendant itself then lapse of time ought not justify the continued wrongful possession and use of the plaintiff’s confidential information by a defendant in the absence of a limitation defence or laches neither of which applies here.
[75] Quite properly, Mr Wright drew the Judge’s attention to a case involving claims relating to confidential information in which Keane J held that a delay of five months militated against an order preventing a former employee from approaching the former employer’s clients: Transnet NZ Ltd v Dulhunty Power (NZ) Ltd HC Auckland CIV-2007-404-2000, 21 May 2007.
[76] The delay issue would have been self-evident to Hugh Williams J, but having regard to the care with which Mr Wright specifically drew the Judge’s attention to the point, it cannot properly be said that there was a failure to make disclosure. I do not accept that there has been such non-disclosure in respect of delay issues as to justify the discharge of the search order.
[77] For the foregoing reasons I am not satisfied that STA has shown that this is one of those rare cases in which an executed search order ought to be discharged prior to trial. Accordingly, STA’s application is dismissed insofar as it concerns the search order.
The paragraph 12 orders
[78] The interim order appearing at paragraph 12(a) is directed at prohibiting STA’s use of BCA’s confidential information. STA asserts that it has no such information. If that is so, then it suffers no detriment if the order inures until trial or at least until a later review.
[79] As I apprehend it, STA’s primary concern is with the order appearing in paragraph 12(b) which restrains it from dealing with those who were BCA customers at the date of the order. Mr Phillipps submits that BCA is unable to establish a serious question for trial, and therefore ought not to retain the current interim order. He refers to Peninsular Real Estate Ltd v Harris [1992] 2 NZLR 216, where the Court noted the well-established but subtle distinction between an entitlement of a former employee to utilise client names held in one’s head without malice, and the unlawful use of names deliberately memorised, or of documents, in order to facilitate competition with a former employer.
[80] But that distinction is not of real relevance in this case. BCA’s allegation is that Mr Mehta has downloaded extensive portions of client files which include the detail of unit owners’ names, addresses and contact numbers, which are not readily available or alternatively are not available at all, by using public search techniques. That information is alleged to be confidential to BCA and forms the basis of its claim.
[81] On the other hand, STA denies that Mr Mehta has any such information, and moreover argues that such information is not in any event confidential, because it can be obtained within a short period by resort to public registers and records. There is evidence before the Court of a sample search carried out by an STA employee who was able to gather together a great deal of information within half an hour. BCA denies that it is possible to obtain information in that way as a matter of course. It argues that its information, carefully compiled and stored, is confidential in that its competitors do not have access to records stored in such a convenient fashion.
[82] STA responds by asserting that it maintains thousands of files containing the detail of bodies corporate, obtained by its employees from public sources or their own inquiries, and including a number of bodies corporate which are customers of BCA.
[83] These competing contentions are matters for trial. For present purposes I am satisfied that information of the type in issue in this case, stored in the manner claimed by BCA, raises a serious question as to inherent confidentiality. But of
course BCA must show in addition there is a serious question in respect of its claim that Mr Mehta has wrongly appropriated confidential material.
[84] Mr Phillipps argues that the evidence advanced by BCA is unsatisfactory. While accepting that customer details, schedules and levy statements are “arguably confidential”, he claims that BCA is unable to establish a serious question because it cannot identify precisely what was downloaded and printed by Mr Mehta.
[85] BCA has placed before the Court various activity graphs and schedules derived from Mr Wendt-Thorne’s report of June 2009. BCA is able to identify the various customers whose files were accessed by Mr Mehta, but cannot identify the particular documents within those files as having been searched, or indeed downloaded by him. BCA asks the Court to draw inferences from Mr Mehta’s subsequent admitted approaches to a number of unit owners associated with BCA’s customers. It alleges that he would not have known (for example) the mobile phone numbers of certain of the persons approached by him, and draws the inference that he was only able to do so by reference to BCA’s records. That of itself is perhaps somewhat speculative, particularly in the light of STA’s claim that it maintains a very large database of its own.
[86] However, BCA relies in addition upon two items of circumstantial evidence. The first relates to Mr Mehta’s involvement in what BCA regards as an unlawful commission scheme, under which he is claimed to have sought and obtained commissions for placing work for bodies corporate with particular contractors. Accordingly, BCA argues, Mr Mehta is disposed to take advantage of BCA, should the opportunity present itself.
[87] Mr Mehta, although accepting that commissions were paid, contends that the scheme operated with the knowledge and approval of Mr Kwok, and that ultimately Mr Kwok himself derived the benefit from it.
[88] The second item of circumstantial evidence concerns certain e-mails alleged to have been sent by a third person, but at Mr Mehta’s direction. These e-mails contain material that evinces an animus towards BCA on the part of the sender. Of
themselves, these issues do not perhaps amount to very much, but BCA seeks to add them to their principal allegations as demonstrating Mr Mehta’s ill will towards it.
[89] Finally, and importantly, there are the fruits of Mr McKenzie’s activities at the time of the Court ordered search. As earlier noted, Mr McKenzie has identified hundreds of documents among the records of STA which contain references to BCA. That is perhaps hardly surprising given that the activities of the parties overlap in a marketplace where they are fierce competitors. But the fact that STA maintains files that contain so many references to BCA tends, at the serious question level, to support the plaintiff’s allegations.
[90] In the defendants’ favour are two primary considerations. First, there is the claimed existence of the very significant STA database to which Mr Mehta has access, and which STA claims was the source of the material he used in the course of his marketing activities.
[91] The second consideration relates to the circumstances in which Mr Mehta left BCA. This was not the usually encountered case in which an employee, having appropriated confidential information of his employer, then resigns and sets up in competition. Here, the genesis of Mr Mehta’s dismissal by BCA seems to have been a discussion by him with a fellow employee who reported to BCA what appears to have been a somewhat desultory discussion about setting up in competition. That resulted in instant dismissal, so that Mr Mehta was not in a situation where he could time his departure, having already removed such confidential information as he wished to take with him.
[92] Moreover, it appears on the evidence that Mr Mehta had no association at all with STA prior to his departure from BCA. The evidence tends to support the proposition that following his dismissal he simply sought fresh employment, and was able through an independent recruitment agency to secure employment with STA. STA’s evidence is that it obtained assurances from Mr Mehta that he had not unlawfuly taken any confidential material away from BCA.
[93] Those are the competing contentions. Drawing the various threads together, I have reached the conclusion that BCA has established that there is a serious question to be tried for the purposes of the present application.
[94] The next question concerns the balance of convenience. Currently STA is prevented from dealing with BCA’s customer base as it was at the date of the order. Meanwhile, BCA is under no similar constraint with respect to STA’s customers. There is a plain imbalance there which ought not to be perpetuated any longer than is strictly necessary.
[95] Mr Phillipps argues that the interim orders in paragraph 12 ought to be discharged because the independent solicitor and Mr McKenzie hold between them all of the documents which might arguably comprise or contain BCA’s confidential material. He says that STA remains bound by the undertaking it gave in its letter of
22 December 2008, and maintains that it has no confidential information in any event. He argues further that damages would be a sufficient remedy. The evidence shows that only four bodies corporate moved from BCA to STA during the period of
11 months or so between the commencement of Mr Mehta’s employment with STA and the date of the orders. BCA’s own evidence is to the effect that the value of each such customer is of the order of $1,500, so in all, BCA’s damage viewed in purely financial terms would not appear to be significant.
[96] Further, each body corporate targeted by STA would attract attention from BCA, because the latter will inevitably become aware of STA’s marketing activities. In that respect it is to be noted that BCA would have a statutory entitlement to be notified of, and to attend, any meeting at which a body corporate proposes to consider a resolution changing its secretary from BCA to STA.
[97] But as Mr Wright points out, that does not necessarily provide BCA with significant comfort. There is evidence to suggest that on more than one occasion, STA has been involved in a two stage process whereby a body corporate, having initially resolved to undertake its own secretarial obligations, thereafter appoints STA without notice to BCA.
[98] As to damages being a sufficient remedy, Mr Wright argues that industry experience shows that it is difficult to attract body corporate customers away from a rival, but once attracted they tend to remain loyal to their new secretary. Accordingly, the apparently limited damages figure to which I referred earlier may significantly understate the plaintiff’s ultimate losses. As a matter of principle, the availability of damages will seldom provide a sufficient answer in cases involving claimed appropriation of confidential information. There are also reputational considerations.
[99] In my view, balance of convenience factors are relatively finely balanced. I do not consider that the paragraph 12 orders ought to be permitted to remain in force for a substantial period, unless it can be positively shown that STA does indeed hold material that is confidential to BCA. The answer lies in advancing Mr McKenzie’s work. As I understand it from his report of 8 April 2010, he is able to identify and produce the documents which contain, or may contain, references to BCA. It would then be possible for the documents concerned to be reviewed. If on the one hand they simply happen to contain references to BCA, but without evidencing any unlawfulness on the part of STA, then it seems there would be no possible ground upon which the paragraph 12 orders could be maintained. If on the other hand they do include documents which are of real concern, then there would be a proper basis for the maintenance of the orders until trial.
[100] To that extent, I regard the present application to be premature. Rather than simply dismissing it however, I propose to adjourn it pending analysis of the electronic documents and records held by Mr McKenzie. That approach accords with the requirement to take into account the overall justice of the case. It will plainly be in STA’s interests to support initiatives directed at facilitating the analysis of the documents. There seems to be no reason why that analysis could not be undertaken within a matter of weeks. As and when appropriate the application may be listed before me for ultimate disposal. In the circumstances it will be accorded a significant degree of priority.
Result
[101] STA’s application for an order discharging the earlier search order is dismissed. The application for an order discharging the paragraph 12 orders is adjourned on the basis outlined above.
[102] The proceeding is to be listed before an Associate Judge for case management purposes.
Costs
[103] In all the circumstances I reserve the question of costs. Counsel may file memoranda if they are unable to agree but they may well consider it appropriate to defer the determination of costs issues until the analysis of records held by Mr McKenzie is complete.
C J Allan J
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