JAG Media Limited v Magna Systems Engineering (NZ) Limited
[2012] NZHC 1616
•9 July 2012
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2012-404-1965 [2012] NZHC 1616
BETWEEN JAG MEDIA LIMITED First Plaintiff
ANDBROADCAST INC LIMITED Second Plaintiff
ANDMAGNA SYSTEMS ENGINEERING (NZ) LIMITED
First Defendant
ANDCOUNTRY 99 TV Second Defendant
Hearing: 9 July 2012
Counsel: D Hickson for the Plaintiffs
C Murphy for the First Defendant
J P Nolen for the Second Defendant
Judgment: 9 July 2012
(ORAL) JUDGMENT OF WOODHOUSE J
Solicitors:
Mr D B Hickson, Castle Brown, Solicitors, Auckland
Ms C Murphy, Shieff Angland, Solicitors, Auckland
Mr J P Nolen, Lowndes Associates, Solicitors, Auckland
Copy to:Mr P Moodley (Independent Solicitor), Brookfields, Solicitors, Auckland
JAG MEDIA LTD V MAGNA SYSTEMS ENGINEERING (NZ) LTD HC AK CIV-2012-404-1965 [9 July
2012]
[1] There are three interlocutory applications before the court arising out of execution by the plaintiffs of a search order obtained on 2 May 2012. The first application, dated 5 June 2012, is an application by the plaintiffs to release a report of Mr Spence, an expert who conducted the search, and a report of the independent solicitor, to a number of third parties. This is opposed by both defendants. This application was followed by an application of the first defendant dated 14 June 2012. That application, in broad terms, seeks directions in relation to the material obtained on the search. The first defendant’s application was followed soon after by the second application of the plaintiffs. This may be described as an application to identify privileged documents and have privileged documents dealt with in an appropriate way.
[2] The first defendant’s application and the second application of the plaintiffs were discussed with counsel at the beginning of the hearing. This led to a practical way of dealing with these applications, and I will come back to them.
[3] To explain the plaintiffs’ application for release of the report to third parties it will assist to outline the substantive claim of the plaintiffs and a separate claim earlier commenced by one of the plaintiffs. I will refer to the latter as the debt proceeding.
The present claim
[4] Although the plaintiffs had different roles and, of course, are separate legal entities, it is generally unnecessary to distinguish between them in this narrative.
[5] The plaintiffs purchased and developed a computer based system, which I will call “the plaintiffs’ system”. The plaintiffs’ system stores and manages information that enables TV programmes to be broadcast – generically called a “broadcast traffic system” or BTS.
[6] In August 2008 the plaintiffs and The Country Channel Ltd made an
agreement for The Country Channel to use the plaintiffs’ system. The Country
Channel operated a television channel. In September 2009 The Country Channel, the plaintiffs allege, breached its agreement with the plaintiffs by not paying fees. The allegedly unpaid fees are the subject matter the debt proceeding.
[7] In September 2009 the second defendant, Country 99 TV, was incorporated for the purpose of continuing the broadcast of the programme that The Country Channel had been broadcasting. Colin Harvey was a director of The Country Channel and, it is pleaded, is the effective owner of Country 99 TV, directly or indirectly, with his wife.
[8] In October 2009 the plaintiffs and Country 99 TV made an agreement for Country 99 TV to use the plaintiffs’ system. This was on a month by month basis with Country 99 TV agreeing to pay the amount invoiced each month. There was a dispute about the invoicing in January 2010, which remains unresolved.
[9] Some time before March 2011 Eyeworks Holding Ltd (Eyeworks) agreed to supply BTS to Country 99 TV.
[10] The plaintiffs contend that on 14 March 2011 someone hacked into the plaintiffs’ system and removed critical data. This is at the heart of the present proceeding. The plaintiffs allege that the first defendant, Magna, was either directly or indirectly responsible for the hacking or provided the plaintiffs’ password – which, it is said, Magna had – to someone else for the purpose of the hacking.
[11] The plaintiffs further contend that between March and May 2011 Magna put data from the plaintiffs’ system into the BTS system of Eyeworks. (I should note at this point that I am describing the technical aspects of this in very general terms, but precision in relation to the technology is not needed for present purposes.)
[12] On 15 April Country 99 TV cancelled the month by month agreement with the plaintiffs. On 9 May 2011 Country 99 TV, the plaintiffs say, began broadcasting using data from the plaintiffs’ system.
[13] The plaintiffs contend that because of the hacking, and some other matters,
the plaintiffs’ system is now worthless. There is a claim for a total of around
$590,000 in damages under various heads and for on-going losses. There is a further claim against Country 99 TV for breach of copyright.
The search order
[14] The search order authorised Mr Michael Spence to enter the premises of
Magna and, in summary:
(a) Inspect any data storage devices to determine whether any of the devices contained copies of the plaintiffs’ system removed during what has been called the hacking.
(b) To take forensic images of any such devices.
(c) To take images of defined emails between Mr Green (a director of the first defendant), Country 99 TV, Eyeworks, and the original manufacturer of the underlying BTS, a UK company Broadcast Traffic Systems Ltd.
[15] Mr Spence is a computer expert. He provided a report to the court, as required, dated 13 May 2012. The necessary report from the independent solicitor was also filed.
The debt proceeding
[16] The debt proceeding is one by the second plaintiff in this proceeding, Broadcast Inc. The claim is against Colin Harvey, earlier referred to, Laurence Ward, Andrew Tyler and Dallas Fisher. When The Country Channel ceased trading all four defendants were directors of it. It also appears that all four, directly or through closely controlled entities, were shareholders.
[17] The claim is for unpaid fees in respect of the agreement between the plaintiffs in this proceeding (specifically Broadcast Inc) and The Country Channel made in August 2008, as earlier referred to. The four defendants are sued on the basis that they are principal debtors in terms of the agreement and pursuant to guarantees and an agreement to indemnify Broadcast Inc.
The plaintiffs’ first application
[18] In this application the plaintiffs seek leave to release copies of the reports to: (a) The lawyers acting for each of the parties in the debt proceeding. This
application is opposed. It may be noted that the lawyer for Broadcast Inc, as the plaintiff in the debt proceeding, is Mr Hickson who is acting for both plaintiffs in this proceeding. In addition, one of the defendants in the debt proceeding, Mr Harvey, is entitled to see copies of both reports as a director of the second defendant in this proceeding. It is to be assumed that he may already have seen copies. The remaining three defendants in the debt proceeding have not seen copies.
(b)The Country Channel Ltd is now in liquidation. There is application for leave to release copies to the liquidator. This is opposed.
(c) There are applications to release copies to the solicitor for Eyeworks and to Mr David Hughes of Broadcast Traffic Systems Ltd of Wales (the manufacturer) and any lawyer for that company. There is no opposition in this regard. Accordingly, orders in that respect are made.
[19] The essential ground upon which the plaintiffs seek leave to release copies to the lawyers acting for the parties in the debt proceeding is that the defendants in the debt proceeding “have a potential third party claim for contribution and/or indemnity against” the second defendant in this proceeding, Country 99 TV.
[20] The grounds for release to the liquidator of The Country Channel is based on a contention by the plaintiffs in this proceeding that “much of the content of the data on the plaintiffs’ system was owned by The Country Channel Ltd”. From this it is contended that the liquidator of Country Channel has a potential claim against the defendants in this proceeding, although primarily against the second defendant Country 99 TV.
The law
[21] Following execution of a search order, without leave of the court the information obtained cannot be used except in the proceeding in which the order was granted. There would normally be a direction to that effect and, if not, it would apply in accordance with implied undertakings arising in such circumstances.
[22] There is a further general rule that for the information obtained to be used for another proceeding, or for other purposes, special circumstances will be required for leave to be granted to that effect: Soft-Tech International Pty Ltd v Ball.[1]
[1] Soft-Tech International Pty Ltd v Ball (1990) 2 PRNZ 254 (HC). See generally J Katz QC Search
Orders (LexisNexis) at 229-233.
[23] The reason was stated by Lord Denning in Riddick v Thames Board Mills Ltd[2] in a passage cited in this Court by Hansen J in Telstra NZ Ltd v Telecom NZ Ltd:[3]
Compulsion is an invasion of a private right to keep one's documents to oneself. The public interest in privacy and confidence demands that this compulsion should not be pressed further than the course of justice requires. The courts, therefore, should not allow the other party, or anyone else, to use the documents for any ulterior or alien purpose. Otherwise the courts themselves would be doing injustice ... In order to encourage openness and fairness, the public interest requires that documents disclosed on discovery are not to be made use of except for the purpose of the action in which they are disclosed.
[2] Riddick v Thames Board Mills Ltd [1977] QB 881; [1977] 3 All ER 677 at pp 895-896; p 687.
[3] Telstra New Zealand Ltd v Telecom New Zealand Ltd (2000) 14 PRNZ 541 (HC) at 551.
[24] In this case the defendants, and in this respect principally through Mr Nolen, submitted in essence:
(a) This application is not in pursuit of any claimed interest of the plaintiffs; it is not to advance the rights of the plaintiff arising in this proceeding.
(b)There is no clear link between this proceeding and the debt proceeding and in any event it is a quite separate proceeding notwithstanding some factual links.
(c) There is no claim on foot by the liquidator at all, and any claim the liquidator may bring, whether within this proceeding or not, would be a separate claim.
(d)There is no evidence from any of the defendants in the debt proceeding or from the liquidator in respect of the matters the plaintiffs advance.
(e) It is submitted that the search report (and implicitly the solicitor’s report) would not in any event assist in respect of the possible claims referred to in support of the application.
(f) Mr Hickson, in respect of the application relating to the disclosure to parties in the debt proceeding, cited Holpitt Pty Ltd v Varimu Pty Ltd.[4]
[4] Holpitt Pty Ltd v Varimu Pty Ltd (1991) 29 FCR 576; (1991) 103 ALR 684
Mr Nolen submitted that in this the case was more helpful to the defendants than to the plaintiff. In Holpitt there were two proceedings on foot and the applicants for leave in one proceeding were defendants in the other. Those circumstances have no application here.
(g)Ms Murphy supported the submissions of Mr Nolen and added, in effect, that there is simply no connection between the defendants in the debt proceeding and her client, Magna. In this case the information sought to be released is information obtained from Magna.
[25] The circumstances in which leave may be granted are discussed by John Katz QC in his text Search Orders. The learned author concludes the discussion as follows: [5]
[5] Above n 1, at 232.
In short the plaintiff is unlikely to be able to feed evidence on infringements by the defendant to third parties who might otherwise have an interest in knowing of the infringements. The prohibition on collateral use will prevail.
I agree.
Conclusion
[26] I am satisfied that there are no special circumstances justifying release of the reports to the other parties. I am positively satisfied that the reasons for generally not granting leave do apply. In consequence the application is dismissed except in respect of the two parties where there was no objection.
The defendants’ application and the plaintiffs’ second application
[27] There was no opposition to either of these applications being advanced, although possibly out of time.
[28] In respect of the application by Magna, the orders sought in paragraphs 1.3,
1.5 and 1.8 are not pursued.
[29] The order sought by Magna in paragraph 1.2 is, in its essence, for Mr Spence to provide Magna with copies of all data he obtained, his “acquisition notes”, photographs taken, and “notes of process for the search”. I will come back to the application for copies of all data obtained. I make an order in respect of the other matters. The reason for this is that the first defendant, Magna, is entitled to this information relating to the search, having regard to the nature of a search order. Magna is entitled to this information to assist in its legitimate assessment of processes which have affected it without any notice to it.
[30] In respect of the application for an order that Mr Spence provide copies of all data, and in respect of other applications in paragraphs 1.4, 1.6 and 1.7, and in respect of the plaintiffs’ second application, I make the following orders. These are the orders arising from the discussion with counsel at the beginning of the hearing designed to advance these matters in a practical way. The orders are made by consent.
(a) The process outlined in the following sub-paragraphs is to be managed solely by Mr Spence. Except as expressly dealt with in the following paragraphs, Mr Spence is not, except by Court order, to disclose to any other person any information obtained by him in execution of the search order (other than information already contained in his report).
(b)Mr Spence is to provide the first defendant, Magna Systems & Engineering (NZ) Ltd, with copies of all data obtained by him when the search order was executed.
(c) Once Magna Systems has had an opportunity to analyse the copies of the data provided by Mr Spence, Magna is to notify Mr Spence in writing of any data which Magna contends is either: (1) not covered by the terms of the search order; (2) subject to privilege; (3) confidential; or (4) for any other reason data which should not be retained.
(d)On receipt of the notice from Magna Mr Spence is to assess the data and forthwith return to Magna any data which Mr Spence is satisfied does not clearly come within the terms of the search order, or any data recording communications between Shieff Angland, lawyers, and Magna. In his response to Magna, Mr Spence is to record in writing that he has not retained in any form any copy of any returned data.
(e) In respect of all data in the notice from Magna to Mr Spence which is not returned by Mr Spence, Magna may make such application to the Court as it considers appropriate.
(f) Pending any further order of the Court, all other data retained by Mr
Spence remains subject to the original order, modified as follows:
(i)Mr Spence shall retain all forensic images obtained by him during the search in a secure location.
(ii)Except in terms of this order, Mr Spence shall not provide any copies of the forensic images to any other person whomsoever pending further order of the court.
(g)Except to the extent recorded in the preceding orders, the first defendant’s application, dated 14 June 2012, and the plaintiffs’ further application, dated 27 June 2012, are adjourned.
(h)The parties have leave to apply for further directions, including any application for modification of the preceding orders.
(i)Counsel agree that the process involving Mr Spence and Magna is likely to take some time and it is not possible to provide a firm estimate of time. Consequently, to keep the matter under review, a telephone case management conference is to be allocated on a suitable date in a month’s time. If further time is required for some good reason, memoranda should be filed. If the conference can proceed on the first allocated date counsel should file memoranda beforehand in the usual way.
Costs
[31] The first and second defendants seek costs in respect of the plaintiffs’ first application for release of the reports. They seek costs in the usual way as successful parties on the opposed application.
[32] Mr Hickson quite properly pointed out that there was need for a hearing today because of the return date in respect of the search order. And in respect of the plaintiffs’ first application leave had to be sought for disclosure to the two parties in respect of whom the defendants consented to disclosure.
[33] I am satisfied that the defendants are entitled to costs on a 2B basis in respect of the plaintiffs’ first application. However, there needs to be some modification of the quantum because this hearing has been occupied with other matters in respect of which I propose to simply adjourn the question of costs. Consequently the defendants are entitled to costs on their notices of opposition and preparation to oppose the application and half of the sum they might otherwise be entitled to for the hearing.
[34] Costs on the other applications are adjourned.
Woodhouse J
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