FEDERAL COURT OF AUSTRALIA

Moody Kiddell & Partners Pty Ltd v Arkell [2013] FCA 1066

THE COURT ORDERS THAT:

1.    The proceeding be listed for further hearing as necessary and the making of orders in respect of the interlocutory application filed 2 August 2013 on a date to be determined in consultation with the parties.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

1.    INTERLOCUTORY APPLICATION

1        The applicant, Moody Kiddell & Partners Pty Ltd (MKP), by an interlocutory application filed on 2 August 2013, seeks an order pursuant to r 16.21(f) of the Federal Court Rules 2011 that the amended defence of the second and third respondents (David Brooke and Broolend Pty Ltd trading as Brooke Financial Solutions) be struck out as an abuse of process of the Court. The abuse of process is said to arise from the alleged conduct of the second and third respondents’, being deliberate destruction of documents relevant to the issues in dispute and which otherwise ought to have been discovered by those respondents.

2        In order to understand the interlocutory application, and the evidentiary foundation for it, it is necessary to explain the circumstances leading up to the making of the application.

2.    BACKGROUND

2.1    The four discovery affidavits

3        MKP commenced this proceeding on 21 December 2011. Because of the issues about discovery, the proceeding has not progressed beyond pleadings.

4        The second respondent, Mr Brooke, is a former employee of MKP. MKP specialises in brokerage services for equipment finance. MKP employed Mr Brooke in early 2002. He had no prior experience in brokerage services for equipment finance having previously been employed as a police officer. MKP employed Mr Brooke as a broker. Mr Brooke worked with the first respondent, another broker employed by MKP, Benjamin Arkell. Mr Brooke rose in MKP’s ranks over time. By 2006 he was part of MKP’s management committee. This committee comprised senior employees entitled to a profit share in MKP’s business and directed MKP’s business. In his capacity as a senior employee and member of the management committee Mr Brooke had access to all of MKP’s confidential information (or, at the least, information alleged by MKP to be confidential) including all accounting records, terms of trade, client lists, business plans, and human resources records. Mr Brooke was also responsible for managing a large number of MKP clients. In addition to his contract of employment, Mr Brooke was subject to a confidentiality deed which included obligations not to publish, disclose or otherwise communicate MKP’s confidential information either during or after his employment, not to compete with or solicit any customer from MKP for 12 months after ceasing employment, and to return to MKP all intellectual property, confidential information and other documents belonging to MKP on ceasing employment.

5        Mr Brooke resigned from MKP on 17 March 2010. MKP alleges that in breach of his various obligations Mr Brooke: (i) copied and retained a list of all of the clients of MKP with whom he had dealt on behalf of MKP, (ii) copied and retained a number of other internal documents belonging to MKP including the forms by which MKP dealt with client applications for finance, (iii) used and disclosed this information to and caused the third respondent to use this information in establishing a business providing brokerage services for equipment finance in competition with MKP, and (iv) used this information to compete with MKP and solicit clients of MKP to transfer their business from MKP to the third respondent. Amongst other breaches of his obligations, MKP alleges in paragraph 105 of its amended statement of claim that during his employment and the period of 12 months after he ceased employment Mr Brooke used the list of his clients when he worked at MKP to approach those clients for the purpose of enticing them to give their business to him and the third respondent and assisted Mr Arkell, who also left the employ of MKP and went to work for the third respondent at Mr Brooke’s instigation, to do the same. The particulars to paragraph 105 list numerous entities which MKP alleges were clients of MKP, managed by Mr Brooke when he was employed by MKP and listed as his clients on the MKP document Mr Brooke wrongfully copied and retained, which Mr Brooke is said to have approached and enticed to give their business to the third respondent and Mr Brooke instead of MKP. In his defence Mr Brooke denies the allegations of wrongful conduct against him and, in particular, denies paragraph 105. Amongst other things he also does not admit that the various restraints to which he was subject by reason of the confidentiality deed were valid and enforceable restraints of trade.

6        Given the nature of the claims (particularly the misuse of information) discovery was an issue of concern to MKP from the outset. On 15 February 2012 MKP’s solicitors sought confirmation from the solicitors for Mr Brooke and the third respondent that they had been advised as to their discovery obligations and had not to date destroyed documents. The solicitors for Mr Brooke and the third respondent said that the respondents had been advised about these obligations and had not destroyed any documents. Proposed discovery categories were served by MKP on 5 April 2012.

7        Mr Brooke swore his first affidavit in respect of discovery on 3 July 2012. That affidavit caused MKP concern because it identified that from 17 March 2010 to present, intermittently, “numerous emails were permanently deleted and I have been unable to retrieve them.”

8        MKP’s solicitors wrote to the solicitors for Mr Brooke and the third respondent on 27 July 2012 expressing concern about the deletion of emails which contradicted the earlier advice that no documents had been destroyed. A further affidavit as to discovery was sworn by Mr Brooke on 4 August 2012. This second affidavit said that emails had been deleted between March 2010 “to the date these proceedings were filed, being 21 December 2011” and that the reason for the deletions was that the emails “were of no commercial value” and the hard drive of Mr Brooke’s computer had failed in November 2011 and was replaced.

9        MKP’s solicitors sought further information about the second discovery affidavit by letter dated 23 August 2012. The discovery issue was deferred, however, pending a mediation which had been ordered. The proceeding did not settle at mediation and MKP’s solicitors again pressed for a response to their request for further information about discovery. On 9 November 2012 MKP’s solicitors served a notice to produce which, amongst other things, required Mr Brooke and the third respondent to make available for inspection and copying by Michael Khoury, a forensic computer consultant, all computers, servers and electronic storage devices used by them during the period 1 January 2010 to 21 December 2011. The notice to produce was required to be answered on or before 14 November 2012. The solicitors for Mr Brooke and the third respondent said access could not be arranged for 14 November 2012. The notice was not answered and on 15 November 2012 I made orders for production to occur before 5.30pm that day.

10        On 4 December 2012 I ordered Mr Brooke and the third respondent to answer the letter from MKP’s solicitors of 23 August 2012. I also ordered that MKP file any interlocutory application in relation to alleged inadequate discovery by 11 December 2012, a period subsequently extended to 21 December 2012.

11        On 21 December 2012 MKP applied for leave to cross-examine Mr Brooke about his discovery affidavits. In support of this application MKP, amongst other things, filed an affidavit from Mr Khoury setting out the results of his examination of the computers produced on 15 November 2012 and of earlier work he had done for MKP examining Mr Brooke’s computer at MKP. Mr Khoury identified various USB devices that had been connected to Mr Brooke’s computer at MKP. He also identified that Mr Brooke’s computer at MKP had been used to download various documents including Mr Brooke’s client list. As to the computers used in the business of the third respondent, Mr Khoury reported that the file destruction applications “File Shredder” and “CCleaner” had been installed on the devices at various dates between May and November 2012 including “CCleaner” having been installed on Mr Brooke’s work computer on 14 November 2012 (the date the computers were meant to be produced under the notice to produce) and his home computer on 13 November 2012.

12        Mr Khoury explained that “CCleaner” is a free program, available on the internet, which on its default setting enables files to be deleted from the hard drive but not destroyed. However, its default setting can be changed to enable the files to be destroyed. “File Shredder” is another free program available on the internet. It gives the user an option to permanently destroy files by an overwriting process and can also be used to overwrite unallocated storage areas of the hard drive to prevent recovery of files which have previously been deleted using the standard deletion processes.

13        Mr Brooke swore a third discovery affidavit which was filed on 25 February 2013. In this third affidavit Mr Brooke said he had carried out further searches and found additional discoverable documents. The affidavit also said that Mr Brooke noticed his computer was running slowly in 2012 and a friend of his, Alex Kurcubic, told him that a method to permanently free additional disk space on his computer was to install file shredding software known as “File Shredder” and “CCleaner”. Mr Brooke, with Mr Kurcubic’s help, put this software on his work computer in May 2012 and his home computer in October 2012. Mr Brooke said he “operated the file shredding software from time to time with no particular pattern, with the intention of freeing space on my computer-system hard drives” and he had not used the file shredding software “in response to the present proceedings in any way”. He said he used the software on 13 November 2012 to delete material of a personal nature which he thought others would find inappropriate. He said that he had not at any time during the proceeding used the file shredding software to delete any documents relevant to the proceeding. He also said that he had given to Mr Kurcubic for safe destruction the two failed hard drives from his computer in or about November 2012 and Mr Kurcubic told him he would destroy them.

14        When the interlocutory application came before me on 8 March 2013 counsel appearing for Mr Brooke said that he was instructed that all invoices issued by the third respondent (one of the categories of documents required to be discovered) had now been discovered by the production of a USB device on which all such invoices were contained. Counsel appearing for MKP disputed this. I declined to grant leave to MKP to cross-examine Mr Brooke on the basis that the parties needed to resolve what had and had not been discovered on the USB device.

15        On 2 April 2013 Mr Brooke swore his fourth discovery affidavit. By this time it was apparent from correspondence between the solicitors that the USB device did not contain all invoices issued by the third respondent. Accordingly, the hearing on 8 March 2013 had effectively miscarried by reason of the incorrect instructions given by Mr Brooke to his legal representatives. Despite this, Mr Brooke’s fourth discovery affidavit did not explain how the error had occurred. Instead, it produced another USB device containing yet more documents not previously discovered. The affidavit did so, moreover, without clarifying whether all relevant documents had yet been produced or not.

16        The matter came before me again on 3 and then 4 April 2013. Having regard to the history of the matter, I ordered that Mr Brooke attend for cross-examination on his discovery affidavits. This occurred on 27 May 2013. The effect of Mr Brooke’s evidence was that: (i) he first said he believed and continued to believe that the MYOB files he had produced contained the invoices, (ii) he then said that while the MYOB files did not contain “hard copies” of the invoices they contained the “content of every invoice”, (iii) next he said that the MYOB files allowed invoices to be printed but did not contain the actual invoices as the files “populated the invoices every single time you print it”, (iv) he could not print some of the invoices from his MYOB files so obtained copies from his accountant, (v) hence, his instructions to his lawyers that he had obtained all documents in a folder he had prepared from the USB device he had produced was wrong, (vi) the invoices were not sequentially numbered because some matters were not billed as they did not proceed, (vii) he deleted emails he thought were of no use, (viii) he thought his second affidavit (which said he had been deleting emails up until the proceeding commenced on 21 December 2011) clarified his first affidavit (which said he had been deleting emails until the date of his first affidavit, which was 3 July 2012), (ix) the true position, however, was he had been deleting emails continuously up until the present, (x) he alone decided which emails to delete based on his criterion of the emails being of no use, and he did not consult his lawyers about what he was doing, despite having been told by them that he should not destroy any documents relevant to the proceedings, (xi) he installed the file shredding software on his computers after he knew he had discovery obligations in this matter, (xii) he did so because Mr Kurcubic told him this was a way to speed up his computer, (xiii) the material he deleted in November after being aware he had to produce his computers for inspection was pornography but he did not tell his lawyers he was running the file shredding software in the days before his computers had to be produced, (xiv) he did not then know that the effect of running the file shredding software was to scrub his computer as he thought it would just make the computer run faster, and (xv) he could not say that he had not deleted documents relevant to this case.

17        MKP then filed the current interlocutory application seeking an order that the amended defence of Mr Brooke and the third respondent be struck out as an abuse of process of the Court.

2.2    The current interlocutory application

18        The current interlocutory application was accompanied by another affidavit from Mr Khoury and affidavits from the solicitor with the carriage of the matter for MKP, Justin Le Blond.

19        In his further affidavit Mr Khoury said that he had again reviewed the material copied from the various devices of Mr Brooke and the third respondent in light of the evidence Mr Brooke had given. This analysis led Mr Khoury to confirm his opinion that file shredding software had been used to overwrite the unallocated space on all of the computers. This, he explained, ensures that any deleted documents or other information no longer visible to a user are completely overwritten thereby precluding attempts at future recovery. According to Mr Khoury, this process has no benefit to the performance of the system. Further, a forensic analysis of Mr Brooke’s work computer showed that certain searches on Google had been performed on that computer. On 14 May 2012 Mr Brooke’s work computer was used to carry out a search on Google “is guttman 35 shredding better than department of defence?”. “Guttman 35 shredding” is a reference to a method of electronic information destruction which involves 35 overwrites of the information. The Department of Defence method involves 8 overwrites of the information. Mr Brooke’s computer was also used on 14 May 2012 to visit a website containing an article called “Shred files and wipe disks”. Other retrieved Google searches from this computer include “what happens if you don’t comply with a court order” on 1 April 2012, as well as “what happens if you don’t comply with a federal court order” on the same day. The program “CCleaner” was installed on Mr Brooke’s home computer on 13 November 2012 and on his work computer on 14 November 2012.

20        Mr Khoury also explained his involvement in a process carried out by MKP’s lawyers which sought to identify documents that had been permanently deleted from Mr Brooke’s work computer and which were not recoverable by forensic investigation. In this process, as Mr Le Blond explained, documents already produced at any time by Mr Brooke and the third respondent were excluded. Any entities that had been the subject of subpoena were also excluded. Searches were carried out of a portal which contained the information copied from the computers and other devices produced by Mr Brooke and the third respondent using the names of the entities listed in paragraph 105 of the amended statement of claim. These are clients of MKP which MKP alleges Mr Brooke and the third respondent enticed to transfer their business to Mr Brooke and the third respondent in breach of Mr Brooke’s obligations to MKP. The review resulted in a spreadsheet identifying numerous emails and attachments to emails that had been permanently erased from the computers. While the content of a number of those emails and the identity (but not the content) of the attachments was otherwise available from an email chain there remained numerous examples of emails to entities the subject of MKP’s pleading in paragraph 105 and related attachments the content and identity of which were not recoverable by any method.

21        Mr Le Blond said that this review involved a sample only of the missing documents. To identify all documents and attachments which had been permanently erased would involve substantial time and expense as the portal contains nearly 90,000 documents. Mr Le Blond said that MKP could not know all the documents that had been deleted and it was impractical to subpoena all MKP’s clients as listed in paragraph 105 of the statement of claim (although more than 25 had been issued).

22        Mr Kurcubic was subpoenaed to give evidence. His evidence was to the effect that: (i) he had installed “File Shredder” and “CCleaner” on Mr Brooke’s work computer and told him how to install these programs on his other computers, (ii) he had done so to try to deal with systems issues, such as the computers running slowly, (iii) he told Mr Brooke how to use the programs to free up the unallocated or clear disk space on the hard drives, (iv) he had never suggested using the programs to delete documents and, although he had run the programs on the computers, had never done so to delete documents, and (v) he had not been given any hard drives by Mr Brooke to destroy although he had attempted to repair hard drives of Mr Brooke.

23        Mr Arkell also gave evidence although it is apparent that he had no involvement in installing any file shredding software or deleting documents. He returned his computer to Mr Brooke after he ceased to be employed by the third respondent and Mr Brooke then placed the file shredding software on Mr Arkell’s work computer.

24        Mr Brooke did not give evidence on the current interlocutory application.

3.    DISCUSSION

3.1    Principles

25        The parties relied on principles apparent from a number of decisions, particularly British American Tobacco Australia Services Ltd v Cowell (2002) 7 VR 524; [2002] VSCA 197 (British American Tobacco), Clark v State of New South Wales (2006) 66 NSWLR 640; [2006] NSWSC 673 (Clark), Clark v State of New South Wales [2012] NSWCA 139 (Clark CA), Palavi v Radio 2UE Sydney Pty Ltd [2011] NSWCA 264 (Palavi), and Arrow Nominees Inc v Blackledge [2000] EWCA Civ 200 (Arrow).

26        The principles include the following:

(1)        Non-compliance with an order for discovery enlivens the power to strike out the pleadings of a party (British American Tobacco at [178]).

(2)        The power to deny a person the right to rely on their pleading, in whole or part, is exceptional and to be exercised sparingly given the drastic nature of the remedy (Clark at [63] and [147]; see also Palavi at [93]-[95]).

(3)        The power exists not to punish the party in default but to ensure the proper administration of justice, in particular to ensure the capacity for a fair trial to be held (British American Tobacco at [178]).

(4)        The power exists whether or not the conduct of the party in default was blameworthy or delinquent (Clark at [86]), but the intention of the party in default is relevant both to a finding of abuse of process and to the drawing of inferences about the potential significance of the destroyed material to the issues in the case (Clark at [76]-[81]).

(5)        A fair trial does not mean one that is ideal or perfect as trials may be fair even if documents are missing (Clark at [64]).

(6)        The key consideration to the fairness of the trial in this context requires an assessment of the nature and extent of the prejudice to other parties by reason of the default (British American Tobacco at [178]).

(7)        The question of prejudice involves an assessment of the significance of the destroyed material to the proceeding even allowing for the capacity to draw adverse inferences against the party in default (Clark at [104]).

(8)        The remedy must be responsive and proportional to the prejudice of the non-defaulting parties (British American Tobacco at [188]). Judicial indignation at the affront to justice involved must not be given effect (Clark at [89]).

3.2    Conclusions

27        Insofar as the submissions for Mr Brooke and the third respondent are concerned, I should record the following.

28        Although I accept that Mr Brooke might have deleted emails in the ordinary course of business from time to time before the commencement of the proceeding and I cannot know which missing emails were the subject of this form of deletion and the use of the file shredding software after the commencement of the proceeding, the submission misses the real point. The real point is that if Mr Brooke had merely deleted emails in the ordinary course then those emails, even though deleted and indeed permanently deleted by their removal from the “trash” folder of the computer, most likely would have been recoverable on forensic examination of Mr Brooke’s computers. It is only the use of the file shredding software which had ensured that numerous emails and attachments are not only deleted, but irretrievable. The file shredding software was installed and used after the commencement of the proceeding and after Mr Brooke knew that he had discovery obligations and had been told by his solicitors not to destroy any documents. Accordingly, I reject the notion that emails might be “properly” missing. But for Mr Brooke’s deliberate and improper conduct in running the file shredding software any email deleted innocently before the proceeding commenced, in all likelihood, should have been retrievable by forensic computer analysis.

29        I found Mr Brooke’s evidence when cross-examined about his discovery unimpressive. He was reluctant to concede the obvious (for example, that the invoices were not in fact on the USB device he had provided at all, only the information from which the invoices had been prepared). He made concessions only when forced to do so (for example, that the folder he had prepared contained documents from his MYOB files when in fact he could not print all invoices and obtained some from his accountant). If he had truly wished to delete only pornography from his computers then the large number of emails identified as missing would not also have been deleted. Moreover, he would not have installed and run the file shredding software on Mr Arkell’s work computer.

30        I am satisfied that Mr Brooke arranged for the file shredding software to be installed on his computers for at least two purposes. One purpose might well have been to deal with issues about the performance of his work and home computers. However, he also had the substantial purpose of destroying material that I infer he thought was likely to be adverse to his defence of the claims against him, in particular the allegations that he had used MKP’s information to entice clients of MKP away from MKP and give their business to Mr Brooke in breach of his obligations to MKP. This inference arises from the fact that there are numerous missing emails and attachments to and from Mr Brooke to the very entities the subject of MKP’s pleading (in particular, paragraph 105) and which it is obvious formed part of a sequence of communications by which former clients of MKP gave and transacted their business to Mr Brooke and the third respondent.

31        The fact that, after he had been cross-examined, it was discovered and disclosed by Mr Khoury that Mr Brooke, in April and May 2012, had carried out searches on Google asking whether Guttman 35 shredding was better than Department of Defence shredding and what were the consequences of not complying with orders of this Court supports the inference that Mr Brooke engaged in a deliberate course of conduct on and from that time to ensure that documents he thought might be adverse to his defence were erased and irretrievable from his computers. This inference is also supported by the fact that, despite knowing of this material in Mr Khoury’s affidavit, Mr Brooke chose not to give evidence to explain the purpose of those searches. I infer that any evidence he could have given would not have assisted him.

32        Having regard to these considerations, I do not accept his evidence that he only deleted documents he thought were immaterial. It is obvious from the evidence that he deleted a substantial number of emails with the former clients of MKP the subject of the allegations of breach by Mr Brooke of his obligations to MKP. I do not accept his evidence that he did not know that the file shredding software erased information from the hard drives so it could not be recovered by forensic computer analysis. The Google search he did about Guttman 35 shredding compared to Department of defence shredding indicates he knew very well that if he deleted an email and then deleted it from his computer’s trash folder it would very likely still be able to be recovered unless it had been overwritten by file shredding software. He thereafter obtained the file shredding software from Mr Kurcubic and used it to ensure the emails he chose to delete were overwritten and thus unable to be recovered. He did this despite being told he must not destroy any documents by his solicitors and despite knowing that he had discovery obligations and what they were. Indeed, he ran the file shredding software knowing that his computers were required for production during the two days before the required production date. I do not accept that he carried out this latter action only to delete pornography. I infer that he also did so to ensure that documents he did not wish to discover were permanently erased.

33        To the extent that the submissions for Mr Brooke and the third respondent emphasised that the content of the emails and identification of attachments described as “missing” could be ascertained from other email chains, it is apparent from a review of the evidence that this is correct only with respect to some emails and some attachments. The evidence shows many emails and attachments in the course of communications between MKP’s clients and Mr Brooke which have been deleted by Mr Brooke and are irretrievable because he ran the file shredding software.

34        I accept Mr Kurcubic’s evidence that he never deleted any document from any computer of Mr Brooke or the third respondent. I also accept his evidence that Mr Brooke never gave him hard drives to destroy. As a consequence I do not accept Mr Brooke’s evidence that the two failed hard drives from his work computer were given by Mr Brooke to Mr Kurcubic to destroy. This means that Mr Brooke may or may not still be in possession of those hard drives. Either way, I infer that they would contain material of direct relevance to the issues in dispute in this case, in particular the allegations in paragraph 105 of the amended statement of claim.

35        I do not accept the submissions for Mr Brooke and the third respondent that MKP’s evidence failed to link the missing documents to the pleadings and to demonstrate the significance of those documents to the case. It is true that MKP seeks to strike out the whole of the defence (an issue to which I return below). Putting that to one side, it is apparent from Mr Le Blond’s affidavit that it is not simply a case of uncertainty about MKP having all documents that are relevant. MKP, in paragraph 105, specifically pleads that Mr Brooke had breached his obligations to MKP, in effect, by soliciting business from numerous identified clients of MKP. Mr Brooke denied this allegation. The evidence discloses that there are numerous email communications between Mr Brooke and those clients which Mr Brooke has ensured can ever be seen by MKP. These are communications of direct relevance to the allegations in paragraph 105. They are between Mr Brooke and the clients about the business that it is alleged the clients used to give to MKP and now give to Mr Brooke and the third respondent. I accept that, beyond this, I do not know the content of the emails. But in a case about breach of a non-solicitation obligation, those facts indicate documents of direct relevance to the claims. Moreover, I do know, or at least infer, that Mr Brooke thought they should be deleted. This is more than sufficient to satisfy me that, while it is possible MKP might be able to run this aspect of its case without this material, “there is a real and substantial risk” it will not be able to do so by reason of Mr Brooke’s deliberate conduct which I infer was intended to create this very consequence.

36        It will be apparent from these conclusions that I do not accept the submissions for Mr Brooke and the third respondent to the effect that MKP’s application is based on its desire to “catch every swallow”. The extent of the destruction of the documents, and their direct relevance to the issues in dispute, points to a well-founded concern that Mr Brooke’s conduct has caused substantial prejudice to MKP’s capacity to a fair hearing of its claims. I also do not accept that the numerous subpoenas which MKP has caused to be issued cure the prejudice. Undoubtedly MKP managed to obtain some material on subpoena which Mr Brooke should have discovered but did not. But the review explained by Mr Le Blond excludes all entities which have been the subject of a subpoena and all documents ultimately produced by the second and third respondents. The number of emails and attachments missing and irretrievable in any form remains large.

37        For these reasons I am satisfied that Mr Brooke’s conduct constitutes an abuse of the process of the Court. I am also satisfied that MKP’s capacity to prosecute its claim in paragraph 105 of the amended statement of claim has been significantly prejudiced by Mr Brooke’s conduct. I am not satisfied that the destruction of the documents prejudices MKP’s capacity to prosecute other parts of its claim. In particular, MKP bears the onus of proving that any restraint of trade is reasonable, just as it bears the onus of proving that the information which Mr Brooke is alleged to have copied and used is subject to confidentiality and contractual obligations. Given that the remedy of striking out any part of a pleading is draconian, and only to be exercised in exceptional circumstances, with the exercise to be responsive and proportionate to the prejudice to the other party, I am unable to see any basis for striking out any part of the defence other than the part to which the missing documents are directly relevant, being paragraph 105.

38        I have considered but do not conclude that the fact that I do not accept that Mr Brooke gave Mr Kurcubic the two hard drives to destroy (with the result that I do not know the fate of those hard drives) is a proper basis for striking out the whole of the defence of Mr Brooke and the third respondent. This was not the basis upon which the application was brought. It emerged during Mr Kurcubic’s evidence. I consider it would be unfair to Mr Brooke and the third respondent in these circumstances to use the inconsistency, and my preference for Mr Kurcubic’s evidence, as a reason to strike out the whole of the defences.

39        In respect of paragraph 105 of the amended statement of claim, however, real and significant prejudice to MKP has been demonstrated, as explained above. That prejudice is a direct, and I infer the intended, result of Mr Brooke’s conduct. The circumstances are exceptional and the draconian remedy of strike out is necessary to ameliorate that prejudice and ensure a fair hearing for both parties is possible. The drawing of inferences adverse to Mr Brooke is insufficient to ensure a hearing fair to both parties. Accordingly, I consider that Mr Brooke and the third respondent’s defence to paragraph 105 should be struck out. However, the effect of such a strike out should not be understood as relieving MKP of its onus to prove the existence of the obligations to which Mr Brooke is alleged to be subject. The prejudice relates to MKP’s capacity to prove that Mr Brooke approached, contacted and enticed away from MKP clients of MKP and assisted Mr Arkell and the third respondent to do so.

40        I am willing to hear the parties further on the appropriate form of the order and costs. After resolving these outstanding issues, I propose to arrange for transfer of the matter to another judge given my findings about Mr Brooke.

Associate:

Dated:    22 October 2013