FEDERAL COURT OF AUSTRALIA
Ferguson Corporation Pty Ltd ACN 008 943 646 v Kowalewski [2008] FCA 593
PRACTICE AND PROCEDURE – particular discovery – whether fishing expedition
Federal Court Rules O 15 r 2, O 15 r 2(3), O 15 r 8
Creative Brands Pty Ltd v Franklin [2001] VSC 338
Ferguson Corporation Pty Ltd v Kowalewski [2007] FCA 789
Independent Cement & Lime Pty Ltd v Australian Cement Ltd & Ors [1988] FCA 749
Liberty Financial Pty Ltd v Scott (No. 4) [2005] VSC 472
Seven Network Ltd v New Ltd (No 5) (2005) 216 ALR 147
Spyer v Cuddles ‘N’ Mum (Franchise) Pty Ltd (No 3) [2002] FCA 1563
Trade Practices Commission v CC (NSW) Pty Ltd (No 4) (1995) 58 FCR 426
WA Pines Pty Ltd v Bannerman (1980) 41 FLR 175
WAD 360 of 2006
MCKERRACHER J
2 MAY 2008
PERTH
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IN THE FEDERAL COURT OF AUSTRALIA |
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WESTERN AUSTRALIA DISTRICT REGISTRY |
WAD 360 of 2006 |
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BETWEEN: |
FERGUSON CORPORATION PTY LTD ACN 008 943 646 Applicant
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AND:
AND:
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HENDRYK KOWALEWSKI First Respondent
JOPHIEL PTY LTD ACN 118 004 087 Second Respondent
ALFRESCO CONCEPTS PTY LTD ACN 122 503 020 Third Respondent
HENDRYK KOWALEWSKI Cross-Claimant
FERGUSON CORPORATION PTY LTD ACN 008 943 646 Cross-Respondent
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MCKERRACHER J |
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DATE OF ORDER: |
2 MAY 2008 |
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WHERE MADE: |
PERTH |
THE COURT ORDERS THAT:
1. The applicant’s motion of 20 February 2008 be allowed subject to the qualifications outlined in the reasons.
2. The cross-claimant’s motion brought by notice of motion filed on 21 February 2008 be allowed.
3. Particular discovery ordered.
4. Precise terms of the discovery and orders as to costs to be settled between the parties or re-listed for determination within 21 days.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
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IN THE FEDERAL COURT OF AUSTRALIA |
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WESTERN AUSTRALIA DISTRICT REGISTRY |
WAD 360 of 2006 |
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BETWEEN: |
FERGUSON CORPORATION PTY LTD ACN 008 943 646 Applicant
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AND:
AND: |
HENDRYK KOWALEWSKI First Respondent
JOPHIEL PTY LTD ACN 118 004 087 Second Respondent
ALFRESCO CONCEPTS PTY LTD ACN 122 503 020 Third Respondent
HENDRYK KOWALEWSKI Cross-Claimant
FERGUSON CORPORATION PTY LTD ACN 008 943 646 Cross-Respondent
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JUDGE: |
MCKERRACHER J |
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DATE: |
2 MAY 2008 |
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PLACE: |
PERTH |
REASONS FOR JUDGMENT
1 There are two motions before the Court. The applicant seeks from the respondents further particular discovery of certain documents which are described in the schedule to these reasons. Similarly the cross-claimant, who claims monies due under a business purchase agreement, seeks against the applicant discovery orders as follows:
1. The cross-respondent within 14 day (sic) of the date of this Order give discovery on oath of any taxation records and advice received by the cross-respondent relating to the sale agreement the subject of the cross-claim and defence to cross claim filed by the parties, and in particular but not limited to:
1.1 tax returns, including annual returns and Business Activity Statements, for the cross-respondent for the years 2004, 2005 and 2006;
1.2 advice received from the cross-respondent’s accountant in relation to the purchase agreement the subject of the dispute the subject of the cross-claim and defence to cross-claim;
1.3 other financial documents for the business conducted by the cross-respondent including accounting journals, balance sheets and monthly management accounts for the years 2004, 2005 and 2006;
1.4 any documents provided by the cross-respondent to its accountant for the purposes of preparing accounting and taxation affairs of the cross-respondent.
2 The proceedings have been on foot since December 2006. The first respondent, Mr Kowalewski, was previously employed by the applicant, Ferguson Corporation Pty Ltd (Ferguson Corporation). Ferguson Corporation manufactures and sells amongst other things stainless steel outdoor cooking equipment which it markets under the trade name ‘Alfrescostyle’. Mr Kowalewski was employed by Ferguson Corporation from 3 May 2004 until 31 October 2006 as a technical consultant engaged in the production and sales of stainless steel outdoor kitchen equipment.
3 In its further re-amended statement of claim, Ferguson Corporation relies upon implied terms of Mr Kowalewski’s contract of employment that he would act in good faith in the interest of Ferguson Corporation and would not place himself in a position where his duties to Ferguson Corporation and his self interests conflicted or where there was a real sensible possibility of conflict. In three respects, it is said that he has breached the implied terms of his employment. Those three alleged breaches are set out in par 5 of the pleading. Paragraph 5 is in the following terms:
5. In breach of the implied terms referred to in paragraph 4, Mr Kowalewski:-
5.1 on 9 October 2006 obtained and kept copies of 14 quotations by a laser steel contractor, “Action Laser Cutting” to Ferguson Corporation, for the cutting of stainless steel pieces for use in the manufacture of outdoor kitchen equipment (the Quotations);
5.2 on or about 21 September 2006, received from Mr Daryl Taylor, and kept two computer diskettes containing fabrication drawings for each of the items of stainless steel outdoor kitchen equipment manufactured and sold by Ferguson Corporation (the Drawings);
5.3 in August, September and October 2006 took documents, in hard copy or soft copy form containing information, not in the public domain but not constituting trade secrets, relating to Ferguson Corporations’ business of manufacture and sale of stainless steel outdoor kitchen equipment (the Other Information);
PARTICULARS
That Mr Kowalewski took the Other Information is to be inferred from the facts:-
(a) referred to at paragraphs 5.1 and 5.2;
(b) referred to at paragraphs 9.1, 9.2, 9.3, 10.1, 10.2 and 10.3 and the Particulars thereto.
Further particulars of the Other Information will be provided after discovery and interrogatories.
5.4 from about August 2006 engaged in setting up, and operation of, a business for the manufacture and sale of stainless steel outdoor kitchen equipment by Jophiel in competition with Ferguson Corporation (Jophiel’s Business);
5.5 from about August 2006 used, alternatively permitted the use of, Drawings, the Quotations and the Other Information in and for the purposes of Jophiel’s Business;
5.6 from about November 2006, used, alternatively permitted the use of, the Drawings, the Quotations and the Other Information in and for the purposes of a business for the manufacture and sale of outdoor kitchen equipment by Alfresco Concepts (Alfresco Concepts’ Business).
4 Ferguson Corporation contends that Mr Kowalewski kept the drawings, obtained the quotations and took the other information intending to use them for the purposes of a business also manufacturing and selling the same products. Additional breaches are pleaded as against Mr Kowalewski and the knowing concern of the second and third respondents, Jophiel Pty Ltd (Jophiel) and Alfresco Concepts Pty Ltd (Alfresco), is also pleaded.
5 As against Jophiel, it is alleged that it knowingly procured the manufacture of stainless steel outdoor kitchen equipment with the use of the drawings obtained by Mr Kowalewski; it sold that outdoor equipment and used quotations and other information in its business.
6 The case for Ferguson Corporation is said to be inferred:
(a) from the fact that Steven Thomas Meakins and Monica Marie Meakins (Mr and Mrs Meakins) have been at all material times the shareholders of Jophiel and Mr Meakins is its sole director;
(b) from about August 2006 Jophiel traded from premises in Canningvale, Western Australia and in September 2006 adopted a trade name Alfresco;
(c) Jophiel procured or arranged the manufacture of stainless steel outdoor kitchen equipment bearing a close similarity and design in the construction to the same equipment manufactured and sold by Ferguson Corporation;
(d) from 2 November 2006 the business of Alfresco was conducted by Alfresco from the Canningvale premises;
(e) Alfresco procured or arranged the manufacture of stainless steel outdoor kitchen equipment bearing a close similarity in design and construction to stainless steel equipment manufactured and sold by Ferguson Corporation;
(f) each of Mr and Mrs Meakins and Mr Kowalewski and his wife, Annette Kowalewski are directors and shareholders of Alfresco;
(g) Mr Kowalewski has since 2 November 2006 approached Ferguson Corporation’s customers on behalf of Alfresco and has endeavoured to solicit their business.
7 The material knowledge of Jophiel is, again on the pleading, to be inferred from the fact that between about August 2006 and October 2006, Mr Kowalewski and Mr Meakins were in frequent contact by telephone and otherwise. Details of Mr Kowalewski’s mobile phone records are relied upon by Ferguson Corporation. Similar allegations are raised as against Alfresco.
8 There are claims for damages for breach of contract, that is, breach of an implied term or alternatively, an account for profits and various other forms of relief.
9 The respondents complain that the case against them is almost entirely inferential and therefore weak. They say that the discovery which is sought, in the circumstances, is far too broad.
Legal Principles
10 Order 15 r 8 of the Federal Court Rules empowers the Court to order a party to provide discovery of documents ‘relating to any matter in question in the proceeding’. It is clear that r 8 provides a right of a different and additional kind from that right available by way of general discovery as it is now understood under the Federal Court Rules.
11 In Seven Network Ltd v New Ltd (No 5) (2005) 216 ALR 147 Sackville J held that the test to be applied in determining whether r 8 particular discovery should be ordered was whether the documents sought were ‘reasonably likely to add, in the end, in some way or other, to the relevant evidence in the case’. However it is also then stressed by Gray J in Independent Cement & Lime Pty Ltd v Australian Cement Ltd & Ors [1988] FCA 749that pure speculation that the documents might exist is not a sufficient ground for the making of an order of the kind contemplated by r 8.
12 In Spyer v Cuddles ‘N’ Mum (Franchise) Pty Ltd (No 3) [2002] FCA 1563, Lindgren J outlined the developments which have occurred in the Federal Court Rules providing a more restricted ambit of discovery in relation to a notice of discovery required by O 15 r 2. However, he then pointed to the fact that the expression ‘relating to any matter in question in the proceeding’ under r 8 did, import the Peruvian Guano test. It followed that there was a disconformity between the narrower and more demanding test of discoverability under O 15 r 2(3) and the Peruvian Guano test. Indeed as his Honour described it, the test under r 8 was much broader than under the prescribed notice for discovery Form 21. Notwithstanding that the threshold is not high, his Honour observed that the word ‘may’ where it appears for the second time in that rule gives the court an overriding discretion not to make an order even if the power given by the rule to make one is enlivened.
13 Foremost in the exercise of a discretion in this case will be the question of whether part or all of the additional specific discovery sought by Ferguson Corporation can be said to be a fishing expedition. Is it merely speculative that such documents exist which may assist its case and the case of the respondents? Ferguson Corporation contends that as Mr Kowalewski has already attempted but failed on a motion to strike out the Ferguson Corporation pleadings, there is a strong indication that Ferguson Corporation has established sufficient a case on its pleading (and which is supplemented by affidavit material supporting the pleading) that it would be difficult to conclude that the documents it seeks are within the category of documents which are necessary to establish a case in the first place.
14 Lindgren J, in Trade Practices Commission v CC (NSW) Pty Ltd (No 4) (1995) 58 FCR 426 at 437-438 said:
It remains to consider the submission that discovery should not be ordered because the Commission seeks to use it as a “fishing expedition”. It has often been said to be a ground on which discovery (and interrogatories) will not be ordered, that the purpose is to carry out a “fishing expedition”: see, for example, Hennessy v Wright (No 2) (1890) 24 QBD 445n at 448n; Russell v Stubbs Ltd [1913] 2 KB 200n at 204n; Rofe v Kevorkian [1936] 2 All ER 1334 at 1337-1338; Associated Dominions Assurance Society Pty Ltd v John Fairfax & Sons Pty Ltd (1952) 72 WN (NSW) 250 at 254; Latec Finance Pty Ltd v Jury [1960] NSWR 321 at 323; Melbourne Home of Ford Pty Ltd v Trade Practices Commission (1979) 36 FLR 450 at 459-460; WA Pines Pty Ltd v Bannerman (1980) 41 FLR 175 at 181-182, 190-191; Lloyd v Costigan (1983) 62 ALR 284 at 292; Australian Securities Commission v Dalleagles Pty Ltd (unreported, Federal Court, French J, 27 February 1992) at p 14; and cf E Bray, The Principles and Practice of Discovery (1885), p 13.
What does the reference to a “fishing expedition” mean? After all, ex hypothesi, the giving of discovery will often, if not always, reveal documents of which the other party was not previously aware (similarly, the administering of interrogatories will often, if not always, reveal information of which the other party was not previously aware). What is meant is that discovery must not be used for the purpose of ascertaining whether a case exists, as distinct from the purpose of compelling the production of documents where there is already some evidence that a case exists: see, for example, Commissioner for Railways v Small (1938) 38 SR (NSW) 564 at 575; Associated Dominions Assurance Society Pty Ltd v John Fairfax & Sons Pty Ltd; WA Pines Pty Ltd v Bannerman; Barbarian Motor Cycle Club Inc v Koithan (1984) 35 SASR 481 at 486; Nestle Australia Ltd v Commissioner of Taxation (1986) 10 FCR 78 at 82-83; Mobex Pty Ltd v Comptroller-General of Customs (unreported, Federal Court, Foster J, 18 May 1994), at p 18. In WA Pines Pty Ltd v Bannerman at 181, Brennan J said that what is required is that “sufficient is shown to ground a suspicion that the party applying for discovery has a good case proof of which is likely to be aided by discovery”. On the facts of particular cases, the application of the distinction between “fishing” and “non-fishing” may well be difficult.
15 Similar concepts were canvassed in WA Pines Pty Ltd v Bannerman (1980) 41 FLR 175 at 190-191per Lockhart J:
However, among the well-established limitations upon the power to interrogate and to discovery of documents is the rule that this power cannot be used for the purpose of “fishing”.
In Hennessy v. Wright (No. 2) (1888) 24 Q.B.D. 445 (reported as a note to Parnell v. Walter (1890) 24 Q.B.D. 441) Lord Esher M.R. said: “In other words, the plaintiff wishes to maintain his questions, and to insist upon answers to them, in order that he may find out something of which he knows nothing now, which might enable him to make a case of which he has no knowledge at present. If that is the effect of the interrogatories, it seems to me that they come within the description of ‘fishing’ interrogatories, and on that ground cannot be allowed.
The moment it appears that questions are asked and answers insisted upon in order to enable the party to see if he can find a case, either of complaint or defence, of which at present he knows nothing, and which will be a different case from that which he now makes, the rule against ‘fishing’ interrogatories applies” [(1888) 24 Q.B.D., at p. 448.].
In Lane v. Gray (1873) L.R. 16 Eq. Cas. 552 Sir Richard Malins V.C. held that the court’s power to make an order for discovery was a discretionary power to order production when it shall appear to the court to be right to do so. His Lordship refused the application until the case had proceeded further and the plaintiff made out a prima facie case in support of her claim. The plaintiff had brought a suit claiming to be entitled to a share in the estate of an intestate as an alleged next of kin. It appears that discovery was refused because all that the plaintiff had done at that stage of the case was to allege that she was next of kin of the intestate and there was no evidence to support her assertion. The estate of intestates were frequently claimed by persons of whom many had no foundation for their claims; but by obtaining on discovery production of documents belonging to the intestate they obtained information by means of which fresh fictitious cases were in many instances manufactured.
In Associated Dominions Assurance Society Pty. Ltd. v. John Fairfax & Sons Pty. Ltd. (1952) 72 W.N. (N.S.W.) 250, Owen J. said: “A ‘fishing expedition’, in the sense in which the phrase has been used in the law, means, as I understand it, that a person who has no evidence that fish of a particular kind are in a pool desires to be at liberty to drag it for the purpose of finding out whether there are any there or not” [(1952) 72 W.N. (N.S.W.), at p. 254]. See also Bray on Discovery (1885), pp. 13, 16, 98 and 461.
16 The respondents rely heavily on the vagueness of the allegations in the re-amended statement of claim. When these issues were considered on the strike out motion (Ferguson Corporation Pty Ltd v Kowalewski [2007] FCA 789), Nicholson J held that the pleading should stand. His Honour held at [13] that the respondents did not complain about any difficulty responding to the pleading in respect of the quotations and the drawings. Those documents were particularised, that is, they were described with sufficient particularity in the pleadings. There was a further complaint about par 5.3 and the reference to ‘other information’ to which the complaints of the respondents were directed. In relation to the other information, his Honour held that it was importantly constrained by the words that the documents were taken by the employee. It was not a case in which there was a completely opened ended pleading even by reference to the ‘other information’ in par 5.3. His Honour continued:
First of all the discovery must disclose the documents which were taken. Unless that fact appears prima facie on the discovery, then there can be no ‘other information’. If it does appear on the discovery, then the issue is at large in relation to it. In my view, reading par 5 as a whole and viewing par 5.3 in the context of pars 5.1 and 5.2 referring to ‘the quotations’ and ‘the drawings’, this is a pleading which is not embarrassing even if care and sensitivity would be required ultimately to the application of par 5.3.
17 The respondents rely on the judgment of Warren J (as her Honour then was) in Creative Brands Pty Ltd v Franklin [2001] VSC 338 at [16]-[18] and [22] in which it was said:
16 It is appropriate to identify the relevant principles with respect to the pleading of confidential information and competition cases. First, as a general proposition the courts are reluctant to permit a previous employer to use a generally worded claim to stifle the right of an employee to use the skill and experience of that employee sometimes called “know-how” as distinct from an ex-employer’s “secrets”. Second, confidential information and competition cases call for specificity in the pleading of material facts to overcome the bringing of actions that are speculative in character. The latter view was expressed by Templeman J in John Zinc & Co Limited v Lloyds Bank Limited (1975) RPC 385; also, by Whitford J in Reinforced Plastics Applications (Swansea) Limited v Swanswea Plastics & Engineering Co Limited (1979) FSR 182; and by Mummery J in Ixora Trading Incorporated and anor v Jones and anor (1990) FSR 251.
17 In Ixora Trading Mummery J cited the remarks of Whitford J in Reinforced Plastics. The remarks of Whitford J are instructive:
“It is, I think, a matter of great concern in relation to confidential information cases that actions should not be brought which are no more than speculative in character. It is altogether too easy when employees leave and are employed by a rival firm to harass that rival firm upon the basis that the employees who have left the plaintiffs and joined them have taken away trade secrets of great value, and to bring an action which may involve the expenditure of an enormous amount of time and money and include disclosure of information which is going to be alleged to be confidential on either side with consequent troubles and worries. It is not really to be contemplated that proceedings of this kind should be allowed to go forward on nothing more than a speculative basis; and, unless the plaintiff can show that he has some basis for a reasonable believe (sic) in his assertion that the defendants are making use of his confidential information, then the action can only be characterised as speculative and fishing, and ought not, in my judgment, to be allowed to proceed. There must be something more than a mere assertion.”
18 In Balstone Limited v Headline Filters Limited (1987) FSR 330 Scott J at 351 made general comments about actions against former employees. In that case there were allegations both of breach of confidence after termination of employment and breach of duty of good faith whilst still in employment. Scott J observed:
“This case is, in my view, yet another example of an attempt by an employer to use the doctrine of confidential information to place fetters on the ability of ex-employees to compete. Technologically based industries abound. All have what they regard as secrets. Employees, particularly those employed on the scientific or technical side of the manufacturing business, necessarily acquire knowledge of the relevant technology. They become associated with technological advances and innovations. Their experience, built up during their years of employment, naturally equips them to be dangerous competitors if and when their employment ceases. The use of confidential information restrictions in order to fetter the ability of these employees to use their skills and experience after determination of their employment to compete with their ex-employer is, in my view, potentially harmful. It would be capable of imposing a new form of servitude or serfdom, to use Cumming-Bruce LJ’s words, on technologically qualified employees. It would render them unable to practice to leave their employment for want of an ability to use their skills and experience after leaving. Employers who want to impose fetters of this sort on their employees ought in my view to be expected to do so by express covenant. The reasonableness of the covenant can then be subjected to the rigorous attention to which all employee covenants in restraint of trade are subject. In the absence of an express covenant, the ability of an ex-employee to compete can be restricted by means of an implied term against use of disclosure of trade secrets. But the case must, in my view, be a clear one. An employee does not have the chance to reject an implied term. It is formulated and imposed on him subsequently to his initial entry into employment. To fetter his freedom to compete by means of an implied term can only be justified, in my view, by a very clear case. The present is, to my mind, a long way from that.”
18 Similarly, in Liberty Financial Pty Ltd v Scott [2004] VSC 414, Harper J said at [6]-[8]:
6 It was not submitted that the plaintiffs can identify any document, whether stored electronically or otherwise, in which this information can be identified. Rather, the plaintiffs submitted that at trial they will, if discovery is properly made, demonstrate that by comparison with the first plaintiff’s modus operandi in 1999 against the second defendant’s modus operandi when it first commenced business and in the two years thereafter, one will be able to see such similarities as to infer that confidential information was passed by the first defendant to the second defendant.
7 If I have accurately described the submissions of the plaintiffs on this point, then their position is that they have no evidence at present to substantiate what they anticipate will be the proper inference to draw from a comparison of the several modus operandi of respectively the first plaintiff and the second defendant. They suspect that discovery, if properly made, will disclose that the comparison they seek to make can be made and, when made, will lead to the inference to which I have referred.
8 If that, again, is an accurate summary of the plaintiffs’ argument on this point, then it seems to me that the plaintiffs are essentially engaged in a fishing expedition. The rules concerning discovery do not permit discovery for the purposes of creating a case. There are of course special rules concerning discovery before action is commenced, where the plaintiff or putative plaintiff can demonstrate a real likelihood that a suspected case will be substantiated by inspection of documents not available without resort to that rule. That is not this case. Again, with the caveat that I have accurately summarised the plaintiffs’ submissions, it seems to me that this application is one that can be properly described as fishing in the pure sense.
19 It is common ground that the claim for Ferguson Corporation is largely inferential. In the context of these applications for further specific discovery, it is essential to resolve the question of whether or not the primary claim is just based on a suspicion with little or no support - in which case further specific discovery may be an unjustifiably intrusive fishing expedition. Or does common sense suggest that there is enough on the face of matters in the material supporting the claim to entitle the orders sought? It is not possible to form a view on that topic unless the evidence in support of the claim as well as that in response is examined. While it is not appropriate to attempt to reach any clear view as to the ultimate quality of the evidence at this stage, it may be that if the claim is no more than speculation, so much would be clear. Each party has filed several affidavits. I will refer to some of the material without recording it all at this interlocutory stage.
Evidence for Ferguson Corporation
20 Ferguson Corporation relies on several affidavits as does Mr Kowalewski. Some of those affidavits had also been read in earlier interlocutory proceedings.
21 Mr Ferguson swore an affidavit on 12 December 2006. He deposed to the fact that in or about May 2004, Ferguson Corporation purchased a business known as HA TEC – Aroma Catering Appliances from Mr Kowalewski. At the time it was acquired by Ferguson Corporation, it specialised in gas cooking equipment and, in particular, in barbeques and wok cookers. As part of the purchase of the business, Ferguson Corporation agreed to employ Mr Kowalewski. His employment with Ferguson Corporation commenced in May 2004 as a technical consultant. He was the most senior production sales employee involved with its range of outdoor kitchen products. His business was absorbed into the existing stainless steel division of Ferguson Corporation. That division manufactured exhaust hoods, refrigerators and other custom made architectural stainless steel products. The first twelve months or so after acquiring the business was spent streamlining the business product range to ensure that Ferguson Corporation capitalised on its competitive advantage in the market place. He described the extensive work involved in that activity.
22 In the middle of 2005, Ferguson Corporation embarked on an extensive promotional campaign to expand the brand awareness of the outdoor kitchen barbeque equipment marketed under the name of Alfrescostyle. Ferguson Corporation did not in fact manufacture or sell outdoor kitchens or barbeque equipment until after it acquired Mr Kowalewski’s business. He gives details of the promotional campaign and the steps taken to market the products.
23 Mr Kowalewski was intimately involved in that activity and directed subject to the supervision of Mr Ferguson the development of Ferguson Corporation’s Alfrescostyle range of products. He had a close involvement with Ferguson Corporation’s customers and a detailed knowledge of its selling prices because he personally handled 90% of the quotations provided by it. Ninety percent of Ferguson Corporation’s customers for the Alfrescostyle range are one-off retail customers and the other 10% come from sources such as builders and interior designers. In that source there is often a lead time of up to 18 months between a quote being provided and the order being confirmed. As at the date of swearing his affidavit there were approximately 35 quotations submitted to Ferguson Corporation customers for Alfrescostyle range of products between April and October 2006 that had not then resulted in orders. The quotations ranged in dollar value between $3,000 and $90,000 with an average value of $18,000. He describes the processes involved in developing and fabricating Alfrescostyle equipment including the concepts and configuration stage, the drawing, designing, prototyping and testing. The first stage takes some eight weeks and the second stage some 16 weeks.
24 On 11 September 2006, Mr Kowaleski gave Mr Ferguson his written notice of resignation. There was a meeting. Mr Ferguson persuaded him to stay. Mr Kowalewski was due to go on annual leave for 13 working days which he did on 11 October 2006. When he returned to work on 31 October 2006 he said he had changed his mind and he intended to finish up that day. Mr Kowalewski gave Mr Ferguson his keys to the company car and his mobile phone and left. The memory on the mobile phone had been deleted. Although Mr Ferguson discovered that Mr Kowalewski was competing with Ferguson Corporation after his employment had ceased, Mr Ferguson believed that he was entitled to do so as there was no restraint provision in Mr Kowalewski’s contract of employment. However, on or about 8 November 2006 he had a meeting with Mrs Victoria Miller-Wise who is an interior designer. Ferguson Corporation had previously provided a quotation to her on behalf of one of her clients. He received information from her in the course of that meeting to the effect that she had declined the request from Mr Kowalewski to provide quotations to her and to her clients for the manufacture and installation of outdoor kitchens.
25 There was also hearsay evidence that Mr Kowalewski had been provided with copies of quotations from ‘Action Laser Cutting’ in relation to 14 items manufactured by Ferguson Corporation. Those items constituted the vast majority of the Alfrescostyle products sold by Ferguson Corporation both in terms of number and price. The quotations were originally provided to Mr Daryl Taylor by Action Laser Cutting on the various dates shown on the quotations. Action Laser Cutting was used by Ferguson Corporation to cut the stainless steel pieces which were then worked into the items sold by it. The cutting diagram or list is supplied to the laser cutters electronically. The cutting lists are created by a computer program from the information which is set out in the drawings. The information is entered into the cutting machine. Stainless steel sheets are cut in accordance with the information contained in the cutting diagram and are then fabricated in accordance with the drawings.
26 Ferguson Corporation has prepared drawings in relation to each of its products. Those drawings show how each product is constructed. Accordingly, access to the drawings, according to Mr Ferguson, would provide a person with all the information required at a highly technical level to manufacture Ferguson Corporation’s Alfrescostyle range of products. Such drawings and cutting lists were stored electronically on the Ferguson Corporation’s server. Mr Kowalewski had access to all of that information from his computer in his office at Ferguson Corporation’s offices. He also had access to all quotations provided by Ferguson Corporation to its customers both in hard copy and electronically.
27 Mr Ferguson says there is no reason why Mr Kowalewski would have been required to obtain the quotations. Those quotations provided to the cost of manufacturing the majority of Ferguson Corporation’s products.
28 Also, on a hearsay basis, Mr Ferguson refers to communications between Mr Keogh, a company consultant and Mr Daryl Taylor a former employee of Ferguson Corporation during which Mr Keogh learnt from Mr Taylor that the day before he left employment with Ferguson Corporation on 22 September 2006 he gave Mr Kowalewski two diskettes to give to Mr Ferguson. Those diskettes contained a full set of drawings prepared by Mr Taylor in relation to each of the Alfrescostyle products sold by Ferguson Corporation. The two diskettes were not given to Mr Ferguson by Mr Kowalewski. He directed Ferguson Corporation employees to conduct a search of the offices to find the two diskettes. At the stage of swearing his affidavit they had not been found. Again, the information on those diskettes, if the information from Mr Taylor and Mr Keogh was reliable, were to provide all that was required to manufacture Ferguson Corporation’s Alfrescostyle range of products. There was similar evidence from Mr Ferguson about information conveyed to him by Mr Piil.
29 Mr Ferguson also swore a further affidavit in reply shortly prior to the hearing. In relation to Mr Kowalewski he repeated the point that there was no reason of which he was aware why Mr Kowalewski should have requested and obtained copies of the quotations. The Pricing file referred to by Mr Kowalewski is kept in Mr Ferguson’s office and is a file to which he frequently refers. The quotations were not kept in that file. The originals of the quotations were initially forwarded to Mr Daryl Taylor (one of Ferguson Corporation’s employees) and those originals were kept in Mr Taylor’s company computer at the office of Ferguson Corporation. He says he does not know why Mr Kowalewski would have returned the diskettes to Mr Taylor given that Mr Taylor’s employment with Ferguson Corporation had ceased in September 2006 and the information contained on the diskettes belonged to Ferguson Corporation not to Mr Taylor. He rejects the statement by Mr Kowalewski that the information contained on the diskettes and the quotations would have been of no assistance to the respondents. He says that the 14 quotations relate to the majority of the stainless steel components which are part of the Ferguson Corporation’s range of outdoor kitchen equipment products known as Alfresco Style. He says this information would be (and I feel would have been) of valuable assistance to a competitive business. He repeats the breadth of information contained on the diskettes.
30 There is also an affidavit of Richard Piil, sworn on 12 December 2006. He is the proprietor of Alfresco Kitchens. Mr Piil makes the point that the products which are designed and sold by Alfresco Kitchens are kitchens which are custom made to clients particular requirements, however, they do consist of a number of standard modules. Those modules include, for example, one, two and three door cabinets and various barbeque units. He says that in April 2005 he approached Ferguson Corporation with a view to engaging it to manufacture and install the barbeque and cabinet components of the outdoor kitchen sold by Alfresco Kitchens. His contact point was Mr Kowalewski and from time to time he and Mr Kowalewski developed a number of barbeque component designs which were used by Alfresco Kitchens. The process culminated in Alfresco Kitchens developing a standardised product list of barbeque and associated components which were manufactured by Ferguson Corporation for sale by Alfresco Kitchens.
31 In or about early September 2006, Mr Piil had placed an order with Ferguson Corporation for the manufacture and supply of some barbeque components. There were some delays in the order being filled and he telephoned Mr Kowalewski to discuss the matter. During this conversation he said, in effect, that Mr Piil should put a ‘drop dead date’ on the order for the end of September so that if Ferguson Corporation could not deliver then he could cancel the order. In fact, Mr Piil did not do that.
32 On 11 or 12 September, Mr Kowalewski telephoned Mr Piil and told him that he had resigned from Ferguson Corporation saying that he was talking to some other people and that he would contact him when it happened. Within a day or so, Mr Kowalewski phoned Mr Piil and told him in effect that he had not resigned and that he was staying on at Ferguson Corporation. He said that he was going on holidays. On 1 or 2 November 2006, Mr Kowalewski telephoned Mr Piil again saying in effect that he had a new business and he wanted Mr Piil to and come have a look at the business and his new premises so that Mr Kowalewski could give Mr Piil a pricelist for the components used by Alfresco Kitchens. Mr Kowalewski indicated that the premises were located at Canningvale. A day or so later, Mr Piil went to the address that had been provided. There was a factory unit with a big sign out the front saying Alfresco. There was also a flat tray vehicle with Alfresco written on the side. On entering the premises, Mr Piil observed a gas-fired pizza oven and various barbeque shelves with other components in various stages of construction. Mr Kowalewski said to Mr Piil ‘you look stunned’ and Mr Piil said ‘why wouldn’t I be? Have you been doing this on the side?’ He said ‘we’ve been working at it’. Mr Piil said ‘you obviously have’.
33 Mr Piil said that while his experience had largely been in sales, he had a general knowledge in relation to design and production of barbeques. He considered it would normally take months to get a business to the stage of where Alfresco appeared to be. The design and fabrication of the barbeques and pizza ovens that he saw, if done from scratch, he says would have taken months to complete. Mr Kowalewski took him into the office and gave him a pricelist which he produced and said ‘this is what your barbeques will cost’. Mr Piil thought that the diagrams looked substantially the same as the products supplied to him by Ferguson Corporation. Mr Kowalewski then said to Mr Piil that it would be fine to start with him once Mr Piil had used up his current stock. Mr Kowalewski told Mr Piil he could deliver immediately and that installation turnaround would be much quicker than Ferguson Corporation. On looking at some of the specific items, Mr Piil concluded that the gas fired pizza oven looked visually almost identical to those manufactured by Ferguson Corporation but a little bit taller. The pizza ovens manufactured by Ferguson Corporation had been the only product of that type then manufactured in Western Australia. Mr Kowalewski also showed Mr Piil another barbeque which Mr Piil says he recognised from the Ferguson Corporation product list but it was not a barbeque that he and Mr Piil had actually used. He duly placed an order and subsequently met with Mr Ferguson, informing him of these facts.
Evidence of Mr Kowalewski
34 In response, Mr Kowalewski swore an affidavit on 15 December 2006 pointing out that he was an appliance designer and had been for 24 years. He is also a director of the third respondent Alfresco Pty Ltd.
35 He deposed to the fact that he had no documents in his possession, power or control in hard copy or electronic form or otherwise which belonged to or have been removed from the possession of Ferguson Corporation without its consent. He said he did have in his possession a file containing advertising literature, photographs, plans and designs. He says that file belongs to him. It was never kept at Ferguson Corporation’s premises and had always been maintained by him at his home.
36 In a subsequent affidavit sworn 18 March 2008, he says that as far as he is aware Ferguson Corporation does not manufacture or market various products as outlined by Mr Steven Meakins even though Ferguson Corporation has recently introduced some form of a ‘Kegerator’. He says as far as he knows, no such products were manufactured or marketed by Ferguson Corporation at the time that he and Mr Kowalewski joined Alfresco and no such products were manufactured or marketed or even contemplated by Ferguson Corporation at that time. He denies that the respondents have made any use at all of any information from Ferguson Corporation. As to the quotations referred to at par 5.1 of the further re-amended statement of claim, he confirmed that he did receive those on his Ferguson Corporation email address while still in the employ of Ferguson Corporation. He then printed them off and filed them in the Pricing file at the offices of Ferguson Corporation. He denies keeping the copies and says he had no access to that email account after he left Ferguson Corporation’s employ. Nor, he said, did he forward the email to any other account. As to the diskettes, he confirms that he had those at home because he would often work at home. As soon as he left the employment of Ferguson Corporation he returned the diskettes to Daryl Taylor and did not keep a copy.
37 In the affidavit of Mr Meakins, sworn on 18 March 2008, Mr Meakins confirms that he is the director of the second respondent, Jophiel and third respondent, Alfresco and that in relation to the request for:
7.1 drawings or other documents which evidence the exact dimensions and specifications of each of the pieces of stainless steel outdoor kitchen equipment … and
7.2 documents which evidence the design or product development process for each of the pieces of stainless steel outdoor equipment,
he says Alfresco manufactures a range that has stainless steel components, most of the items manufactured for outdoor kitchen equipment are custom made to fit the alfresco dining area of a client, the equipment is designed and manufactured independently and specifically for each client. He says that although most of the work is custom made, Alfresco has four items which might be regarded as standard that come within the range of outdoor kitchen equipment and contain stainless steel components. The standard items are the standard barbeque, the standard barbeque exhaust hood, the standard pizza oven and the standard cabinet. He says that these four items were all designed afresh by Alfresco in consultation with Jarrahdale Heating and Cooling. He also referred to different products such as the Kegerator, cabinet drawers with special timber and glass infill and a jarrah barbeque with a no ‘flame failure’ (safety) device. None of those devices are manufactured by Ferguson Corporation as far as he knows. He also says:
I am advised by the First Respondent and verily believe that the quotations referred to at paragraph 5.1 of the Further Re-Amended Statement of Claim were received by the First Respondent on his Ferguson Corporation email address while still in the employ of the Applicant. He printed them off and filed them in the Pricing file at the Applicant’s offices. He did not keep a copy and he had no access to that email account after he left the Applicant’s employ. Nor did he forward the email to any other account.
In relation to the discs referred to at paragraph 5.2 of the Further Re-Amended Statement of Claim, I am advised by the First Respondent and verily believe that he received those discs from Daryl Taylor and had them at his home because he would often work at home. As soon as he left the employment of the Applicant he gave the discs back to Daryl Taylor and did not retain a copy.
I also believe that the information referred to in paragraphs 5.1 and 5.2of the Further Re-Amended Statement of Claim would have been of no use to the Respondents.
All designs and details regarding Al Fresco Concepts’ products are confidential to Al Fresco Concepts. The Applicant is a competitor of Al Fresco Concepts.
38 He denies that Jophiel or Alfresco have used the drawings, quotations or other information and until he saw the affidavit of Mr Ferguson, he had never seen the email and its alleged attachment or any Ferguson Corporation drawing such as those annexed to the affidavit of Mr Ferguson.
39 Relevant substantially to the cross-claim which is raised by Mr Kowalewski is his denial of Mr Ferguson’s statement that in or about May 2003 MCKERRACHER J
2 MAY 2008
PERTH
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IN THE FEDERAL COURT OF AUSTRALIA |
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WESTERN AUSTRALIA DISTRICT REGISTRY |
WAD 360 of 2006 |
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BETWEEN: |
FERGUSON CORPORATION PTY LTD ACN 008 943 646 Applicant
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AND:
AND:
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HENDRYK KOWALEWSKI First Respondent
JOPHIEL PTY LTD ACN 118 004 087 Second Respondent
ALFRESCO CONCEPTS PTY LTD ACN 122 503 020 Third Respondent
HENDRYK KOWALEWSKI Cross-Claimant
FERGUSON CORPORATION PTY LTD ACN 008 943 646 Cross-Respondent
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MCKERRACHER J |
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DATE OF ORDER: |
2 MAY 2008 |
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WHERE MADE: |
PERTH |
THE COURT ORDERS THAT:
1. The applicant’s motion of 20 February 2008 be allowed subject to the qualifications outlined in the reasons.
2. The cross-claimant’s motion brought by notice of motion filed on 21 February 2008 be allowed.
3. Particular discovery ordered.
4. Precise terms of the discovery and orders as to costs to be settled between the parties or re-listed for determination within 21 days.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
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IN THE FEDERAL COURT OF AUSTRALIA |
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WESTERN AUSTRALIA DISTRICT REGISTRY |
WAD 360 of 2006 |
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BETWEEN: |
FERGUSON CORPORATION PTY LTD ACN 008 943 646 Applicant
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AND:
AND: |
HENDRYK KOWALEWSKI First Respondent
JOPHIEL PTY LTD ACN 118 004 087 Second Respondent
ALFRESCO CONCEPTS PTY LTD ACN 122 503 020 Third Respondent
HENDRYK KOWALEWSKI Cross-Claimant
FERGUSON CORPORATION PTY LTD ACN 008 943 646 Cross-Respondent
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JUDGE: |
MCKERRACHER J |
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DATE: |
2 MAY 2008 |
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PLACE: |
PERTH |
REASONS FOR JUDGMENT
1 There are two motions before the Court. The applicant seeks from the respondents further particular discovery of certain documents which are described in the schedule to these reasons. Similarly the cross-claimant, who claims monies due under a business purchase agreement, seeks against the applicant discovery orders as follows:
1. The cross-respondent within 14 day (sic) of the date of this Order give discovery on oath of any taxation records and advice received by the cross-respondent relating to the sale agreement the subject of the cross-claim and defence to cross claim filed by the parties, and in particular but not limited to:
1.1 tax returns, including annual returns and Business Activity Statements, for the cross-respondent for the years 2004, 2005 and 2006;
1.2 advice received from the cross-respondent’s accountant in relation to the purchase agreement the subject of the dispute the subject of the cross-claim and defence to cross-claim;
1.3 other financial documents for the business conducted by the cross-respondent including accounting journals, balance sheets and monthly management accounts for the years 2004, 2005 and 2006;
1.4 any documents provided by the cross-respondent to its accountant for the purposes of preparing accounting and taxation affairs of the cross-respondent.
2 The proceedings have been on foot since December 2006. The first respondent, Mr Kowalewski, was previously employed by the applicant, Ferguson Corporation Pty Ltd (Ferguson Corporation). Ferguson Corporation manufactures and sells amongst other things stainless steel outdoor cooking equipment which it markets under the trade name ‘Alfrescostyle’. Mr Kowalewski was employed by Ferguson Corporation from 3 May 2004 until 31 October 2006 as a technical consultant engaged in the production and sales of stainless steel outdoor kitchen equipment.
3 In its further re-amended statement of claim, Ferguson Corporation relies upon implied terms of Mr Kowalewski’s contract of employment that he would act in good faith in the interest of Ferguson Corporation and would not place himself in a position where his duties to Ferguson Corporation and his self interests conflicted or where there was a real sensible possibility of conflict. In three respects, it is said that he has breached the implied terms of his employment. Those three alleged breaches are set out in par 5 of the pleading. Paragraph 5 is in the following terms:
5. In breach of the implied terms referred to in paragraph 4, Mr Kowalewski:-
5.1 on 9 October 2006 obtained and kept copies of 14 quotations by a laser steel contractor, “Action Laser Cutting” to Ferguson Corporation, for the cutting of stainless steel pieces for use in the manufacture of outdoor kitchen equipment (the Quotations);
5.2 on or about 21 September 2006, received from Mr Daryl Taylor, and kept two computer diskettes containing fabrication drawings for each of the items of stainless steel outdoor kitchen equipment manufactured and sold by Ferguson Corporation (the Drawings);
5.3 in August, September and October 2006 took documents, in hard copy or soft copy form containing information, not in the public domain but not constituting trade secrets, relating to Ferguson Corporations’ business of manufacture and sale of stainless steel outdoor kitchen equipment (the Other Information);
PARTICULARS
That Mr Kowalewski took the Other Information is to be inferred from the facts:-
(a) referred to at paragraphs 5.1 and 5.2;
(b) referred to at paragraphs 9.1, 9.2, 9.3, 10.1, 10.2 and 10.3 and the Particulars thereto.
Further particulars of the Other Information will be provided after discovery and interrogatories.
5.4 from about August 2006 engaged in setting up, and operation of, a business for the manufacture and sale of stainless steel outdoor kitchen equipment by Jophiel in competition with Ferguson Corporation (Jophiel’s Business);
5.5 from about August 2006 used, alternatively permitted the use of, Drawings, the Quotations and the Other Information in and for the purposes of Jophiel’s Business;
5.6 from about November 2006, used, alternatively permitted the use of, the Drawings, the Quotations and the Other Information in and for the purposes of a business for the manufacture and sale of outdoor kitchen equipment by Alfresco Concepts (Alfresco Concepts’ Business).
4 Ferguson Corporation contends that Mr Kowalewski kept the drawings, obtained the quotations and took the other information intending to use them for the purposes of a business also manufacturing and selling the same products. Additional breaches are pleaded as against Mr Kowalewski and the knowing concern of the second and third respondents, Jophiel Pty Ltd (Jophiel) and Alfresco Concepts Pty Ltd (Alfresco), is also pleaded.
5 As against Jophiel, it is alleged that it knowingly procured the manufacture of stainless steel outdoor kitchen equipment with the use of the drawings obtained by Mr Kowalewski; it sold that outdoor equipment and used quotations and other information in its business.
6 The case for Ferguson Corporation is said to be inferred:
(a) from the fact that Steven Thomas Meakins and Monica Marie Meakins (Mr and Mrs Meakins) have been at all material times the shareholders of Jophiel and Mr Meakins is its sole director;
(b) from about August 2006 Jophiel traded from premises in Canningvale, Western Australia and in September 2006 adopted a trade name Alfresco;
(c) Jophiel procured or arranged the manufacture of stainless steel outdoor kitchen equipment bearing a close similarity and design in the construction to the same equipment manufactured and sold by Ferguson Corporation;
(d) from 2 November 2006 the business of Alfresco was conducted by Alfresco from the Canningvale premises;
(e) Alfresco procured or arranged the manufacture of stainless steel outdoor kitchen equipment bearing a close similarity in design and construction to stainless steel equipment manufactured and sold by Ferguson Corporation;
(f) each of Mr and Mrs Meakins and Mr Kowalewski and his wife, Annette Kowalewski are directors and shareholders of Alfresco;
(g) Mr Kowalewski has since 2 November 2006 approached Ferguson Corporation’s customers on behalf of Alfresco and has endeavoured to solicit their business.
7 The material knowledge of Jophiel is, again on the pleading, to be inferred from the fact that between about August 2006 and October 2006, Mr Kowalewski and Mr Meakins were in frequent contact by telephone and otherwise. Details of Mr Kowalewski’s mobile phone records are relied upon by Ferguson Corporation. Similar allegations are raised as against Alfresco.
8 There are claims for damages for breach of contract, that is, breach of an implied term or alternatively, an account for profits and various other forms of relief.
9 The respondents complain that the case against them is almost entirely inferential and therefore weak. They say that the discovery which is sought, in the circumstances, is far too broad.
Legal Principles
10 Order 15 r 8 of the Federal Court Rules empowers the Court to order a party to provide discovery of documents ‘relating to any matter in question in the proceeding’. It is clear that r 8 provides a right of a different and additional kind from that right available by way of general discovery as it is now understood under the Federal Court Rules.
11 In Seven Network Ltd v New Ltd (No 5) (2005) 216 ALR 147 Sackville J held that the test to be applied in determining whether r 8 particular discovery should be ordered was whether the documents sought were ‘reasonably likely to add, in the end, in some way or other, to the relevant evidence in the case’. However it is also then stressed by Gray J in Independent Cement & Lime Pty Ltd v Australian Cement Ltd & Ors [1988] FCA 749that pure speculation that the documents might exist is not a sufficient ground for the making of an order of the kind contemplated by r 8.
12 In Spyer v Cuddles ‘N’ Mum (Franchise) Pty Ltd (No 3) [2002] FCA 1563, Lindgren J outlined the developments which have occurred in the Federal Court Rules providing a more restricted ambit of discovery in relation to a notice of discovery required by O 15 r 2. However, he then pointed to the fact that the expression ‘relating to any matter in question in the proceeding’ under r 8 did, import the Peruvian Guano test. It followed that there was a disconformity between the narrower and more demanding test of discoverability under O 15 r 2(3) and the Peruvian Guano test. Indeed as his Honour described it, the test under r 8 was much broader than under the prescribed notice for discovery Form 21. Notwithstanding that the threshold is not high, his Honour observed that the word ‘may’ where it appears for the second time in that rule gives the court an overriding discretion not to make an order even if the power given by the rule to make one is enlivened.
13 Foremost in the exercise of a discretion in this case will be the question of whether part or all of the additional specific discovery sought by Ferguson Corporation can be said to be a fishing expedition. Is it merely speculative that such documents exist which may assist its case and the case of the respondents? Ferguson Corporation contends that as Mr Kowalewski has already attempted but failed on a motion to strike out the Ferguson Corporation pleadings, there is a strong indication that Ferguson Corporation has established sufficient a case on its pleading (and which is supplemented by affidavit material supporting the pleading) that it would be difficult to conclude that the documents it seeks are within the category of documents which are necessary to establish a case in the first place.
14 Lindgren J, in Trade Practices Commission v CC (NSW) Pty Ltd (No 4) (1995) 58 FCR 426 at 437-438 said:
It remains to consider the submission that discovery should not be ordered because the Commission seeks to use it as a “fishing expedition”. It has often been said to be a ground on which discovery (and interrogatories) will not be ordered, that the purpose is to carry out a “fishing expedition”: see, for example, Hennessy v Wright (No 2) (1890) 24 QBD 445n at 448n; Russell v Stubbs Ltd [1913] 2 KB 200n at 204n; Rofe v Kevorkian [1936] 2 All ER 1334 at 1337-1338; Associated Dominions Assurance Society Pty Ltd v John Fairfax & Sons Pty Ltd (1952) 72 WN (NSW) 250 at 254; Latec Finance Pty Ltd v Jury [1960] NSWR 321 at 323; Melbourne Home of Ford Pty Ltd v Trade Practices Commission (1979) 36 FLR 450 at 459-460; WA Pines Pty Ltd v Bannerman (1980) 41 FLR 175 at 181-182, 190-191; Lloyd v Costigan (1983) 62 ALR 284 at 292; Australian Securities Commission v Dalleagles Pty Ltd (unreported, Federal Court, French J, 27 February 1992) at p 14; and cf E Bray, The Principles and Practice of Discovery (1885), p 13.
What does the reference to a “fishing expedition” mean? After all, ex hypothesi, the giving of discovery will often, if not always, reveal documents of which the other party was not previously aware (similarly, the administering of interrogatories will often, if not always, reveal information of which the other party was not previously aware). What is meant is that discovery must not be used for the purpose of ascertaining whether a case exists, as distinct from the purpose of compelling the production of documents where there is already some evidence that a case exists: see, for example, Commissioner for Railways v Small (1938) 38 SR (NSW) 564 at 575; Associated Dominions Assurance Society Pty Ltd v John Fairfax & Sons Pty Ltd; WA Pines Pty Ltd v Bannerman; Barbarian Motor Cycle Club Inc v Koithan (1984) 35 SASR 481 at 486; Nestle Australia Ltd v Commissioner of Taxation (1986) 10 FCR 78 at 82-83; Mobex Pty Ltd v Comptroller-General of Customs (unreported, Federal Court, Foster J, 18 May 1994), at p 18. In WA Pines Pty Ltd v Bannerman at 181, Brennan J said that what is required is that “sufficient is shown to ground a suspicion that the party applying for discovery has a good case proof of which is likely to be aided by discovery”. On the facts of particular cases, the application of the distinction between “fishing” and “non-fishing” may well be difficult.
15 Similar concepts were canvassed in WA Pines Pty Ltd v Bannerman (1980) 41 FLR 175 at 190-191per Lockhart J:
However, among the well-established limitations upon the power to interrogate and to discovery of documents is the rule that this power cannot be used for the purpose of “fishing”.
In Hennessy v. Wright (No. 2) (1888) 24 Q.B.D. 445 (reported as a note to Parnell v. Walter (1890) 24 Q.B.D. 441) Lord Esher M.R. said: “In other words, the plaintiff wishes to maintain his questions, and to insist upon answers to them, in order that he may find out something of which he knows nothing now, which might enable him to make a case of which he has no knowledge at present. If that is the effect of the interrogatories, it seems to me that they come within the description of ‘fishing’ interrogatories, and on that ground cannot be allowed.
The moment it appears that questions are asked and answers insisted upon in order to enable the party to see if he can find a case, either of complaint or defence, of which at present he knows nothing, and which will be a different case from that which he now makes, the rule against ‘fishing’ interrogatories applies” [(1888) 24 Q.B.D., at p. 448.].
In Lane v. Gray (1873) L.R. 16 Eq. Cas. 552 Sir Richard Malins V.C. held that the court’s power to make an order for discovery was a discretionary power to order production when it shall appear to the court to be right to do so. His Lordship refused the application until the case had proceeded further and the plaintiff made out a prima facie case in support of her claim. The plaintiff had brought a suit claiming to be entitled to a share in the estate of an intestate as an alleged next of kin. It appears that discovery was refused because all that the plaintiff had done at that stage of the case was to allege that she was next of kin of the intestate and there was no evidence to support her assertion. The estate of intestates were frequently claimed by persons of whom many had no foundation for their claims; but by obtaining on discovery production of documents belonging to the intestate they obtained information by means of which fresh fictitious cases were in many instances manufactured.
In Associated Dominions Assurance Society Pty. Ltd. v. John Fairfax & Sons Pty. Ltd. (1952) 72 W.N. (N.S.W.) 250, Owen J. said: “A ‘fishing expedition’, in the sense in which the phrase has been used in the law, means, as I understand it, that a person who has no evidence that fish of a particular kind are in a pool desires to be at liberty to drag it for the purpose of finding out whether there are any there or not” [(1952) 72 W.N. (N.S.W.), at p. 254]. See also Bray on Discovery (1885), pp. 13, 16, 98 and 461.
16 The respondents rely heavily on the vagueness of the allegations in the re-amended statement of claim. When these issues were considered on the strike out motion (Ferguson Corporation Pty Ltd v Kowalewski [2007] FCA 789), Nicholson J held that the pleading should stand. His Honour held at [13] that the respondents did not complain about any difficulty responding to the pleading in respect of the quotations and the drawings. Those documents were particularised, that is, they were described with sufficient particularity in the pleadings. There was a further complaint about par 5.3 and the reference to ‘other information’ to which the complaints of the respondents were directed. In relation to the other information, his Honour held that it was importantly constrained by the words that the documents were taken by the employee. It was not a case in which there was a completely opened ended pleading even by reference to the ‘other information’ in par 5.3. His Honour continued:
First of all the discovery must disclose the documents which were taken. Unless that fact appears prima facie on the discovery, then there can be no ‘other information’. If it does appear on the discovery, then the issue is at large in relation to it. In my view, reading par 5 as a whole and viewing par 5.3 in the context of pars 5.1 and 5.2 referring to ‘the quotations’ and ‘the drawings’, this is a pleading which is not embarrassing even if care and sensitivity would be required ultimately to the application of par 5.3.
17 The respondents rely on the judgment of Warren J (as her Honour then was) in Creative Brands Pty Ltd v Franklin [2001] VSC 338 at [16]-[18] and [22] in which it was said:
16 It is appropriate to identify the relevant principles with respect to the pleading of confidential information and competition cases. First, as a general proposition the courts are reluctant to permit a previous employer to use a generally worded claim to stifle the right of an employee to use the skill and experience of that employee sometimes called “know-how” as distinct from an ex-employer’s “secrets”. Second, confidential information and competition cases call for specificity in the pleading of material facts to overcome the bringing of actions that are speculative in character. The latter view was expressed by Templeman J in John Zinc & Co Limited v Lloyds Bank Limited (1975) RPC 385; also, by Whitford J in Reinforced Plastics Applications (Swansea) Limited v Swanswea Plastics & Engineering Co Limited (1979) FSR 182; and by Mummery J in Ixora Trading Incorporated and anor v Jones and anor (1990) FSR 251.
17 In Ixora Trading Mummery J cited the remarks of Whitford J in Reinforced Plastics. The remarks of Whitford J are instructive:
“It is, I think, a matter of great concern in relation to confidential information cases that actions should not be brought which are no more than speculative in character. It is altogether too easy when employees leave and are employed by a rival firm to harass that rival firm upon the basis that the employees who have left the plaintiffs and joined them have taken away trade secrets of great value, and to bring an action which may involve the expenditure of an enormous amount of time and money and include disclosure of information which is going to be alleged to be confidential on either side with consequent troubles and worries. It is not really to be contemplated that proceedings of this kind should be allowed to go forward on nothing more than a speculative basis; and, unless the plaintiff can show that he has some basis for a reasonable believe (sic) in his assertion that the defendants are making use of his confidential information, then the action can only be characterised as speculative and fishing, and ought not, in my judgment, to be allowed to proceed. There must be something more than a mere assertion.”
18 In Balstone Limited v Headline Filters Limited (1987) FSR 330 Scott J at 351 made general comments about actions against former employees. In that case there were allegations both of breach of confidence after termination of employment and breach of duty of good faith whilst still in employment. Scott J observed:
“This case is, in my view, yet another example of an attempt by an employer to use the doctrine of confidential information to place fetters on the ability of ex-employees to compete. Technologically based industries abound. All have what they regard as secrets. Employees, particularly those employed on the scientific or technical side of the manufacturing business, necessarily acquire knowledge of the relevant technology. They become associated with technological advances and innovations. Their experience, built up during their years of employment, naturally equips them to be dangerous competitors if and when their employment ceases. The use of confidential information restrictions in order to fetter the ability of these employees to use their skills and experience after determination of their employment to compete with their ex-employer is, in my view, potentially harmful. It would be capable of imposing a new form of servitude or serfdom, to use Cumming-Bruce LJ’s words, on technologically qualified employees. It would render them unable to practice to leave their employment for want of an ability to use their skills and experience after leaving. Employers who want to impose fetters of this sort on their employees ought in my view to be expected to do so by express covenant. The reasonableness of the covenant can then be subjected to the rigorous attention to which all employee covenants in restraint of trade are subject. In the absence of an express covenant, the ability of an ex-employee to compete can be restricted by means of an implied term against use of disclosure of trade secrets. But the case must, in my view, be a clear one. An employee does not have the chance to reject an implied term. It is formulated and imposed on him subsequently to his initial entry into employment. To fetter his freedom to compete by means of an implied term can only be justified, in my view, by a very clear case. The present is, to my mind, a long way from that.”
18 Similarly, in Liberty Financial Pty Ltd v Scott [2004] VSC 414, Harper J said at [6]-[8]:
6 It was not submitted that the plaintiffs can identify any document, whether stored electronically or otherwise, in which this information can be identified. Rather, the plaintiffs submitted that at trial they will, if discovery is properly made, demonstrate that by comparison with the first plaintiff’s modus operandi in 1999 against the second defendant’s modus operandi when it first commenced business and in the two years thereafter, one will be able to see such similarities as to infer that confidential information was passed by the first defendant to the second defendant.
7 If I have accurately described the submissions of the plaintiffs on this point, then their position is that they have no evidence at present to substantiate what they anticipate will be the proper inference to draw from a comparison of the several modus operandi of respectively the first plaintiff and the second defendant. They suspect that discovery, if properly made, will disclose that the comparison they seek to make can be made and, when made, will lead to the inference to which I have referred.
8 If that, again, is an accurate summary of the plaintiffs’ argument on this point, then it seems to me that the plaintiffs are essentially engaged in a fishing expedition. The rules concerning discovery do not permit discovery for the purposes of creating a case. There are of course special rules concerning discovery before action is commenced, where the plaintiff or putative plaintiff can demonstrate a real likelihood that a suspected case will be substantiated by inspection of documents not available without resort to that rule. That is not this case. Again, with the caveat that I have accurately summarised the plaintiffs’ submissions, it seems to me that this application is one that can be properly described as fishing in the pure sense.
19 It is common ground that the claim for Ferguson Corporation is largely inferential. In the context of these applications for further specific discovery, it is essential to resolve the question of whether or not the primary claim is just based on a suspicion with little or no support - in which case further specific discovery may be an unjustifiably intrusive fishing expedition. Or does common sense suggest that there is enough on the face of matters in the material supporting the claim to entitle the orders sought? It is not possible to form a view on that topic unless the evidence in support of the claim as well as that in response is examined. While it is not appropriate to attempt to reach any clear view as to the ultimate quality of the evidence at this stage, it may be that if the claim is no more than speculation, so much would be clear. Each party has filed several affidavits. I will refer to some of the material without recording it all at this interlocutory stage.
Evidence for Ferguson Corporation
20 Ferguson Corporation relies on several affidavits as does Mr Kowalewski. Some of those affidavits had also been read in earlier interlocutory proceedings.
21 Mr Ferguson swore an affidavit on 12 December 2006. He deposed to the fact that in or about May 2004, Ferguson Corporation purchased a business known as HA TEC – Aroma Catering Appliances from Mr Kowalewski. At the time it was acquired by Ferguson Corporation, it specialised in gas cooking equipment and, in particular, in barbeques and wok cookers. As part of the purchase of the business, Ferguson Corporation agreed to employ Mr Kowalewski. His employment with Ferguson Corporation commenced in May 2004 as a technical consultant. He was the most senior production sales employee involved with its range of outdoor kitchen products. His business was absorbed into the existing stainless steel division of Ferguson Corporation. That division manufactured exhaust hoods, refrigerators and other custom made architectural stainless steel products. The first twelve months or so after acquiring the business was spent streamlining the business product range to ensure that Ferguson Corporation capitalised on its competitive advantage in the market place. He described the extensive work involved in that activity.
22 In the middle of 2005, Ferguson Corporation embarked on an extensive promotional campaign to expand the brand awareness of the outdoor kitchen barbeque equipment marketed under the name of Alfrescostyle. Ferguson Corporation did not in fact manufacture or sell outdoor kitchens or barbeque equipment until after it acquired Mr Kowalewski’s business. He gives details of the promotional campaign and the steps taken to market the products.
23 Mr Kowalewski was intimately involved in that activity and directed subject to the supervision of Mr Ferguson the development of Ferguson Corporation’s Alfrescostyle range of products. He had a close involvement with Ferguson Corporation’s customers and a detailed knowledge of its selling prices because he personally handled 90% of the quotations provided by it. Ninety percent of Ferguson Corporation’s customers for the Alfrescostyle range are one-off retail customers and the other 10% come from sources such as builders and interior designers. In that source there is often a lead time of up to 18 months between a quote being provided and the order being confirmed. As at the date of swearing his affidavit there were approximately 35 quotations submitted to Ferguson Corporation customers for Alfrescostyle range of products between April and October 2006 that had not then resulted in orders. The quotations ranged in dollar value between $3,000 and $90,000 with an average value of $18,000. He describes the processes involved in developing and fabricating Alfrescostyle equipment including the concepts and configuration stage, the drawing, designing, prototyping and testing. The first stage takes some eight weeks and the second stage some 16 weeks.
24 On 11 September 2006, Mr Kowaleski gave Mr Ferguson his written notice of resignation. There was a meeting. Mr Ferguson persuaded him to stay. Mr Kowalewski was due to go on annual leave for 13 working days which he did on 11 October 2006. When he returned to work on 31 October 2006 he said he had changed his mind and he intended to finish up that day. Mr Kowalewski gave Mr Ferguson his keys to the company car and his mobile phone and left. The memory on the mobile phone had been deleted. Although Mr Ferguson discovered that Mr Kowalewski was competing with Ferguson Corporation after his employment had ceased, Mr Ferguson believed that he was entitled to do so as there was no restraint provision in Mr Kowalewski’s contract of employment. However, on or about 8 November 2006 he had a meeting with Mrs Victoria Miller-Wise who is an interior designer. Ferguson Corporation had previously provided a quotation to her on behalf of one of her clients. He received information from her in the course of that meeting to the effect that she had declined the request from Mr Kowalewski to provide quotations to her and to her clients for the manufacture and installation of outdoor kitchens.
25 There was also hearsay evidence that Mr Kowalewski had been provided with copies of quotations from ‘Action Laser Cutting’ in relation to 14 items manufactured by Ferguson Corporation. Those items constituted the vast majority of the Alfrescostyle products sold by Ferguson Corporation both in terms of number and price. The quotations were originally provided to Mr Daryl Taylor by Action Laser Cutting on the various dates shown on the quotations. Action Laser Cutting was used by Ferguson Corporation to cut the stainless steel pieces which were then worked into the items sold by it. The cutting diagram or list is supplied to the laser cutters electronically. The cutting lists are created by a computer program from the information which is set out in the drawings. The information is entered into the cutting machine. Stainless steel sheets are cut in accordance with the information contained in the cutting diagram and are then fabricated in accordance with the drawings.
26 Ferguson Corporation has prepared drawings in relation to each of its products. Those drawings show how each product is constructed. Accordingly, access to the drawings, according to Mr Ferguson, would provide a person with all the information required at a highly technical level to manufacture Ferguson Corporation’s Alfrescostyle range of products. Such drawings and cutting lists were stored electronically on the Ferguson Corporation’s server. Mr Kowalewski had access to all of that information from his computer in his office at Ferguson Corporation’s offices. He also had access to all quotations provided by Ferguson Corporation to its customers both in hard copy and electronically.
27 Mr Ferguson says there is no reason why Mr Kowalewski would have been required to obtain the quotations. Those quotations provided to the cost of manufacturing the majority of Ferguson Corporation’s products.
28 Also, on a hearsay basis, Mr Ferguson refers to communications between Mr Keogh, a company consultant and Mr Daryl Taylor a former employee of Ferguson Corporation during which Mr Keogh learnt from Mr Taylor that the day before he left employment with Ferguson Corporation on 22 September 2006 he gave Mr Kowalewski two diskettes to give to Mr Ferguson. Those diskettes contained a full set of drawings prepared by Mr Taylor in relation to each of the Alfrescostyle products sold by Ferguson Corporation. The two diskettes were not given to Mr Ferguson by Mr Kowalewski. He directed Ferguson Corporation employees to conduct a search of the offices to find the two diskettes. At the stage of swearing his affidavit they had not been found. Again, the information on those diskettes, if the information from Mr Taylor and Mr Keogh was reliable, were to provide all that was required to manufacture Ferguson Corporation’s Alfrescostyle range of products. There was similar evidence from Mr Ferguson about information conveyed to him by Mr Piil.
29 Mr Ferguson also swore a further affidavit in reply shortly prior to the hearing. In relation to Mr Kowalewski he repeated the point that there was no reason of which he was aware why Mr Kowalewski should have requested and obtained copies of the quotations. The Pricing file referred to by Mr Kowalewski is kept in Mr Ferguson’s office and is a file to which he frequently refers. The quotations were not kept in that file. The originals of the quotations were initially forwarded to Mr Daryl Taylor (one of Ferguson Corporation’s employees) and those originals were kept in Mr Taylor’s company computer at the office of Ferguson Corporation. He says he does not know why Mr Kowalewski would have returned the diskettes to Mr Taylor given that Mr Taylor’s employment with Ferguson Corporation had ceased in September 2006 and the information contained on the diskettes belonged to Ferguson Corporation not to Mr Taylor. He rejects the statement by Mr Kowalewski that the information contained on the diskettes and the quotations would have been of no assistance to the respondents. He says that the 14 quotations relate to the majority of the stainless steel components which are part of the Ferguson Corporation’s range of outdoor kitchen equipment products known as Alfresco Style. He says this information would be (and I feel would have been) of valuable assistance to a competitive business. He repeats the breadth of information contained on the diskettes.
30 There is also an affidavit of Richard Piil, sworn on 12 December 2006. He is the proprietor of Alfresco Kitchens. Mr Piil makes the point that the products which are designed and sold by Alfresco Kitchens are kitchens which are custom made to clients particular requirements, however, they do consist of a number of standard modules. Those modules include, for example, one, two and three door cabinets and various barbeque units. He says that in April 2005 he approached Ferguson Corporation with a view to engaging it to manufacture and install the barbeque and cabinet components of the outdoor kitchen sold by Alfresco Kitchens. His contact point was Mr Kowalewski and from time to time he and Mr Kowalewski developed a number of barbeque component designs which were used by Alfresco Kitchens. The process culminated in Alfresco Kitchens developing a standardised product list of barbeque and associated components which were manufactured by Ferguson Corporation for sale by Alfresco Kitchens.
31 In or about early September 2006, Mr Piil had placed an order with Ferguson Corporation for the manufacture and supply of some barbeque components. There were some delays in the order being filled and he telephoned Mr Kowalewski to discuss the matter. During this conversation he said, in effect, that Mr Piil should put a ‘drop dead date’ on the order for the end of September so that if Ferguson Corporation could not deliver then he could cancel the order. In fact, Mr Piil did not do that.
32 On 11 or 12 September, Mr Kowalewski telephoned Mr Piil and told him that he had resigned from Ferguson Corporation saying that he was talking to some other people and that he would contact him when it happened. Within a day or so, Mr Kowalewski phoned Mr Piil and told him in effect that he had not resigned and that he was staying on at Ferguson Corporation. He said that he was going on holidays. On 1 or 2 November 2006, Mr Kowalewski telephoned Mr Piil again saying in effect that he had a new business and he wanted Mr Piil to and come have a look at the business and his new premises so that Mr Kowalewski could give Mr Piil a pricelist for the components used by Alfresco Kitchens. Mr Kowalewski indicated that the premises were located at Canningvale. A day or so later, Mr Piil went to the address that had been provided. There was a factory unit with a big sign out the front saying Alfresco. There was also a flat tray vehicle with Alfresco written on the side. On entering the premises, Mr Piil observed a gas-fired pizza oven and various barbeque shelves with other components in various stages of construction. Mr Kowalewski said to Mr Piil ‘you look stunned’ and Mr Piil said ‘why wouldn’t I be? Have you been doing this on the side?’ He said ‘we’ve been working at it’. Mr Piil said ‘you obviously have’.
33 Mr Piil said that while his experience had largely been in sales, he had a general knowledge in relation to design and production of barbeques. He considered it would normally take months to get a business to the stage of where Alfresco appeared to be. The design and fabrication of the barbeques and pizza ovens that he saw, if done from scratch, he says would have taken months to complete. Mr Kowalewski took him into the office and gave him a pricelist which he produced and said ‘this is what your barbeques will cost’. Mr Piil thought that the diagrams looked substantially the same as the products supplied to him by Ferguson Corporation. Mr Kowalewski then said to Mr Piil that it would be fine to start with him once Mr Piil had used up his current stock. Mr Kowalewski told Mr Piil he could deliver immediately and that installation turnaround would be much quicker than Ferguson Corporation. On looking at some of the specific items, Mr Piil concluded that the gas fired pizza oven looked visually almost identical to those manufactured by Ferguson Corporation but a little bit taller. The pizza ovens manufactured by Ferguson Corporation had been the only product of that type then manufactured in Western Australia. Mr Kowalewski also showed Mr Piil another barbeque which Mr Piil says he recognised from the Ferguson Corporation product list but it was not a barbeque that he and Mr Piil had actually used. He duly placed an order and subsequently met with Mr Ferguson, informing him of these facts.
Evidence of Mr Kowalewski
34 In response, Mr Kowalewski swore an affidavit on 15 December 2006 pointing out that he was an appliance designer and had been for 24 years. He is also a director of the third respondent Alfresco Pty Ltd.
35 He deposed to the fact that he had no documents in his possession, power or control in hard copy or electronic form or otherwise which belonged to or have been removed from the possession of Ferguson Corporation without its consent. He said he did have in his possession a file containing advertising literature, photographs, plans and designs. He says that file belongs to him. It was never kept at Ferguson Corporation’s premises and had always been maintained by him at his home.
36 In a subsequent affidavit sworn 18 March 2008, he says that as far as he is aware Ferguson Corporation does not manufacture or market various products as outlined by Mr Steven Meakins even though Ferguson Corporation has recently introduced some form of a ‘Kegerator’. He says as far as he knows, no such products were manufactured or marketed by Ferguson Corporation at the time that he and Mr Kowalewski joined Alfresco and no such products were manufactured or marketed or even contemplated by Ferguson Corporation at that time. He denies that the respondents have made any use at all of any information from Ferguson Corporation. As to the quotations referred to at par 5.1 of the further re-amended statement of claim, he confirmed that he did receive those on his Ferguson Corporation email address while still in the employ of Ferguson Corporation. He then printed them off and filed them in the Pricing file at the offices of Ferguson Corporation. He denies keeping the copies and says he had no access to that email account after he left Ferguson Corporation’s employ. Nor, he said, did he forward the email to any other account. As to the diskettes, he confirms that he had those at home because he would often work at home. As soon as he left the employment of Ferguson Corporation he returned the diskettes to Daryl Taylor and did not keep a copy.
37 In the affidavit of Mr Meakins, sworn on 18 March 2008, Mr Meakins confirms that he is the director of the second respondent, Jophiel and third respondent, Alfresco and that in relation to the request for:
7.1 drawings or other documents which evidence the exact dimensions and specifications of each of the pieces of stainless steel outdoor kitchen equipment … and
7.2 documents which evidence the design or product development process for each of the pieces of stainless steel outdoor equipment,
he says Alfresco manufactures a range that has stainless steel components, most of the items manufactured for outdoor kitchen equipment are custom made to fit the alfresco dining area of a client, the equipment is designed and manufactured independently and specifically for each client. He says that although most of the work is custom made, Alfresco has four items which might be regarded as standard that come within the range of outdoor kitchen equipment and contain stainless steel components. The standard items are the standard barbeque, the standard barbeque exhaust hood, the standard pizza oven and the standard cabinet. He says that these four items were all designed afresh by Alfresco in consultation with Jarrahdale Heating and Cooling. He also referred to different products such as the Kegerator, cabinet drawers with special timber and glass infill and a jarrah barbeque with a no ‘flame failure’ (safety) device. None of those devices are manufactured by Ferguson Corporation as far as he knows. He also says:
I am advised by the First Respondent and verily believe that the quotations referred to at paragraph 5.1 of the Further Re-Amended Statement of Claim were received by the First Respondent on his Ferguson Corporation email address while still in the employ of the Applicant. He printed them off and filed them in the Pricing file at the Applicant’s offices. He did not keep a copy and he had no access to that email account after he left the Applicant’s employ. Nor did he forward the email to any other account.
In relation to the discs referred to at paragraph 5.2 of the Further Re-Amended Statement of Claim, I am advised by the First Respondent and verily believe that he received those discs from Daryl Taylor and had them at his home because he would often work at home. As soon as he left the employment of the Applicant he gave the discs back to Daryl Taylor and did not retain a copy.
I also believe that the information referred to in paragraphs 5.1 and 5.2of the Further Re-Amended Statement of Claim would have been of no use to the Respondents.
All designs and details regarding Al Fresco Concepts’ products are confidential to Al Fresco Concepts. The Applicant is a competitor of Al Fresco Concepts.
38 He denies that Jophiel or Alfresco have used the drawings, quotations or other information and until he saw the affidavit of Mr Ferguson, he had never seen the email and its alleged attachment or any Ferguson Corporation drawing such as those annexed to the affidavit of Mr Ferguson.
39 Relevant substantially to the cross-claim which is raised by Mr Kowalewski is his denial of Mr Ferguson’s statement that in or about May 2003 (sic), Ferguson Corporation purchased Mr Kowalewski’s business. To that Mr Kowalewski said that in fact Ferguson Corporation purported to purchase some of the assets of his business which did not include any intellectual property. He had not, at that stage, been paid in full for the purchase price which had been agreed for those assets.
Cross-Claim
40 There is a conflict between the parties as to what was purchased under the agreement on about 19 April 2004. The Ferguson Corporation defence to the cross-claim refers to an oral agreement reached on 19 April 2004 with Mr Kowalewski by which Ferguson Corporation agreed to buy on ongoing basis the business including the intellectual property and good will for an amount of $40,000. Ferguson Corporation alleged that it was an express term of the purchase agreement that the purchase consideration would be paid by offsetting the amount owed by Mr Kowalewski to Ferguson Corporation at the time of the formation of the purchase agreement. This was an amount equal to deposits collected by Mr Kowalewski prior to the formation of the purchase agreement and retained by him in relation to orders subsequently completed by Ferguson Corporation. Ferguson Corporation contends that the purchase price has been paid first by offsetting an amount of $10,222.69 owed by Mr Kowalewski to Ferguson Corporation at the time of the purchase agreement; secondly by offsetting the amount of $13,690 for deposits collected by Mr Kowalewski prior to the formation of the purchase agreement and retained by him in relation to orders subsequently completed by Ferguson Corporation; and thirdly by the payment of $20,000 made by Ferguson Corporation to Mr Kowalewski on or about 19 July 2005.
Conclusion
41 While Mr Kowalewski may have a perfectly sound explanation for all of the actions from which Ferguson Corporation contend that inferences should be drawn to support its claim, on the face of the matter, the claim is not fanciful, insubstantial or speculative. There is a deal of evidence from both within Ferguson Corporation itself and externally which is consistent with the claim. No conclusion can presently be reached as to whether or not the evidence will be accepted. The articulation of the claim in the pleading has been upheld in a previous strike out application and it follows, in my view, that certain additional specific discovery should be given but not in categories as broad as those which are sought by Ferguson Corporation.
42 In my view Ferguson Corporation is entitled to discovery in all of the six categories in the attached schedule but subject to qualification. The first qualification is that the discovery should not include any product which does not bear a close resemblance to a product sold by Ferguson Corporation – the ‘kegerator’ is an obvious example but there may well be others. The second qualification is that as discussed in the course of the hearing, terms will have to be reached between counsel (and, if not, I will resolve them) as to confidentiality as there are obvious benefits for a competitor examining drawings, quotations and financial records of products which are the same as those which it sells.
43 Equally, and for similar reasons, in my view, it is appropriate that Ferguson Corporation give discovery of those documents sought by Mr Kowalewski which go to the question of the manner in which Ferguson Corporation treated the payment of the consideration for the acquisition of Mr Kowalewski’s business. The four categories are qualified by the description of taxation records and advice received relating to the sale agreement, the subject of the cross-claim and defence and in particular, but not limited to, the various four items set out in the first paragraph of these reasons. As with discovery to be given by Mr Kowalewski, terms should be reached in relation to the confidentiality of that potentially highly sensitive discovery.
44 I propose leaving the finalisation of the precise terms upon which discovery should be given to be reached between counsel in accordance with the conclusions I have expressed in these reasons.
45 If agreement cannot be reached, the matter can be re-listed before me for determination.
46 As each of the parties has had substantial success in discovery being ordered by the other, I would take the view that costs should follow the event or that there should be no order as to costs as each of the orders would negate the other. Again, I will leave the precise orders in relation to costs for counsel to endeavour to agree in light of this statement of principle. Again, if agreement cannot be reached, the matter can be re-listed before me.
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I certify that the preceding forty-six (46) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice McKerracher. |
Associate:
Dated: 2 May 2008
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Counsel for the Applicant/Cross-Respondent: |
TJ Carmady |
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Solicitor for the Applicant/Cross-Respondent: |
Williams & Hughes |
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Counsel for the Respondents/Cross-Claimant: |
MN Solomon |
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Solicitor for the Respondents/Cross-Claimant: |
DLA Phillips Fox |
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Date of Hearing: |
17 April 2008 |
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Date of Judgment: |
2 May 2008 |
SCHEDULE
Categories of Documents
1. Drawings or other documents which evidence the exact dimensions and specifications of each of the pieces of stainless steel outdoor kitchen equipment manufactured by the Second Respondent (Jophiel) and the Third Respondent (Alfresco Concepts).
2. Documents which evidence the design or product development process of each of the pieces of stainless steel outdoor kitchen equipment manufactured by Jophiel and Alfresco Concepts.
3. All quotations issued by Alfresco Concepts.
4. Financial records of Jophiel and Alfresco Concepts including:-
4.1 profit and loss statements;
4.2 balance sheets;
4.3 management accounts; and
4.4 accounting records evidencing all income receipts and expenses.
5. All telephone records for the Respondents and their directors for the months of August, September and October 2006.
6. Any correspondence, note, minute, memorandum or other document evidencing any meeting, conversation or other communication between the First Respondent and any director of Alfresco Concepts or Jophiel for the months of August, September and October 2006.
