FEDERAL COURT OF AUSTRALIA

Webcot Pty Limited v Jephcott [2009] FCA 1241

DISCOVERY – preliminary discovery – whether applicant has reasonable cause to believe that it has or may have the right to obtain relief – whether applicant has taken all reasonable steps to acquire sufficient information to enable it to make a decision

Corporations Act 2001 (Cth)

Federal Court Rules O 15A

WEBCOT PTY LIMITED (ACN 098 262 198) v CRAIG STEVEN JEPHCOTT, FREEZONE PUBLIC HEALTH PTY LIMITED (ACN 132 080 098), NATHAN JOSEPH SCHEUER and APPLIED ENVIRONMENTAL TECHNOLOGIES PTY LTD (ACN 127 422 502)

NSD 949 of 2009

EMMETT J

3 NOVEMBER 2009

SYDNEY

THE COURT ORDERS THAT:

1.         The application filed on 28 August 2009 be dismissed.

2.         The applicant pay the First to Fourth Respondents’ costs as agreed or assessed.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using eSearch on the Court’s website.

REASONS FOR JUDGMENT

1                     The applicant, Webcot Pty Limited (Webcot), seeks orders under Rule 6 of Order 15A of the Federal Court Rules against several respondents.  Rule 6 provides as follows:

6          Where:

(a)        there is reasonable cause to believe that the applicant has or may have the right to obtain relief in the Court from a person whose description has been ascertained;

(b)        after making all reasonable inquiries, the applicant has not sufficient information to enable a decision to be made whether to commence a proceeding in the Court to obtain that relief; and

(c)        there is reasonable cause to believe that that person has or is likely to have or has had or is likely to have had possession of any document relating to the question whether the applicant has the right to obtain the relief and that inspection of the document by the applicant would assist in making the decision;

the Court may order that that person shall make discovery to the applicant of any document of the kind described in paragraph (c).

In the course of the hearing, Webcot refined its claims and abandoned its claims as against one of the respondents.

2                     The proceeding has been brought against the background of other litigation in the Court between the first respondent, Mr Craig Jephcott, as applicant, and Webcot, Andrew James Webb and Australian Pharmaceutical Partners Pty Ltd (APP), as respondents.  In that proceeding (the Oppression Proceeding), Mr Jephcott seeks orders under s 233 of the Corporations Act 2001 (Cth) on the basis that the affairs of Webcot have been conducted in a manner that is oppressive to him as a shareholder of Webcot. 

3                     Webcot was incorporated on 25 September 2001.  At relevant times Mr Jephcott has owned 35% of the issued capital of Webcot and APP has held 65% of the issued capital. Mr Webb is a principal of APP.  Mr Webb and Mr Jephcott were appointed directors of Webcot upon its incorporation and Mr Webb remains a director.  Mr Jephcott ceased to be a director on 20 June 2009. 

4                     Mr Jephcott acknowledges that, as a result of innovation, education and novelty, Webcot has positioned itself as the agriculture industry’s leading supplier of do-it-yourself public health products.  Webcot’s products include WebZone, Vigilanti, Protector and Vortex, which are suitable for home and farm use in the control of termites, wasps, fleas, tick, mosquitoes, cockroaches and spiders.  WebZone is an important part of Webcot’s range.  WebZone is designed to protect structures from subterranean termite damage and controls termites, mite pests and a range of other urban pests as well as pests occurring in crops.

5                     Webcot has functioned as part of a group of companies known as the APP Group and the business of Webcot has been and continues to be linked to the business being conducted by APP.  APP provides the following facilities to each of the companies in the APP Group, including Webcot:

·                    advertising and promotional services,

·                    operational staff,

·                    financial administration,

·                    storage and administrative facilities,

·                    procurement of accounting and professional services.

6                     From its formation in September 2001 until 7 May 2008, Mr Jephcott was employed by Webcot.  From September 2001 until 1 July 2003 Mr Jephcott’s day to day role was that of sales manager.  On 1 July 2003, Mr Jephcott and Webcot entered into an agreement (the Service Contract) whereby Webcot agreed to retain Mr Jephcott and Mr Jephcott agreed to serve Webcot in the capacity of general manager, reporting to the managing director and chief executive officer, Mr Webb.  Mr Jephcott’s services as general manager under the Service Contract were terminated on 7 May 2008. 

7                     Webcot contends that there is reasonable cause to believe that it may have a right to relief in the Court against Mr Jephcott, the second respondent, FreeZone Public Health Pty Limited (FreeZone), the third respondent, Mr Nathan Scheuer and the fourth respondent, Applied Environmental technologies Pty Limited (AET).  Webcot has formulated a putative statement of claim concerning the cause of action that it says may give rise to relief against the respondents, consisting of injunctions and damages or an account of profits. 

8                     The allegations made in the putative statement of claim may be summarised as follows:

·                    During the period from September 2001 until 7 May 2008 Mr Jephcott was employed by Webcot.

·                    By the Service Contract Mr Jephcott agreed not to:

-                     disclose Webcot’s confidential information

-                     use Webcot’s confidential information other than for the benefit of Webcot,

-                     obtain suppliers, customers or clients of Webcot for any person other than Webcot or

-                     solicit or endeavour to entice away from Webcot any supplier, customer or client of Webcot.

·                    By the operation of the provisions of the Corporations Act, Mr Jephcott owed duties to Webcot:

-           Not to use his position improperly to gain an advantage for himself or someone else, or to cause detriment to Webcot.

-           Not to use improperly any information obtained by him because of his employment to gain an advantage for himself or someone else or to cause detriment to Webcot.

-           To exercise his powers and discharge his duties as a director with the diligence that a reasonable person would exercise if such a person were a director of Webcot in Webcot’s circumstances and occupied the office and had the same responsibilities within Webcot as Jephcott.

-           To exercise his powers and discharge his duties as a director in good faith in the best interests of Webcot and for a proper purpose.

-           Not to use his position improperly to gain an advantage for himself or someone else or cause detriment to Webcot.

·                    During Mr Jephcott’s employment by Webcot and while he was a director, Webcot was a seller of pest control products, including a product called “Protector”, which involves pesticide smoke generator technology. 

·                    In developing that part of its business involving the sale of Protector, Webcot developed and implemented pricing strategies for the sale of Protector, developed a customer base for Protector and developed and implemented sales and marketing strategies for the sale of Protector.

·                    Those strategies are confidential information of Webcot.

·                    During the period of his employment and while a director of Webcot, Mr Jephcott was involved in the establishment and development of Webcot’s business in so far as it related to its products, including Protector and, in doing so, Mr Jephcott obtained confidential information concerning Webcot, including Webcot’s confidential information regarding Protector.

·                    No later than 12 November 2008 Mr Jephcott became the chief executive officer of FreeZone.  

·                    On 1 September 2008, Mr Jephcott applied for the registration of the domain name of FreeZone.net.au and stated that FreeZone was the registrant for that domain name.

·                    FreeZone is in the business of selling pest control products and advertises itself as selling as part of its business the product which it advertises as ‘Protector’.

·                    AET is the manufacturer of Protector.

·                    While Mr Jephcott was an employee and director of Webcot, AET became the supplier of Protector to Webcot.

·                    While Mr Jephcott was an employee and director of Webcot, Bentz Jaz Singapore Pty Limited, a Singapore company (Bentz Jaz), became a customer of Webcot and Mr Jephcott represented Webcot in its dealings with Bentz Jaz.

·                    Webcot made sales of Protector to Bentz Jaz in 2006 and 2007.

·                    In or about November 2008 an opportunity arose for a sale of Protector to Bentz Jaz and in February 2009, a sale of Protector was made to Bentz Jaz by FreeZone.

·                    No later than 27 November 2008 Mr Jephcott became aware of other business opportunities for the sale of pest control products including Protector.

·                    In breach of the duties arising under the Corporations Act owed by Mr Jephcott to Webcot, both as employee and as a director, Mr Jephcott procured the sale of Protector to Bentz Jaz by FreeZone in February 2009 and procured sales opportunities for FreeZone in Indonesia.

·                    In procuring those sales and sales opportunities Mr Jephcott:

-           failed to diligently discharge his duties as a director of Webcot,

-           did not act in good faith and in the best interests of Webcot,

-           used his position to gain an advantage for himself and FreeZone,

-           improperly used information obtained by him so as to gain an advantage for himself and FreeZone,

-           improperly used information obtained by him to cause Webcot detriment.

·                    Each of FreeZone and AET has participated in Mr Jephcott’s breach of duties in that they knowingly induced or immediately produced those breaches or assisted Mr Jephcott in such breaches with knowledge that the breaches of duty involved a dishonest and fraudulent design on his part.

·                    Mr Scheuer, who is a director and shareholder of FreeZone and AET, participated in Mr Jephcott’s breaches of duty in that he knowingly induced or immediately procured the breaches or assisted Mr Jephcott in the breaches with knowledge that the breaches involved a dishonest and fraudulent design on his part.

9                     There is no real dispute concerning the background facts alleged in the putative statement of claim.  The issue concerns the assertion by Webcot that any sales or business activities of FreeZone in which Mr Jephcott has been involved entail a breach by Mr Jephcott of duties owed by him to Webcot. 

10                  Following the commencement of the Oppression Proceeding, Mr Webb heard rumours concerning possible business activities of Mr Jephcott.  In late 2008, he was concerned that Mr Jephcott might be acting contrary to Webcot’s interests and may be using confidential information of Webcot.  He acknowledges that he had no evidence to that effect. 

11                  On 11 November 2008, Webcot’s solicitors wrote to Mr Jephcott’s solicitors regarding Mr Jephcott’s relationship with two suppliers to Webcot, Sorex Limited (Sorex) and Brandenburg UK Limited (Brandenburg).  In the letter of 11 November 2008, Webcot’s solicitors said that Webcot had reason to believe that Mr Jephcott had or proposed to enter into a relationship with either or both of Sorex and Brandenburg.  The letter asserted that trading operations that might be carried on by either Sorex or Brandenburg in Australia or New Zealand would be contrary to the best interests of Webcot.  The letter asked whether Mr Jephcott has entered, or proposes to enter, into a relationship with either Sorex or Brandenburg and, if he has done so, requested particulars of the relationship.  On 14 November 2008, Webcot’s solicitors wrote again to Mr Jephcott’s solicitors asking for further information in relation to Agserv Pty Limited and Agnova Technologies Pty Limited, Univar Pty Limited and Xenex Associates Limited.

12                  Mr Jephcott’s solicitors responded on 17 November 2008, saying that Mr Jephcott was well aware of his obligations as a director of Webcot and had complied and would in the future comply with those obligations by acting at all times lawfully.  They said that, in those circumstances, in was not necessary for the questions raised in the earlier letters to be answered by Mr Jephcott. 

13                  On 21 November 2008, Webcot’s solicitors wrote again to Mr Jephcott’s solicitors pressing for an answer to the questions previously posed.  Mr Jephcott’s solicitors responded on 26 November 2008 saying that Mr Jephcott had no interest in any of the companies referred to in the earlier letters.  They asked Webcot’s solicitors to explain the reason that Webcot had reason to believe that Mr Jephcott had or proposed to enter into a relationship with the companies if they were to persist in inquiries.  There is no evidence of any response to that letter. 

14                  In December 2008, Mr Webb attended a meeting at the premises of APP with Mr Alec Walker, a representative of the Aldi organisation.  Mr Webb asked Mr Walker whether Mr Jephcott had approached Aldi to manufacture any products.  Mr Walker responded that he understood that his partner, Kevin Chandler, had recently been approached by Mr Jephcott to ask whether PAKS, the manufacturer of the “Bunnybait” product, would supply him with an alternative to Bunnybait in the future.  Mr Walker said that his directors had agreed that they would not supply Mr Jephcott with an alternative product. 

15                  On 1 April 2009, Webcot’s solicitors wrote to Mr Jephcott’s solicitors saying that Webcot had reason to believe that Mr Jephcott had approached Webcot’s suppliers with a view to obtaining a product that would be in competition with a product offered in Webcot’s current range.  Webcot’s solicitors asked:

·                    Whether Mr Jephcott has or proposes to enter into any type of commercial relationship with either Aldi or PAKS.

·                    If Mr Jephcott has entered into such a relationship, when that occurred.

·                    Whether Mr Jephcott has any similar relationships with any of Webcot’s current suppliers.

·                    Whether Mr Jephcott has any involvement with a business that is in competition with Webcot.

·                    If Mr Jephcott denies that he has breached his obligations as a director on what basis does he say his approach to Webcott’s suppliers have been made.

Mr Jephcott’s solicitors responded on 2 April 2009, saying that Mr Jephcott denied that he had breached his duties to Webcot and denied that he had approached Webcot’s suppliers.  The letter said that Mr Jephcott does not presently propose to enter into any type of relationship inconsistent with his duties to Webcot or engage in a business that is in competition with Webcot.

16                  Webcot’s solicitors wrote again to Mr Jephcott’s solicitors on 15 April 2009 asking a specific question about an approach by Mr Jephcott to Vernox and an approach by Mr Jephcott to PAKS.  The letter went on to say that Mr Jephcott has an obligation as a director to disclose information known to him that is material to the affairs of Webcot and that, if he contends that he has made no such approach, it would be a simple matter for him to say so.  The letter asserted that, if Mr Jephcott has made such an approach, he must disclose the details of that approach.

17                  Mr Jephcott’s solicitors replied on 22 April 2009, saying that Mr Jephcott had known Alec Walker, who is associated with both PAKS and Vernox, for more than 20 years and that Mr Jephcott had met with other persons associated with Vernox and PAKS on a social basis and had discussed with them, amongst other things, the Oppression Proceeding.  The letter said that at a social dinner Mr Jephcott had discussed with the principals of Vernox and PAKS the possibility of engaging in some business with them at some time in the future after the conclusion of the Oppression Proceeding.  The letter confirmed that Mr Jephcott had not done anything inconsistent with his obligations to Webcot and did not propose to do so, so long as he had obligations to Webcot. 

18                  On 29 April 2009 Webcot’s solicitors wrote again to Mr Jephcott’s solicitors posing further specific questions to Mr Jephcott.  Mr Jephcott’s solicitors replied on 4 May 2009 saying that he had not and would not breach his duties to Webcot and if Webcot felt that it had a case, the case should be brought forward.

19                  On 13 May 2009, Webcot’s solicitors wrote again to Mr Jephcott’s solicitors.  After referring to the earlier correspondence they said that, in the circumstances, it was not inappropriate for Webcot to have concerns regarding the conduct of Mr Jephcott and that Mr Jephcott could surely not dispute that he had an obligation as a director to make full disclosure of information known to him that was material to the affairs of Webcot.  They requested a response to their letter of 29 April 2009.

20                  There was no further response by Mr Jephcott’s solicitors.  However, on 16 July 2009, Webcott’s solicitors wrote again posing a series of interrogatories for answer by Mr Jephcott.  On 17 July 2009, Mr Jephcott’s solicitors sent an email to Webcot’s solicitors saying that they were obtaining instructions about the letter of 16 July 2009 but in the interim invited Webcot’s solicitors to identify the enactment or authority that entitled Webcot to interrogate Mr Jephcott.  Webcot’s solicitors responded by email later in the day saying that a request for authority was surprising but that it was a matter for Mr Jephcott how he responded to the letter, to which Webcot expected a reply.  Mr Jephcott’s solicitors responded by email later in the day, saying that, since the Habeus Corpus Act 1640 and as a consequence of the abolition of the Star Chamber, persons could not arbitrarily be compelled to answer questions:  they enquired whether the position was different in New South Wales. 

21                  On 24 July 2009 Webcot’s solicitors also wrote letters to Mr Scheuer, AET and FreeZone seeking information involving Mr Jephcott’s engagement with them.  Mr Scheuer responded by email on 5 August 2009 saying that he was not in a position to comment on the affairs of Mr Jephcott.  Neither AET nor FreeZone responded to the letters of 24 July 2009. 

22                  Webcot relies upon the correspondence that I have described as indicating an attitude of dissembling on the part of Mr Jephcott.  Webcot characterises the responses as less than frank and says that, in the light of the exchanges, adverse inferences should be drawn against Mr Jephcott.  Webcot points specifically to the acknowledgement in the correspondence that Mr Jephcott had had communications with suppliers of Webcot.  However, I do not regard the exchanges as giving rise to any inference.  Mr Jephcott was under no obligation to respond to the interrogation propounded by Webcot’s solicitors. 

23                  Webcot points to a number of other matters that it says give rise to a reasonably well founded belief that it may have a right to relief.  First, Webcot points to an application lodged on 17 July 2008 by Messrs Jephcott and Scheuer for registration of the trade mark FreeZone in relation to:

·                    Pest control agents, pest control formulations, adhesives for pest control.

·                    Pest control.

·                    Pest control in agriculture.

Webcot supplies goods and services in those categories.  Webcot contends that the registration of a trade mark in relation to those goods and services evinces an intention to engage in business in competition with Webcot. 

24                  Secondly, Webcot points to the involvement of Ms Belinda Basquil, the fifth respondent in the proceeding, against whom the proceeding as now been abandoned.  Ms Basquil has provided services over some years to Webcot in assisting Webcot to obtain registration of pesticides, insecticides and veterinary products by the Australian Pesticides and Veterinary Medicines Authority (the Authority).  Where a company wishes to introduce a new product onto the market or a new item into a product range, which may utilise a generic formula used by other suppliers, the company must first obtain approval from the Authority.  The Authority usually requires details of such things as clinical studies undertaken for the chemicals, efficacy results, allowable rates of dosages, pack sizes and directions to be included on labels.  Ms Basquil has provided assistance to Webcot in relation to such matters.

25                  On 21 May 2009, Ms Basquil sent an email to Mr Jephcott concerning discussions she had had with the Authority concerning FreeZone products.  The email suggests that Mr Jephcott is in the process of registering a product known as FreeZone. 

26                  Thirdly, FreeZone has established a website describing products that it has available for sale.  One of the products offered is Protector.  AET is the manufacturer of Protector.  It is common ground that the product offered by FreeZone under that name is the same as the product offered under that name by Webcot. 

27                  Fourthly, on 12 November 2008, Mr Iouri Rozjimaline, a principal of AET, sent an email on behalf of FreeZone to Mr Irawan Hartantio in Indonesia.  Mr Rozjimalene said that he was pleased that Mr Hartantio was interested in FreeZone’s product.  The email said that FreeZone’s business had undergone some changes since their last communication.  He said that AET was now a manufacturing division of FreeZone and that Mr Jephcott was FreeZone’s chief executive officer. 

28                  Mr Rozjimalene’s email stated that FreeZone was focussing on the promotion and distribution of smoke generators as well as supplying and distributing pest control and agricultural chemicals to Australian and overseas markets.  It also referred to a plan to start the registration process in Europe and Latin American countries and said that FreeZone was keen to promote pesticide smoke technology to Indonesia.  The email went on to say that, because FreeZone’s resources were stretched, registration in Indonesia had not been on its agenda but that it would be unreasonable not support Mr Hartantio’s registration efforts in Indonesia. 

29                  Fifthly, there is evidence of a sale in February 2009 by FreeZone to Bentz Jaz of the product known as Protector.  Webcot supplied Protector to Bentz Jaz in 2006. 

30                  Finally, in July 2009, Mr Jephcott approached Bunnings about a new product range of FreeZone.  Bunnings is a customer of Webcot.

31                  It is clear enough from the material presently available to Webcot that Mr Jephcott is the chief executive officer of FreeZone and that FreeZone is engaged in a business that is in competition with that of Webcot.  Further, FreeZone has solicited custom from Bunnings, a customer of Webcot and FreeZone has supplied Protector to Bentz Jaz which has been a customer of Webcot in the past.  In addition, FreeZone is endeavouring to establish a business of supplying customers in Indonesia with products of the same category as those supplied by Webcot.  Finally, FreeZone is obtaining supplies of Protector from AET, which has also supplied Protector to Webcot. 

32                  Preliminary discovery is an invasive process and the power given by Order 15A should only be exercised with caution.  The imposition of obligations of discovery should not be taken lightly and will not regularly occur. 

33                  The question is whether the applicant has sufficient information to make a decision whether to commence a proceeding in the Court.  The applicant must be seeking to determine whether a right to relief exists and not simply to determine the strength of the right to relief that he believes may exist.  Order 15A is intended to give assistance to an applicant who has, because of a lack of significant and vital information, real difficulty in deciding whether to commence a proceeding.  Order 15A must be construed beneficially and should be given the full scope that its language will allow.  It expressly contemplates what might be characterised as fishing, although it is not design to permit trawling.  Nevertheless, an applicant for relief under Order 15A must establish each of the elements provided for in paragraphs (a), (b) and (c) and is not entitled to satisfy deficiencies in the satisfaction of those prerequisites by rummaging through another’s affairs.

34                  The showing of reasonable cause involves an objective test.  It is not sufficient for an applicant simply to state that he believes that he has a case.  On the other hand, it is not a requirement that every element of a potential cause of action be shown to exist.  It is possible that some aspects of a cause of action might be left to surmise or conjecture but reasonable cause to believe requires something more than mere assertion, conjecture or suspicion.  However, the material before the Court must incline one’s mind towards the relevant matter or fact that is in question.  The mere possibility or speculation or suspicion that the relevant elements of a putative cause of action might exist is not sufficient.  Rather, there must be a positive basis for the belief. 

35                  There is nothing in the material to suggest that Mr Jephcott was engaged in any activities on behalf of FreeZone while he was still an employee of Webcot.  FreeZone was not incorporated until 7 July 2008, whereas Mr Jephcott’s employment by Webcot ceased on 7 May 2008. 

36                  However, Mr Jephcott continued to be a director of Webcot until 20 June 2009.  The question is whether the material supports a conclusion that there is reasonable cause to believe that Mr Jephcott may have acted in breach of his duties to Webcot as a director and that he is making use of confidential information of Webcot. 

37                  The putative statement of claim asserts that, in relation to that part of its business involving the sale of Protector, Webcot had developed and implemented pricing strategies for the sale of Protector, developed a customer base for Protector, and developed and implemented sales and marketing strategies for the sale of Protector.  It is asserted that those “strategies” constitute confidential information of Webcot and that, in his capacity as an employee and director of Webcot, Mr Jephcott obtained that confidential information. 

38                  There is no material presently before the Court as to what the so-called pricing strategies and sales and marketing strategies for the sale of Protector or the customer base for Protector that may have been developed by Webcot consist of.  It is difficult to conclude that such strategies and customer base constitute confidential information that was obtained by Mr Jephcott during the course of his employment and directorship of Webcot.  In the absence of specific evidence in that regard, I am not persuaded that there is reasonable cause to believe that Mr Jephcott has made any use of or taken any advantage from strategies or customer bases that constitute confidential information. 

39                  Assuming, as the putative statement of claim asserts, that the opportunity for a sale of Protector to Bentz Jaz arose in November 2008, there is nothing in the material to support a conclusion that there is reasonable cause to believe that the opportunity arose by reason of Mr Jephcott’s former employment by Webcot or by reason of this position as a director of Webcot.  Nor does the material suggest reasonable cause for believing that business opportunities for the sale of pest control products of which Mr Jephcott was aware in 2008 are opportunities that came to the knowledge of Mr Jephcott by reason of his former employment by Webcot or his position as a director.  Further, there is no reasonable cause to believe that Mr Jephcott’s awareness of any business opportunity involving Indonesia involved the use of any confidential information acquired by Mr Jephcott during the course of his employment or by reason of his directorship. 

40                  Assuming it be established that Mr Jephcott became aware of such opportunities in November 2008, I do not consider that he was under a duty, simply by reason of his directorship of Webcot, to inform Webcot of those opportunities.  It may be that there is a possibility that, in relation to some opportunities, involving both Bentz Jaz and supply of product to Indonesia, Mr Jephcott failed to act in good faith in the best interests of Webcot.  It is possible that, as a result of sales of Protector to Bentz Jaz, Webcot suffered detriment in the form of a lost sale.  However, on the basis of the material presently available, those are matters of speculation.  I do not consider that the material gives reasonable cause to believe that Mr Jephcott has acted in breach of any duty owed to Webcot under the Corporations Act. 

41                  Clearly enough, Mr Webb has suspicions.  Those suspicions must be understood in the context of lack of trust that now exists as between Mr Webb and Mr Jephcott as evidenced by the allegations made in the Oppression Proceeding.  However, mere suspicions and concerns are not sufficient to justify the making of orders under Order 15A.  The material must constitute reasonable cause for believing that there may have been a breach by Mr Jephcott of his duties as a director of Webcot.  While that is a possibility, on the basis of the material presently available, it is no more than speculation.  It follows, a fortiori, that the claim that Mr Scheuer and FreeZone and AET have been involved in any breach by Mr Jephcott of his duties to Webcot are speculation.  I am not persuaded on the material presently available that an order should be made against any of the respondents as claimed by Webcot. 

42                  In reaching the conclusion that I have reached, it must be understood that I express no view whatsoever as to whether or not Mr Jephcott has engaged in conduct in contravention of provisions of the Corporations Act.  Further, it is possible that, if further material came to light in the future, that material, together with that which is presently available, may constitute reasonable cause for believing that Mr Jephcott may have engaged in such conduct.  However, on the basis of the present material, the claim for relief under Order 15A must be dismissed at present.

43                  In the light of the conclusions that I have reached, it is unnecessary to deal with the questions raised by rule 6(b) and rule 6(c).  If the prerequisites of rule 6(a) were satisfied, there is a basis for concluding that Mr Jephcott may have documents that would assist Webcot in making a decision as to whether it should commence a proceeding against him for breach of his duties as a director.  The discovery sought by Webcot was narrowed in the course of the hearing.  In its final formulation, Webcot sought correspondence sent or received during the period 1 July 2007 to 20 June 2009 by Mr Jephcott to or from various people and entities relating to:

·                    any product sold by Webcot;

·                    any product proposed to be sold by Webcot;

·                    any product similar to any product or proposed to be sold by Webcot.

The persons and entities included the following:

·                    any person who had been a supplier to or a customer of Webcot;

·                    Ms Basquil;

·                    Mr Scheuer;

·                    Mr Iouri Rozjimaline.

Webcot also seeks similar categories of documents from Mr Scheuer, FreeZone and AET.

44                  The justification for the width of those categories is that, even if material were available to show a breach of duty in relation to Bentz Jaz and the Indonesian connection, Webcot may need to assess the extent of and width of any breaches by Mr Jephcott, before making a decision to commence a proceeding.  Even so, I consider that the categories would require further refinement, had I concluded that relief should be given pursuant to Order 15A.  Correspondence with all suppliers and customers of Webcot relating to products sold or proposed to be sold by Webcot or products similar to products sold or proposed to be sold by Webcot would clearly encompass documents beyond those that would be necessary to make a decision whether to commence a proceeding against Mr Jephcott or against Mr Scheuer or FreeZone or AET.

45                  Mr Jephcott also contends that, even if the prerequisites of rule 6(a) had been satisfied, the Court should not be satisfied that Webcot has taken all reasonable steps to acquire sufficient information to enable it to make a decision as required by rule 6(b).  Mr Webb was not cross-examined on his affidavit as to whether or not he had subjectively decided that he had sufficient information.  The only evidence of inquiries made by Webcot in relation to a possible claim against Mr Jephcott and the other respondents is the correspondence to which I have referred.  No attempt has been made, it seems, to acquire information from Mr Hartantio or from Bentz Jaz.  I am by no means satisfied that the prerequisites of rule 6(b) have been satisfied.  Relief under rule 6 of Order 15A involves significant intrusion into the private affairs of the object of such an order.  It is essential that the parties seeking such an order satisfy the Court that it has taken all reasonable steps to obtain the information that would enable it to make a decision whether to commence a proceeding.  Writing to the prospective defendants without more does not in the present circumstances satisfy that requirement.  However, as I have said, it is not necessary to form a final view on this question. 

Associate:

Dated:         3 November 2009