FEDERAL COURT OF AUSTRALIA

Alanco Australia Pty Ltd v Higgins [2010] FCA 1484

THE COURT ORDERS THAT:

1.    The plaintiff’s motion be dismissed.

2.    Costs of the motion are reserved.

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 Federal Law Search on the Court’s website.

REASONS FOR JUDGMENT

INTRODUCTION

1    In September 2010, I granted the plaintiff (Alanco) on an ex parte basis, search orders. The orders directed each of the second and third defendants (Mr Golding and Dasco) to permit a nominated search party to enter the business premises of Dasco and remove into the custody of the Court, material comprising, in summary, computer hard discs and other visible evidence of confidential information owned by Alanco.

2    The orders were sought pursuant to O 25B of the Federal Court Rules which, relevantly, provides as follows:

1    Interpretation

In this Order, unless the contrary intention appears:

applicant means an applicant for a search order.

described includes described generally whether by reference to a class or otherwise.

premises includes a vehicle or vessel of any kind.

respondent means a person against whom a search order is sought or made.

search order has the meaning given by rule 2.

2    Search order

The Court may make an order (a search order), in any proceeding or in anticipation of any proceeding in the Court, with or without notice to the respondent, for the purpose of securing or preserving evidence and requiring a respondent to permit persons to enter premises for the purpose of securing the preservation of evidence which is, or may be, relevant to an issue in the proceeding or anticipated proceeding.

3    Requirements for grant of search order

The Court may make a search order if the Court is satisfied that:

(a)    an applicant seeking the order has a strong prima facie case on an accrued cause of action; and

(b)    the potential or actual loss or damage to the applicant will be serious if the search order is not made; and

(c)    there is sufficient evidence in relation to a respondent that:

(i)    the respondent possesses important evidentiary material; and

(ii)    there is a real possibility that the respondent might destroy such material or cause it to be unavailable for use in evidence in a proceeding or anticipated proceeding before the Court.

4    Jurisdiction

Nothing in this Order diminishes the inherent, implied or statutory jurisdiction of the Court to make a search order.

5    Terms of search order

(1)    A search order may direct each person who is named or described in the order:

(a)    to permit, or arrange to permit, such other persons as are named or described in the order:

(i)    to enter premises specified in the order; and

(ii)    to take any steps that are in accordance with the terms of the order; and

(b)    to provide, or arrange to provide, such other persons named or described in the order with any information, thing or service described in the order; and

(c)    to allow such other persons named or described in the order to take and retain in their custody any thing described in the order; and

(d)    not to disclose any information about the order, for up to 3 days after the date on which the order was served, except for the purposes of obtaining legal advice or legal representation; and

(e)    to do or refrain from doing any act as the Court considers appropriate.

(2)    Without limiting the generality of subparagraph (1) (a) (ii), the steps that may be taken in relation to a thing specified in a search order include:

(a)    searching for, inspecting or removing the thing; and

(b)    making or obtaining a record of the thing or any information it may contain.

(3)    A search order may contain such other provisions as the Court considers appropriate.

(4)    In subrule (2):

record includes a copy, photograph, film or sample.

6    Independent solicitors

(1)    If the Court makes a search order, the Court must appoint one or more solicitors, each of whom is independent of the applicant’s solicitors, (the independent solicitors) to supervise the execution of the order, and to do such other things in relation to the order as the Court considers appropriate.

(2)    The Court may appoint an independent solicitor to supervise execution of the order at any one or more premises, and a different independent solicitor or solicitors to supervise execution of the order at other premises, with each independent solicitor having power to do such other things in relation to the order as the Court considers appropriate.

…

3    Before me, Alanco made submissions in accordance with O 25B r 3 and with the principles in Anton Pillar KG v Manufacturing Processes Ltd [1976] Ch 55 per Ormerod LJ (at 62(a-d)) addressing:

(a)    its strong prima facie case;

(b)    the serious potential damage to Alanco if the orders were not made;

(c)    the possession of relevant material by the defendants and the risk that the defendants may destroy such material before an application between the parties could be made; and

(d)    the harm to the defendants from execution of the order being relatively minimal.

THE NATURE OF THE CLAIM

4    The claim advanced by Alanco is a proceeding against former company officers for alleged breaches of their duties of good faith and loyalty owed pursuant to the Corporations Act 2001 (Cth) under s 181 and s 182 as well as claims in common law and equity and for breach of confidence.

5    Until 30 June 2010, the first defendant (Mr Higgins) was Alanco’s Sales Manager and until 31 December 2009, Mr Golding was its General Manager. At those times, those two persons held very senior positions within Alanco. Alanco proceeds against Dasco, a competitor, for which company the two former employees now work. Claims against Dasco include breach of confidence for knowing receipt and use of Alanco’s confidential information and inducement of breaches of contract by the two employees.

6    The premises to be searched under the orders were those from which Dasco conducts its competing business. The final claims against the fourth defendant (Ocnala) to enforce a contractual restraint of trade were not relevant to the search orders sought.

7    Alanco contends that the case against Dasco is cumulative, based on the actions of Messrs Higgins and Golding while employees of Alanco, together with the fact that Dasco is now their employer; that Mr Golding with his father and brother, is a shareholder of Dasco; that Alanco’s sales have been materially affected since Dasco commenced to trade; that the effects of this competition are unusual in scale and speed; and that Dasco adopted Alanco’s distinctive stock numbering system with cosmetic changes only.

8    Against Mr Golding, Alanco’s case relies on his personal participation in some of the acts and inferences as to his participation otherwise from his early resignation and the family link to Dasco and its business.

9    The chronology of events was, broadly speaking, on the evidence adduced by Alanco at the ex parte hearing to the following effect: in October 2009, 190 photographs of Alanco’s confidential stock and customer management programs were located on the Alanco company laptop computer used exclusively by Mr Higgins. In the next month, Mr Golding gave notice of intent to resign from Alanco; he extended this to 31 December 2009. On 17 December 2009, Mr Golding had his last day of attendance at Alanco and the new business name ‘Dasco Supply Group’ was registered by Dasco and a company ‘owned’ by Mr Golding – Haroval Pty Ltd.

10    Between May and July 2010, certain events occurred concerning a business known as Abbott Auto Electric (AAE) owned by Mr Shane Abbott together with his wife. AAE maintains a credit account with Alanco. Mr Abbott was a friend of Mr Higgins.

11    Mr Keith Thomas Bollen, General Manager of Alanco swore on affidavit that on 23 July 2010 he became aware of and observed a load of products which had been ordered by AAE from Alanco. On ordering the products, Mr Abbott gave directions to Alanco sales staff which ‘were very unusual and which involved a departure from Alanco’s ordinary procedures’. Mr Abbott directed Alanco’s sales staff not to send the ordered products to AAE but to another address. He ordered them not to label the boxes into which the products were placed, (this had the effect that the products were being sold without the Alanco invoice attached) and that he would arrange for his own courier to collect the products. Mr Bollen says that ordinarily all boxes leaving Alanco’s warehouse have the Alanco invoice applied to the packaging box. Mr Bollen says he was informed by Alanco’s staff members and believes that a courier who Alanco did not regularly deal with arrived to collect the unmarked boxes comprising the 23 July 2010 delivery and loaded them into his truck. An Alanco employee followed the courier’s truck and observed the courier deliver the 23 July 2010 delivery to the warehouse of Dasco. Dasco’s warehouse is approximately one kilometre from Alanco’s warehouse in Bentley, Western Australia.

12    Mr Bollen then reviewed the sales activity on the AAE account on Alanco’s Micronet computer system. Mr Bollen observed that from the time the AAE account was opened in 2004 until 2008, the trading volume on the account was a few hundred dollars per month. That increased in 2009 to purchases of between $2,000 and $4,000 worth per month. Unusual trading took place on the AAE account in the period of May to July 2010. In May, AAE purchased $16,494 worth of goods from Alanco at a very low gross profit margin and included with this were purchases of individual stock items in quantities too large to be used, Mr Bollen says, in the business of the size of AAE. He noted that in June 2010, AAE purchased $16,043 of goods from Alanco at similarly low gross profit margins, again, including purchases of individual stock items in quantities too large to be used by AAE. Similar observations were made in July 2010 with goods to the value of $5,492. Purchases ceased altogether in August. Amongst those products were products distributed by various companies by way of direct import by Alanco. Dasco was not then able to acquire those products direct from those overseas suppliers.

13    By reason of various facts to which he deposed, Mr Bollen expressed the belief for the ex parte interlocutory hearing that whilst he was employed with Alanco, Mr Higgins was assisting Dasco to obtain supply of products which it could not otherwise obtain and also obtaining them at favourable prices. He believed that Mr Higgins was assisting Dasco without the approval or knowledge of management of Alanco in circumstances where Dasco was a direct competitor of Alanco and that Mr Higgins endeavoured to prevent Alanco from discovering the supply of products to Dasco by routing the sales via his friend Mr Abbott.

14    On 16 June 2010, Mr Higgins resigned effective as of 30 June 2010. On 30 June 2010, the photographs referred to above were deleted from the computer used by Mr Higgins.

Serious damage

15    Evidence was given of the damage to Alanco from the unauthorised taking and misuse of Alanco’s confidential information built up over 23 years of business. One hundred and ninety photographs recovered from the laptop used by Mr Higgins was evidence, it was said, of that misuse. It was submitted that there was a compelling inference that Dasco, Alanco’s competitor, had access to the 190 photographs of Alanco’s data system which included images of:

    Alanco’s top selling products;

    Alanco’s customer list in order of scale of business;

    Products purchased identified by reference to each of Alanco’s customers;

    Alanco’s gross margins by product;

    Alanco’s gross margins by customer; and

    Alanco’s distinctive product codes.

16    As to the question of possession of relevant things by the defendants, that was only able to be finally established on execution of a search but it was submitted that I should be satisfied of a likelihood from, amongst other things, the taking of the photographs and the range of matters covered by the photographs and the deletion of the photographs and that the defendants held this property at the time of the ex parte application. Also relevant, it was submitted, was the fact that Mr Higgins appeared to have obscured his intended future employment when giving notice of his resignation.

17    As to the question of destruction, Alanco submitted it was conventional for the Court to draw an inference that there was a ‘real possibility’ that a defendant may destroy material evidence against it unless an order was made on an ex parte basis. I was satisfied that there was a risk.

18    In terms of damage to Dasco, steps were taken to ensure that the order was to be executed with minimal disruption to the operations of Dasco. The proposal required a ‘mirror’ copy (in fact two such copies) to be taken by an independent computer expert with the computers returned to the defendants before the opening of the business the next morning. Alanco was to have no access to the material obtained. In the usual way, the mirror copies were to be searched by the expert by reference to defined categories of information, a process to be undertaken inter partes after return of the search was reported to the Court.

19    The application was supported with the usual undertaking as to damages and there was disclosure of prospective defences.

20    Dr Sharon Ivey was appointed as an independent solicitor to supervise the process of the search and seizure orders.

21    On return of the subsequent motion in respect of the property seized, Dr Ivey attended before the Court and handed over the materials into the custody of the Court.

SUBSEQUENT APPLICATION

22    Following execution of the Search Order, an application was brought by Alanco for Alanco’s solicitors to be relieved from the undertaking given to the Court not to disclose to officers of Alanco the contents of documents obtained as a result of the execution of the search and seizure orders made by the Court on 16 September 2010. (Additionally an alternative discovery regime was sought).

23    An affidavit in support of the relief was sworn and filed by Mr Alan Foster, solicitor for Alanco. It was treated as being confidential so reference to it in these reasons is limited. It addresses a number of documents found in the Dasco data as well as 192 screen shots alleged to have been taken by Mr Higgins before he left the employ of Alanco.

24    Alanco submitted that absent some special order of the Court, copies of documents obtained by a party as a result of the execution of an Anton Pillar order were to be treated in the same way as copies of documents obtained by a party as a result of a standard form of orders for discovery and inspection. It followed that the Harman principle in Home Office v Harman [1983] 1 AC 280 applied equally to documents discovered pursuant to Anton Pillar orders as those discovered generally. For Alanco it was submitted that the Harman principle in no way prevented a solicitor for party ‘A’ from showing A a document or copy thereof obtained on discovery from another party to the action in the course of taking instructions from A and advising A.

25    Alanco submitted that the Harman principle also did not prevent the solicitor for A showing to a potential non-party witness X a document obtained on discovery from another party as part of an interview with X with a view to X possibly giving evidence for A in those proceedings: Kimberley Mineral Holdings Ltd (In Liq) v McEwan [1980] 1 NSWLR 210 (at 215AB) per Hope and Glass JJA with whom Moffitt P agreed (at 212).

26    In this regard, reliance was placed on Mackay Sugar Co-operative Association Ltd v CSR Ltd (1996) 63 FCR 408; Mobil Oil Australia Ltd v Guina Developments Pty Ltd [1996] 2 VR 34 (at 39) per Hayne JA with whom Winneke P and Phillips JA agreed. In Mackay Sugar commenting also on Mobil Oil, then unreported, Spender J said (at 412-414):

I turn now to my conclusions. First of all, a party obtaining discovery will generally be entitled to inspect all of the other's discoverable documents, except those in respect of which a proper claim for privilege can be made. Lord Keith of Kinkel in Harman v Secretary of State for the Home Department [1983] 1 AC 280, said at 308:

Discovery constitutes a very serious invasion of the privacy and confidentiality of a litigant's affairs. It forms part of English legal procedure because the public interest in securing that justice is done between parties is considered to outweigh the private and public interest in the maintenance of confidentiality. But the process should not be allowed to place upon the litigant any harsher or more oppressive burden than is strictly required for the purpose of securing that justice is done.

Those propositions, it seems to me, are reflected in the rules of this Court to which I have earlier referred.

Lord Wilberforce said in Science Research Council v Nasse [1980] AC 1028 at 1065:

There is no principle in English law by which documents are protected from discovery by reason of confidentiality alone. But there is no reason why, in the exercise of its discretion to order discovery, the tribunal should not have regard to the fact that documents are confidential, and that to order disclosure would involve a breach of confidence.

He said later:

As a corollary to the above, it should be added that relevance alone, though a necessary ingredient, does not provide an automatic sufficient test for ordering discovery. The tribunal always has a discretion.

It might be noted that the County Court rules that were there being considered by the House of Lords conferred on the County Court a general discretion concerning discovery, coupled with the qualification that:

discovery shall not be ordered if and so far as the court is of the opinion that it is not necessary either for disposing fairly of the proceedings or for saving costs. [emphasis in original]

There is, in this case, a category of documents which are of a similar kind to that considered by the Court of Appeal in Warner-Lambert Co v Glaxo Laboratories Ltd [1975] 92 RPC 354.

In that case the plaintiff sued for infringement of two patents relating to steroid compounds and their manufacture. The question that arose in the Court of Appeal was the extent to which the defendant should be required to disclose its process to representatives of the plaintiff, the defendants denying that its product infringed either of the patents and asserting that there were secrets of considerable commercial value connected with its method of producing the substance in question. Buckley LJ said at 356:

In this respect, the court is, in my opinion, confronted with conflict of expedients. The plaintiff is entitled to be protected against infringements of its monopolies under the two patents in suit. If the defendant is in fact infringing, it should not be permitted to shelter behind a plea of secrecy. If, however, the defendant is not infringing, it is entitled to have the secrets associated with its process maintained intact. The parties are competitors in a highly competitive market. How can justice be done and at the same time effect be given to the rights of each party to the greatest possible extent?

He addressed this question later (at 356) where he said:

In such a case a controlled measure of disclosure seems best calculated to serve the interests of justice. The course which has been taken in a number of such cases has been to direct disclosure to selected individuals upon terms aimed at securing that there will not be either use or further disclosure of the information in ways which might prejudice the defendant.

His Honour said (at 359):

The judge was, as it appears to me, concerned to ensure that the plaintiff company, in the person of some responsible officer, should have an opportunity not only of being advised by technical experts and legal advisers, but of knowing the facts on which that advice was founded so as to be able to form a personal judgment on how to deal with the action. There are obviously strong arguments in favour of a party to litigation being enabled so far as possible to chart his own course in the light of professional advice.

And his Lordship said (at 360):

If in a particular case it is right that disclosure of any facts should be made by one party to his opponent's advisers before trial, it must normally follow as a matter of course that the opponent should be entitled to know the fact so disclosed. His advisers are his agents in the matter and strong grounds must be required for excluding the principal from knowledge which his agents properly acquire on his behalf. But this principle must be subject to some modification if trade secrets are to be protected from disclosure to possible competitors.

And later:

Where a matter in question in an action, being that matter upon which inspection or disclosure will throw light, is of a technical nature, the party seeking discovery may well require inspection by, or disclosure to, technical and professional advisers. If the matter be of a kind on which the party will be likely to be able with the aid of those advisers to form some kind of view of his own, it seems to me that he should normally be allowed to know as much about the facts as his advisers.

I cite those observations in respect of the general matters in respect of which confidentiality is claimed as well as in respect of more particular considerations that apply concerning the very low colour technology.

The respondents particularly rely on the Mobil Oil case. Hayne JA said (at 87):

Once the documents are inspected by the principals of the trade rival the information which is revealed is known to the trade rival and cannot be forgotten. Confidentiality is destroyed once and for all (at least so far as the particular trade rival is concerned). To say that trade rival is bound not to use the documents except for the purpose of the action concerned is, in a case such as this, to impose upon that trade rival an obligation that is impossible of performance by him and impossible of enforcement by the party whose secrets have been revealed.

It seems to me that this concern, while a very real one, is somewhat overstated. In many circumstances people, including judges, are given information which for some reason or another should not be used for a particular purpose. It goes without saying that judges are expected to decide cases on the material properly admissible before them and to put to one side anything which is inadmissible or irrelevant to the determination of the issues before them. It seems to me that while there are difficulties raised by the need to adopt that course, it is a course which, in fact, is both necessary and frequent. Similarly, here it seems to me that it overstates the matter to say that confidentiality is destroyed on disclosure, or that a particular person is unable not to use information, imparted to him on a strict undertaking of confidentiality, for improper purposes.

In the Mobil Oil case, Hayne JA said (at 88-89):

Where, as here, the problem is one of balancing the needs of a party to the litigation and the legitimate concern of a trade rival to retain secrecy of commercially sensitive information, it may well be necessary to mould orders that will distinguish between the plaintiff, its officers, its legal advisers, and experts. Again it may be accepted that generally a party is entitled to inspect the documents of an opposite party by itself, its servants or its agents. But in the present kind of case, is it necessary to destroy the legitimate claim of confidentiality from trade rivals by permitting the principal of the rival to look at the documents? Is it sufficient to permit counsel and solicitors (and nominated experts) to do so? It is now commonplace in the Courts for material to be made available only to the legal advisers of the parties and nominated experts. Of course such arrangements bring with them their own difficulties and are arrangements that should be adopted only where there is a need to do so; of course they are arrangements that may need to be reviewed as the matter progresses towards trial or as the trial itself proceeds. But they are arrangements that are made and should be made when doing so would strike a fair balance between the competing interests of the party seeking inspection and the party claiming confidentiality. No more specific rule can be laid down — each case will fall for determination according to its own facts.

I agree that each case does fall for determination according to its own facts, and the question in the present case is: is the disclosure to the applicants or some nominated officers of them necessary for the proper preparation of their case? The factual circumstance in the Mobil Oil case appears to me to be significantly different from the factual circumstances here. I do, nonetheless, acknowledge the trade rivalry and the need, as far as possible, to ensure that the interests of the respondents are not unfairly put at risk.

27    It has been observed in several authorities that the imposition of restrictions on solicitors (and counsel) to speak to a client and to disclose information to the client creates serious difficulties in the conduct of litigation. The significance of documents in themselves or the ability of documents to lead to a train of enquiry for possible cross-examination and further investigation may only be apparent to the client itself and not necessarily to the legal advisors without explanation and instruction. Disclosure may also be necessary to allow directors of a company to make important decisions on the company’s behalf concerning whether or not and, if so, how, to proceed to trial.

28    Despite this, it is equally recognised on the cases that in litigation between trade rivals, the Court should be astute not to allow discovery and inspection to give one party a competitive advantage over the other that would not have been achieved but for the disclosure ordered by the Court.

29    Further, there may be circumstances in which the implied undertaking recognised in Harman is inadequate because compliance with the undertaking by the party obtaining inspection may be a practical impossibility for that party; and secondly, the party giving inspection may not be able to enforce compliance with the undertaking in any practical way. This usually requires the Court to embark upon a balancing exercise which involves ascertaining ultimately what is in the interests of justice.

30    Alanco points to the fact that Mr Golding, while swearing an affidavit, did not adduce any evidence that the photographs alleged to have been taken by Mr Higgins were not taken or used by him or others in connection with Dasco. He simply asserts that he himself has not seen the photographs. Alanco argues that on this basis and given the fact that Dasco supplies to approximately 70% of the customers of Alanco, this is not the situation described in Mobil Oil. Firstly, the evidence points strongly, it is submitted, to the fact that Dasco is a trade rival by virtue of having used the confidential information of Alanco, a fact not applying in Mobil Oil. Secondly, Alanco has long operated in the industry and there can be no real or substantial fear that it would learn something significant from seeing supplier and client information held by Dasco.

31    Mr Hannan for Alanco argues that the orders have been crafted with regard to the practice of limited restriction to a senior officer of the inspecting party. I accept that careful consideration has been given to these principles.

32    The orders sought by Alanco were quite detailed and are in the following terms:

…

3.    The plaintiff's solicitors be partially released from the undertakings to the Court contained in paragraph 11 of Schedule B to the order of the Court made on 16 September 2010 directed to Dasco Sales Pty Ltd to the extent that they may act in accordance with the orders set out below.

4.    For the purposes of these orders, "Dasco Data" means any information obtained by the plaintiff's solicitors or the independent computer expert as a result of the execution of the orders of the Court referred to in paragraphs 2 and 3 above.

5.    The plaintiff's solicitors may disclose to the plaintiff's general manager Keith Thomas Bollen ("Mr Bollen") information derived from the Dasco Data in the following manner and subject to the following conditions:

(1)    The plaintiff's solicitors may seek instructions from Mr Bollen concerning information derived from the Dasco Data.

(2)    For the purposes of sub-paragraph (1) above, the plaintiff's solicitors may show Mr Bollen any document (whether in paper or electronic format) derived from the Dasco Data and/or provide Mr Bollen with a copy of any such document.

(3)    For the purposes of sub-paragraph (2) above, any document or copy thereof which the plaintiff's solicitors show or provide to Mr Bollen shall be redacted in the following manner:

(a)    Redaction of all sale prices of the third defendant's products.

(b)    Redaction of all purchase prices of the third defendant's products.

(4)    For the purposes of sub-paragraph (2) above, any document or copy thereof which the plaintiff's solicitors show or provide to Mr Bollen may be shown or provided in the following manner:

(a)    By handing the document to Mr Bollen in person.

(b)    By posting the document to Mr Bollen in an envelope addressed to him and marked "STRICTLY PRIVATE AND CONFIDENTIAL".

(c)    By sending the document to Mr Bollen to a private e-mail address to which no director, employee or agent of the plaintiff has access.

(5)    Before the plaintiff's solicitors make any disclosure to Mr Bollen of any information derived from the Dasco Data, the plaintiff's solicitors shall provide Mr Bollen with a copy of these orders.

6.    Mr Bollen shall use any information derived from the Dasco Data which is disclosed to him pursuant to these orders solely for the purposes of this proceeding.

7.    Without limiting the generality of paragraph 6 above, Mr Bollen shall not cause the plaintiff to:

(1)    change the price of any of its products;

(2)    seek improved terms from any of the plaintiff's suppliers; or

(3)    seek supplies of any product from a supplier who had not previously supplied that product to the plaintiff,

as a result of his knowledge of any information derived from the Dasco Data which is disclosed to him pursuant to these orders.

8.    Mr Bollen shall not disclose the content of any information derived from the Dasco Data which has been shown to him pursuant to these orders to any director, employee or agent (save for the plaintiff's solicitors).

9.    Mr Bollen shall take all reasonable precautions to ensure that no director, employee or agent (save for the plaintiff's solicitors) sees or has access to any document (whether in paper or electronic format) derived from the Dasco Data which has been provided to him pursuant to these orders.

10.    At the conclusion of the proceeding Mr Bollen shall return to the plaintiff's solicitors all copies of any document containing any portion of the Dasco Data provided to him by the plaintiff's solicitors.

11.    The plaintiff's solicitors may show to two of the plaintiff's two directors, being Raymond Charles Smith Roberts ("Mr Roberts") and Raymond McGregor Malone ("Mr Malone") information derived from the Dasco Data in the following manner and subject to the following conditions:

(1)    The plaintiff's solicitors may seek instructions from Mr Roberts and Mr Malone concerning information derived from the Dasco Data.

(2)    For the purposes of sub-paragraph (1) above, the plaintiff's solicitors may show Mr Roberts and Mr Malone any document (whether in paper or electronic format) derived from the Dasco Data and/or provide Mr Roberts with a copy of any such document.

(3)    For the purposes of sub-paragraph (2) above, any document or copy thereof which the plaintiff's solicitors show or provide to Mr Roberts and Mr Malone without any redaction.

(4)    For the purposes of sub-paragraph (2) above, any document or copy thereof which the plaintiff's solicitors show or provide to Mr Roberts may be shown or provided in the following manner:

(a)    By handing the document to Mr Roberts or Mr Malone in person.

(b)    By posting the document to Mr Roberts or Mr Malone in an envelope addressed to him and marked "STRICTLY PRIVATE AND CONFIDENTIAL".

(c)    By sending the document to Mr Roberts or Mr Malone to a private e-mail address to which no other director, employee or agent of the plaintiff has access.

(5)    Before the plaintiff's solicitors make any disclosure to Mr Roberts or Mr Malone of any information derived from the Dasco Data, the plaintiff's solicitors shall provide Mr Roberts and Mr Malone with a copy of these orders.

12.    Mr Roberts and Mr Malone shall use any information derived from the Dasco Data which is disclosed to him pursuant to these orders solely for the purposes of this proceeding.

13.    Without limiting the generality of paragraph 12 above, neither Mr Roberts nor Mr Malone shall not (sic) cause the plaintiff to:

(1)    change the price of any of its products;

(2)    seek improved terms from any of the plaintiff's suppliers; or

(3)    seek supplies of any product from a supplier who had not previously supplied that product to the plaintiff,

as a result of his knowledge of any information derived from the Dasco Data which is disclosed to him pursuant to these orders.

14.    Neither Mr Roberts nor Mr Malone shall not (sic) disclose the content of any information derived from the Dasco Data which has been shown to him pursuant to these orders to any director, employee or agent (save for the plaintiff's solicitors).

15.    Mr Roberts and Mr Malone shall take all reasonable precautions to ensure that no director, employee or agent (save for the plaintiff's solicitors) sees or has access to any document (whether in paper or electronic format) derived from the Dasco Data which has been provided to him pursuant to these orders.

16.    At the conclusion of the proceeding Mr Roberts and Mr Malone shall return to the plaintiff's solicitors all copies of any document containing any portion of the Dasco Data provided to him by the plaintiff's solicitors.

17.    At the conclusion of the proceeding the plaintiff's counsel shall return to the plaintiff's solicitors copies of any document containing any portion of the Dasco Data provided to him by the plaintiff's solicitors.

18.    At the conclusion of the proceeding the plaintiffs solicitors shall return to the second and third defendants' solicitors copies of any document containing any portion of the Dasco Data.

19.    At the conclusion of the proceeding the plaintiff's solicitors and counsel shall remove and delete from all electronic storage devices all electronic copies of any document containing any portion of the Dasco Data.

20.    Mr Phillip Russo of PPB WA Pty Ltd, being the independent computer expert the subject of the orders of the Court made on 16 September 2010, shall extract all the documents on the Dasco Data and provide a copy to the solicitors for the plaintiff and the second and third defendants.

21.    The provision of copies of the Dasco Data to the plaintiff's solicitors in accordance with paragraph 20 above shall be regarded as discovery by:

(1)    the second and third defendants to the plaintiff of all such documents for the purposes of any subsequent order of the Court in respect of discovery, to the intent that the second and third defendants need not list such documents in any affidavit of discovery; and

(2)    the plaintiff to the second and third defendants of all such documents for the purposes of any subsequent order of the Court in respect of discovery, to the intent that the plaintiff need not list such documents in any affidavit of discovery.

…

OPPOSITION

33    Mr Cobby for Mr Golding and Dasco opposed the orders being made on the obvious basis that they contemplate the delivery of commercially sensitive information to a trade rival when that has not been shown to be necessary.

34    Before coming to that point, Mr Cobby noted that the defendants considered that Alanco’s case was much weaker than suggested.

35    The points were made that:

    a covenant not to engage in business and competition is not contravened by merely preparing to do so (Pioneer Concrete Services Ltd v Galli [1985] VR 675 per Brooking J (at 687-691)).

    Alanco obtained the search orders relying in part on an allegation that Alanco’s stock numbering system was confidential. In doing so, it failed to disclose to the Court, the defendants submit, that information was already published to the world by Alanco on the internet.

36    The defendants submit that as Alanco has only two directors, the effect of the proposal advanced by Alanco would be to disclose the defendants’ confidential information to all of Alanco’s directors and to its general manager. In the absence of any evidence to the contrary from Alanco, that would appear to be the whole of its senior management. No protection for the defendants’ interests is offered, they complain.

37    The defendants also contend there is no evidence that the ‘screen shots’ were ever in the possession of Dasco. Alanco relies on the confidentiality of its part numbers, product description similar to those of Alanco and product categories and classes similar to those of Alanco and the fact that the email from Mr Golding containing that information was in existence by 1 February 2010, more than a month after Mr Golding had ceased employment with Alanco. The defendants contend that none of that material is confidential. Alanco publishes its part numbers, product descriptions, classes and categories on the internet. Mr Golding created that system in the first place.

CONSIDERATION

38    O 25B FCR is modelled upon the well known principles in Anton Pillar. That brief and with respect, clear decision of the Court of Appeal is cited frequently. Lord Denning MR there reinforced that it is obvious that such an order can only be justified in the most exceptional circumstances.

39    Lord Denning said (at 58):

Let me say at once that no court in this land has any power to issue a search warrant to enter a man's house so as to see if there are papers or documents there which are of an incriminating nature, whether libels or infringements of copyright or anything else of the kind. No constable or bailiff can knock at the door and demand entry so as to inspect papers or documents. The householder can shut the door in his face and say, 'Get out'. That was established in the leading case of Entick v Carrington. None of us would wish to whittle down that principle in the slightest. But the order sought in this case is not a search warrant. It does not authorise the plaintiffs' solicitors or anyone else to enter the defendants' premises against their will. It does not authorise the breaking down of any doors, nor the slipping in by a back door, nor getting in by an open door or window. It only authorises entry and inspection by the permission of the defendants. The plaintiffs must get the defendants' permission. But it does do this: it brings pressure on the defendants to give permission. It does more. It actually orders them to give permission—with, I suppose, the result that if they do not give permission, they are guilty of contempt of court.

…

It seems to me that such an order can be made by a judge ex parte, but it should only be made where it is essential that the plaintiff should have inspection so that justice can be done between the parties; and when, if the defendant were forewarned, there is a grave danger that vital evidence will be destroyed, that papers will be burnt or lost or hidden, or taken beyond the jurisdiction, and so the ends of justice be defeated; and when the inspection would do no real harm to the defendant or his case.

Nevertheless, in the enforcement of this order, the plaintiffs must act with due circumspection. On the service of it, the plaintiffs should be attended by their solicitor, who is an officer of the court. They should give the defendants an opportunity of considering it and of consulting their own solicitor. If the defendants wish to apply to discharge the order as having been improperly obtained, they must be allowed to do so. If the defendants refused permission to enter or to inspect, the plaintiffs must not force their way in. They must accept that refusal, and bring it to the notice of the court afterwards, if need be on application to commit.

40    Ormrod LJ agreed with Lord Denning MR saying that such an order is at the extremity of this Court's powers. Such orders, therefore, will rarely be made, and only when there is no alternative way of ensuring that justice is done to the plaintiff. Shaw LJ stressed that the overriding consideration is that it is to be resorted to only in circumstances where the normal processes of the law would be rendered nugatory if some immediate and effective measure was not available. And, when such an order is made, the party who has procured the court to make it must act with prudence and caution in pursuance of it.

41    The balancing exercise to be undertaken requires that before the Court can decide that it is in the interest of justice to impinge upon the defendants’ legitimate interest in the maintenance of the confidentiality of their commercially sensitive information, Alanco must show that it is actually necessary for the conduct of the case. This was central to the conclusion by Spender J in Mackay Sugar. Alanco has not fully addressed that issue.

42    The limited nature of the exercise of the special power under O 25B FCR is not something to be forgotten after the successful exercise of the search which has been permitted. Especially in the case of trade rivals, a very clear case needs to be shown to justify ordering release of the search material at a relatively early stage in the litigation, beyond the professional adviser and independent expert, direct to the trade rival. For reasons set out below, I do not consider that Alanco has yet reached the stage of demonstrating that it is necessary for its case to permit that release.

43    While Mr Foster says he wishes to show a product list forwarded by Mr Golding to Mr Scott containing some 1,500 to 1,600 products (Annexure AJF-6) with a request to input the list into the ‘Micronet asap’. He does not explain why, instead of disclosing it to Alanco, he could not instead obtain instructions from Alanco about product ranges, obtain a list of Alanco’s suppliers and instructions as to how each was established, including whether the fact that Mr Golding was Alanco’s general manager might account for any similarities in supplier lists. It would seem to be open to pose the question of supply cost as a hypothetical or obtain instructions regarding Alanco’s profit margins and carry out the calculations himself or if he lacked the expertise to do so, engage an independent expert to carry out that particular task. Similarly, in relation to the Dasco sales figures for customers identified as Alanco customers, (exhibit AJF10), Mr Foster says he wishes to show that to the Alanco management to see ‘whether or not those customers have ceased patronage of Alanco since April 2010’. It has not been explained why Alanco cannot simply provide him with instructions as to which customers it claims to have lost since that time so that he could make the comparison himself.

44    Mr Foster also refers to an email by Mr Higgins of Dasco to one of Dasco’s clients or prospective clients. Mr Foster says he wishes to take instructions on the relativity the price quoted in the email to the price charged by Alanco and the impact of that pricing on any further business between Alanco and that company. The defendants complain that there is no explanation as to why Alanco cannot provide him with instructions as to its pricing and sales history to that client for the particular period, again, to enable him to draw those conclusions. That seems reasonable as a starting point.

45    Importantly, the defendants complain that there is no mention at all of any attempt of Alanco or any of its advisors to retain an independent expert to undertake any task which Alanco’s legal advisors consider to be beyond their expertise.

46    The fact that it would be easier for Alanco solicitors if they could give all the information to Alanco is not a sufficient reason to destroy the confidentiality of the information owned by the defendants.

Discovery

47    The discovery regime was not developed in argument but the defendants simply contend that at this stage, prior to close of pleadings, any discovery regime is premature and at present I am inclined to agree.

48    For those reasons, at this stage, Alanco’s motion will be dismissed. This does not preclude Alanco from renewing motions in similar terms at a later time with such additional evidentiary support as it considers appropriate.

49    The following orders are made:

1.    The plaintiff’s motion be dismissed.

2.    Costs of the motion are reserved.

Associate:

Dated:    23 December 2010