FEDERAL COURT OF AUSTRALIA

Ebos Group Pty Ltd v Team Medical Supplies Pty Ltd [2011] FCA 862

THE COURT ORDERS THAT:

Upon the Applicants by their counsel giving the usual undertaking as to damages, the Court orders that:

1.    Upon the undertaking of the Prospective Applicants’ solicitor to pay the appropriate filing fees, leave be granted to the Prospective Applicants to file in court the Application dated 1 August 2011.

2.    The Application is made returnable immediately.

3.    The Prospective Applicants be at liberty to move ex parte for the orders sought in paragraph 1(a), (b), (e) and (g) of the Application and that the requirement of service in Rule 7.24(3) of the Federal Court Rules be dispensed with so far as is necessary to enable those orders to be made.

4.    Pursuant to Order 1.34 of the Federal Court Rules, to the extent necessary the requirements of:

(a)    Orders 2.11 and 7.24(1) be dispensed with so as to allow the Prospective Applicants to file the Application and affidavits of Anthony Raymond Norris and Michael Khoury dated 29 July 2011;

(b)    Order 8.02 be dispensed with.

5.    The time for service of the Application and affidavits filed in support of the Application is abridged and service is to be effected by 2 pm on Tuesday, 2 August 2011.

6.    The matter be listed for a further hearing at 10.15 am on Thursday, 4 August 2011 (the Return Date).

7.    The Prospective Respondents produce to the Court the documents falling within paragraphs 1(a), (b), (e) and (g) of the Application at the Return Date.

8.    The Prospective Respondents have liberty to apply to the Court at any time to vary or vacate these orders.

9.    Until further order, the Prospective Respondents must not destroy, tamper with, cancel or part with possession, power, custody or control of any documents in respect of which preliminary discovery is sought in the Application.

10.    Until further order, pursuant to section 50 of the Federal Court of Australia Act 1976 (Cth), the exhibits identified in the affidavit of Anthony Raymond Norris dated 29 July 2011 as confidential (the Confidential Exhibits) are to be kept confidential and are not to be disclosed or published to any person except the parties to this proceeding and their respective legal representatives without the leave of the Court.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. The text of entered orders can be located using Federal Law Search on the Court’s website.

REASONS FOR JUDGMENT

1    Filed in Court today as a duty matter is an Application for Preliminary Discovery under Rule 7.23 of the Federal Court Rules 2011.

2    The Applicants proceed ex parte.

The Substantive Application — Section 18

3    In July 2007 a predecessor of the First Applicant purchased the assets and business of a company then called Vital Medical Supplies (Australia) Pty Limited. Mr Pieter Vriens was the founder, shareholder and general manager of this business prior to it being sold. He and his then wife, Ms Louise Margaret Vriens, were parties to that sale agreement. That sales agreement contained a “non-compete clause” for Mr Pieter Vriens and further provided that employment was to be offered to all of the then current employees of the business that had been purchased, including Mr Pieter Vriens and his sister, Ms Marijke Vriens.

4    Customer databases were maintained on behalf of the Applicants and the newly acquired business. Mr Pieter Vriens and Ms Marijke Vriens were granted access to the customer databases of the Applicants.

5    In May 2011, the General Manager of the First Applicant, Mr Anthony Norris, received a telephone call advising him that there was a new competitor in the medical supply market. He was not, however, then advised of its name.

6    Shortly thereafter, Mr Norris received a copy of a brochure of a business identified as “Team Medical Supplies”. This brochure is said to be “very much” like that of the Applicants’.

7    There was also occurring during the period from August 2010 to mid 2011 a series of resignations of employees formerly employed by Vital Medical Supplies (Australia) Pty Ltd.

8    Mr Norris had also been informed that Ms Marijke Vriens had been talking of “setting up her own competing business” and that she had “taken a copy of the… customer database”.

9    A computer forensic expert retained on behalf of the Applicants, Mr Michael Khoury, has carried out an analysis of a number of computers and has concluded that a number of these former employees (including Mr Pieter Vriens and Ms Marijke Vriens) have accessed the computer records of the Applicants. Mr Khoury further concluded that a large amount of information has most probably been copied. After having reviewed the computer files, Mr Khoury concluded:

27. In my view, the evidence from the log file indicates that the user on PC03 either:

(a)    wanted to burn a large amount of data onto DVD, and that amount of data was so large that they were required to insert a new DVD each time a DVD was filled to capacity, until a total of five DVDs were filled; or

(b)    wanted to burn five copies of the same set of data onto DVD.

The fact that each of the transfers is of almost exactly the same duration suggests to me that the latter is the more likely explanation. If the user was simply burning one set of data across five DVDs, the time of data transfer to each of the DVDs would only be the same if the final batch of data happened to consume the entire DVD.

Mr Norris says that there may have been a reason for one copy of the information having been taken, but inferentially says there was no legitimate purpose for the remaining four copies.

10    There is also some evidence that some of the customers of the Applicants have been purchasing medical supplies from Team Medical Supplies in the belief that they were dealing with the Applicants.

11    Although this is but an outline of the background facts relied upon by the Applicants, their proposed Application seeks to invoke s 18 of the Australian Consumer Law. Section 131, it may be noted in passing, within Part XI of the Competition and Consumer Act 2010 (Cth) provides for Schedule 2 to apply “as a law of the Commonwealth to the conduct of corporations …”. And Schedule 2 is titled “The Australian Consumer Law”.

12    Within Schedule 2, s 18 provides in part as follows:

Misleading or deceptive conduct

(1)    A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

(2)    …

This provision is the counterpart to the former s 52 of the Trade Practices Act 1974 (Cth).

13    The conduct of the “prospective respondent[s]” is said by the Applicants to fall within s 18. The manner in which they are believed to be presenting their business in competition with that of the Applicants is said to be “misleading or deceptive”.

Preliminary Discovery – Rule 7.23

14    The Application for Preliminary Discovery is an application made pursuant to Part 7 of Chapter 2 of the Federal Court Rules 2011.

15    Rule 7.01 provides as follows:

Order before start of proceeding

(1)    If a matter is urgent, a person who intends to start a proceeding (a prospective applicant) may apply to the Court, without notice, as if the prospective applicant had started the proceeding and the application had been made in the proceeding, for an order:

(a)    granting an injunction; or

(b)    if the matter relates to property:

(i)    for the detention, custody, preservation or inspection of the property; and

(ii)    to authorise any person to enter any land, or do any other act or thing, for the purpose of giving effect to the order; or

(c)    if the matter relates to the right of a prospective applicant to an amount in a fund — that the amount in the fund be paid into Court or otherwise secured; or

(d)    appointing a receiver with the power of a receiver and manager.

(2)    An application mentioned in subrule (1) must be in accordance with Form 12 and accompanied by an affidavit stating the facts on which the prospective applicant relies.

(3)    A prospective applicant seeking an order under this rule must give an undertaking to the Court to start a proceeding in relation to the subject matter of the application within 14 days after the application has been determined.

Note Without notice is defined in the Dictionary.

16    Rule 7.23 provides as follows:

Discovery from prospective respondent

(1)    A prospective applicant may apply to the Court for an order under subrule (2) if the prospective applicant:

(a)    reasonably believes that he or she may have the right to obtain relief in the Court from a prospective respondent whose description has been ascertained; and

(b)    after making reasonable inquiries, does not have sufficient information to decide whether to start a proceeding in the Court to obtain that relief; and

(c)    reasonably believes that:

(i)    the prospective respondent has or is likely to have or has had or is likely to have had in the prospective respondent’s control documents directly relevant to the question whether the prospective applicant has a right to obtain the relief; and

(ii)    inspection of the documents by the prospective applicant would assist in making the decision.

(2)    If the Court is satisfied about matters mentioned in subrule (1), the Court may order the prospective respondent to give discovery to the prospective applicant of the documents of the kind mentioned in subparagraph (1)(c)(i).

17    One departure from the former Order 15A r 6 of the Federal Court Rules is that the current Rule 7.23 now makes reference to a “prospective applicant” and a “prospective respondent”. Each of those terms is defined in Rule 7.21 as follows:

Definitions for Division 7.3

In this Division:

prospective applicant means a person who reasonably believes that there may be a right for the person to obtain relief against another person who is not presently a party to a proceeding in the Court.

prospective respondent means a person, not presently a party to a proceeding in the Court, against whom a prospective applicant reasonably believes the prospective applicant may have a right to obtain relief.

These definitions, together with the drafting of Rule 7.23(1)(a), make express the constraint upon the power to make an order against a “prospective respondent”. The former Order 15A r 6(a) was expressed in terms of a power to make an order against “a person whose description has been ascertained”.

18    A further difference between the former Order 15A r 6 and Rule 7.23 is the constraint in Rule 7.23(1)(c)(i), namely the constraint that the documents to be discovered are those which are “directly relevant to the question whether the prospective applicant has a right to obtain the relief ”.

19    Subject to those obvious differences in drafting, Rule 7.23 incorporates much of the same language and same principles as were formerly to be found in Order 15A r 6. Although the former Rules referred to a person having “reasonable cause to believe”, the new Rule 7.23(1) is expressed in terms of a person who “reasonably believes that he or she may have the right to obtain relief” and the need for a person to have made “reasonable inquiries”. This mirrors the language of the former Rule.

20    One of the many features that Rule 7.23 and Order 15A r 6 have in common is that the power conferred is a power to be exercised against a person who is not yet a party to litigation and a power which must be exercised with full awareness of the intrusive nature of an order if made.

21    When addressing the terms of the former Order 15A r 6, and the comparable provisions there set forth in r 6(a), (b) and (c), in Glencore International AG v Selwyn Mines Limited [2005] FCA 801, 223 ALR 238 Lindgren J set forth some of the general principles to be applied as follows:

[9] It is convenient to make the following observations about this provision at the outset.

[10] First, para (a) clearly poses an objective test (Hooper v Kirella Pty Ltd (1999) 96 FCR 1 at [39]): the opening words have the meaning ‘there exists reasonable cause to believe’.

[11] Second, the person against whom the concluding words empower the Court to make an order is the person referred to in paras (a) and (c) and, by the expression ‘that relief’, implicitly in para (b) as well. That is to say, the provision does not allow for third party discovery: discovery may be ordered only against the person from whom there is reasonable cause to believe that the applicant is or may be entitled to obtain relief (See Hooper v Kirella Pty Ltd, above, at [36]).

[12] Third, a document relating only to the question whether a judgment against a person is likely to be enforceable, is not:

‘a document relating to the question whether the applicant [for preliminary discovery] has the right to obtain ... relief’

within para (c) of O 15A r 6, and such a document is therefore not discoverable. If the only reason why an applicant has not sufficient information to enable a decision to be made whether to commence a proceeding is that the applicant lacks sufficient information as to the respondent’s capacity to satisfy a judgment, preliminary discovery will not be available.

[13] Fourth, the measure of any preliminary discovery to be ordered is the extent of information that is necessary, but no more than that which is necessary, to overcome the insufficiency of information already possessed by the applicant after the making of all reasonable inquiries, to enable a decision to be made whether to commence a proceeding: Alphapharm Pty Ltd v Eli Lilly Australia Pty Ltd [1996] FCA 391 at 26-27.

[14] Fifth, there is a tension between paras (a) and (c) of O 15A r 6. The stronger the relevant evidence already available to an applicant of its right to obtain relief, the stronger its position under para (a), but the weaker its position under para (c). On the other hand, the weaker that evidence, the weaker the applicant’s position under para (a) and the stronger its position under para (c).

[15] Sixth, and partly as a result of the tension just mentioned, while a respondent to an application for preliminary discovery is entitled to remain passive, the applicant must place before the Court all of the evidence already available to it relevant to the sufficiency of the information it possesses to enable a decision to be made whether to commence a proceeding. The applicant must not hold back information in aid of satisfying para (b). This obligation on the applicant to be forthcoming arises from the special and intrusive nature of preliminary discovery; the fact that ordinarily the respondent will not know, or be in a position to expose, the full extent of the information already available to the applicant; and the tension between paras (a) and (c) of O 28 r 6 referred to above.

[16] Seventh, while the notion of ‘reasonable cause to believe that the applicant ... may have the right to obtain relief ...’ (my emphasis) may be seen to set the threshold ‘at quite a low level’ (cf Gulf Petroleum (WA) Ltd v Tah Land Pty Ltd [2001] FCA 1531 at [59] per Carr J), there must be some tangible support that takes the existence of the alleged right beyond mere ‘belief’ or ‘assertion’ by the applicant (Minister for Health and Aged Care v Harrington Associates Ltd [1999] FCA 549 at [29]; Hooper v Kirella Pty Ltd, above, at [39]; C7 Pty Ltd v Foxtel Management Pty Ltd [2001] FCA 1864 at [12]).

It may be accepted that the same principles are to be applied when considering Rule 7.23.

22    It may further be accepted that Rule 7.23 may be invoked where the order which is sought is analogous to an Anton Piller order. Order 15A r 6 was similarly construed: Paxus Services Ltd v People Bank Pty Ltd (1990) 99 ALR 728. The applicant in that proceeding believed that the respondents had taken confidential computer disk information from its computer base. In making the order sought, Burchett J observed:

The question which Paxus propounds is whether these facts do not suggest that the respondents may have obtained details about Miss Berry, including her telephone number, from Paxus’ contractor data base. Miss Berry was cross-examined, and it was not suggested that she had had at any time any closer contact with People Bank, or any of those associated with it, than the casual conversation with Mr Lau to which I have referred. Of course, in the light of Miss Berry's evidence, Paxus also claims the other matters I have related may now be regarded as significant. No evidence was led from any of the individual respondents to dispel the conclusion for which Paxus contends.

His Honour continued:

It is no answer to the applicant’s application under r 6 to say that the proceeding is in the nature of a fishing expedition … Rule 6 is designed to enable an applicant, in a situation where his proof can rise no higher than the level the rule describes, to ascertain whether he has a case against the prospective respondent — that is, to “fish” in the old sense …

23    For the purposes of the present Application for Preliminary Discovery, it is concluded that the Applicants have satisfied each of the requirements set forth in Rule 7.23 and that an order should be made. The Application for Preliminary Discovery is akin to that made in Paxus.

24    It is concluded that there is a basis upon which the Applicants could “reasonably believe” that they have a right to obtain relief as against the “prospective respondent[s]”.

25    It is further concluded that the Applicants have made “reasonable inquiries” as to whether they have a right to “start a proceeding” but that at present they do not have “sufficient information” to decide whether or not to start that proceeding. To a considerable extent the nature of the “inquiries” that may be undertaken is constrained by the understandable desire on the part of the Applicants to preserve such evidence as there may be as to possible wrongdoing on the part of the “prospective respondent[s]”. Such inquiries as have been made, it should be noted, include the analysis undertaken by Mr Khoury and also the results of inquiries undertaken by private investigators retained by the Applicants. Those inquiries extend to an analysis of “rubbish” discarded by the “prospective respondent[s]” but removed from rubbish bins adjacent to their premises.

26    There is also a basis upon which the Applicants can “reasonably believe” that the documents the subject of the order sought are “directly relevant to the question” whether they have a right to obtain relief.

27    The documents which are sought by way of the present ex parte Application for Preliminary Discovery may be summarised as being:

    documents which are the property of the Applicants which came into the possession of Ms Marijke Vriens or Mr Pieter Vriens as a result of their employment with the Applicants;

    documents which are the property of the Applicants, including emails sent to one or other of the “prospective respondent[s]”, together with documents which have been “copied, transferred or exported by either of the First or Second Respondents to a digital storage device including without limitation a computer, disc, CD, DVD, USB, iPod or smartphone”;

    a copy of the database of the “proposed first respondent”; and

    a copy of the Applicants’ customer database.

Even if there is an element of “fishing” in the categories of documents which are sought by way of preliminary discovery, that is no reason in itself for why an order should not be made. And the order which is sought, it is considered, is within an appropriately narrow range.

28    The discretion to make the order should be exercised in favour of the Applicants. The exercise of that discretion, it should be noted, is assisted by the fact that the documents the subject of the order are to be initially produced to the Court, and that no inspection of those documents is sought prior to the “prospective respondent[s]” being given an opportunity to be heard. It is further concluded that an order should be made pursuant to Order 7.01 of the Federal Court Rules 2011.

Conclusions

29    Subject to an undertaking as to damages being provided, it is concluded that orders should be made in accordance with the Short Minutes of Order which, as varied, I will initial, date, and have placed with the papers.

ORDERS

The Orders of the Court are:

Upon the Applicants by their counsel giving the usual undertaking as to damages, the Court orders that:

1.    Upon the undertaking of the Prospective Applicants’ solicitor to pay the appropriate filing fees, leave be granted to the Prospective Applicants to file in court the Application dated 1 August 2011.

2.    The Application is made returnable immediately.

3.    The Prospective Applicants be at liberty to move ex parte for the orders sought in paragraph 1(a), (b), (e) and (g) of the Application and that the requirement of service in Rule 7.24(3) of the Federal Court Rules be dispensed with so far as is necessary to enable those orders to be made.

4.    Pursuant to Order 1.34 of the Federal Court Rules, to the extent necessary the requirements of:

(a)    Orders 2.11 and 7.24(1) be dispensed with so as to allow the Prospective Applicants to file the Application and affidavits of Anthony Raymond Norris and Michael Khoury dated 29 July 2011;

(b)    Order 8.02 be dispensed with.

5.    The time for service of the Application and affidavits filed in support of the Application is abridged and service is to be effected by 2 pm on Tuesday, 2 August 2011.

6.    The matter be listed for a further hearing at 10.15 am on Thursday, 4 August 2011 (the Return Date).

7.    The Prospective Respondents produce to the Court the documents falling within paragraphs 1(a), (b), (e) and (g) of the Application at the Return Date.

8.    The Prospective Respondents have liberty to apply to the Court at any time to vary or vacate these orders.

9.    Until further order, the Prospective Respondents must not destroy, tamper with, cancel or part with possession, power, custody or control of any documents in respect of which preliminary discovery is sought in the Application.

10.    Until further order, pursuant to section 50 of the Federal Court of Australia Act 1976 (Cth), the exhibits identified in the affidavit of Anthony Raymond Norris dated 29 July 2011 as confidential (the Confidential Exhibits) are to be kept confidential and are not to be disclosed or published to any person except the parties to this proceeding and their respective legal representatives without the leave of the Court.

Associate:

Dated:    3 August 2011