Alanco Australia Pty Ltd v Higgins (No 2) [2011] FCA 1063

FEDERAL COURT OF AUSTRALIA

Citation:		Alanco Australia Pty Ltd v Higgins (No 2) [2011] FCA 1063

Parties:		ALANCO AUSTRALIA PTY LTD (ACN 107 954 610) v PAUL HIGGINS, DANIEL JAMES GOLDING, DASCO SALES PTY LTD (ABN 96 596 234 852), OCNALA PTY LTD (ACN 092 928 884), HAROVAL PTY LTD (ACN 141 081 307) and ALAN FARLEY GOLDING

File number:		WAD 257 of 2010

Judge:		MCKERRACHER J

Date of judgment:		14 September 2011

Catchwords:		PRACTICE AND PROCEDURE – discovery – application for further and better discovery – principles governing discovery – whether application constitutes ‘fishing expedition’ – party seeking further and better discovery must establish that there is a document or class of documents that are directly relevant to the issues raised in the proceedings

Legislation:		Federal Court of Australia Act 1976 (Cth) s 37M(1) Federal Court Rules O 14 r 5A Federal Court Rules 2011 r 20.12, r 20.14(2), 20.15

Date of hearing:	Determined on the papers

Date of last submissions:	7 July 2011

Place:	Perth

Division:	GENERAL DIVISION

Category:	Catchwords

Number of paragraphs:	40

Counsel for the Plaintiff:	PJ Hannan

Solicitor for the Plaintiff:	Foster Nicholson Legal

Counsel for the Second to Sixth Defendants:	GD Cobby

Solicitor for the Second to Sixth Defendants:	Clifton Tham

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION	WAD 257 of 2010

BETWEEN:

ALANCO AUSTRALIA PTY LTD (ACN 107 954 610)

Plaintiff

AND:

PAUL HIGGINS

First Defendant

DANIEL JAMES GOLDING

Second Defendant

DASCO SALES PTY LTD (ABN 96 596 234 852)

Third Defendant

OCNALA PTY LTD (ACN 092 928 884)

Fourth Defendant

HAROVAL PTY LTD (ACN 141 081 307)

Fifth Defendant

ALAN FARLEY GOLDING

Sixth Defendant

JUDGE:	MCKERRACHER J
DATE OF ORDER:	14 SEPTEMBER 2011
WHERE MADE:	PERTH

THE COURT ORDERS THAT:

Pleading

1. The plaintiff’s application for leave to amend the amended statement of claim (Leave Application) be adjourned for oral argument on a date to be fixed.

2. The second to sixth defendants do file any further submissions in opposition to the plaintiff’s Leave Application 14 days prior to that date.

3. The plaintiff do file any further submissions in reply to the matters raised in opposition to the plaintiff’s Leave Application 7 days following service under order 2.

4. The plaintiff do file submissions in support of its application for further particulars of defence within 14 days.

5. The second to sixth respondents do file any submissions in reply 7 days following service under order 4.

Discovery

6. Within 28 days, the plaintiff give discovery to the second to sixth defendants of the following categories of documents in Schedule A:

(9) All run sheets showing physical calls made on customers by sales staff of the plaintiff from 1 July 2008 until 31 May 2011;

(12) Profit and loss statements for the plaintiff for the financial years ended 2008, 2009 and 2010;

(13) Monthly management accounts for the plaintiff without alterations of type in the management accounts presented in response to the order of 29 May 2011 for the years ended 2008, 2009 and 2010;

(14) All documents referring to the plaintiff’s discontinuing use of the sales analysis software package known as ‘Phocus’; and

(15) All records of log in histories for the sales analysis software package known as ‘Phocus’ during the period from 1 June 2008 to 31 May 2011.

7. Within 14 days, the plaintiff clarify its pleading at 21B concerning the plaintiff’s creditors.

8. Within 28 days, if the pleading is maintained, the plaintiff give discovery to the second to sixth defendants of documents it will rely on in support of its case and any documents that are adverse to its case in the following category of documents in Schedule A:

(16) All documents relating to the competition experienced by the plaintiff pleaded in paragraph (ii) of the particulars to paragraph 21B of the amended statement of claim.

9. The issue of discovery of documents in categories 8 to 17 in Schedule D (Schedule D issues) be adjourned for oral argument to be heard in conjunction with the Leave Application.

10. On a date to be fixed after determination of the Leave Application and Schedule D issues and provision of discovery from plaintiff, the defendants give discovery to the plaintiff of the documents in the schedules annexed to these reasons as follows:

a. All categories of documents in Schedule B;

b. All categories of documents in Schedule C;

c. Categories 1 to 7 in Schedule D;

d. All categories of documents in Schedule E.

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

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION	WAD 257 of 2010

BETWEEN:

ALANCO AUSTRALIA PTY LTD (ACN 107 954 610)

Plaintiff

AND:

PAUL HIGGINS

First Defendant

DANIEL JAMES GOLDING

Second Defendant

DASCO SALES PTY LTD (ABN 96 596 234 852)

Third Defendant

OCNALA PTY LTD (ACN 092 928 884)

Fourth Defendant

HAROVAL PTY LTD (ACN 141 081 307)

Fifth Defendant

ALAN FARLEY GOLDING

Sixth Defendant

JUDGE:	MCKERRACHER J
DATE:	14 SEPTEMBER 2011
PLACE:	PERTH

REASONS FOR JUDGMENT

INTRODUCTION

1 These reasons relate to several rulings on interlocutory disputes between the parties. To the extent possible, they have been determined on the papers. However, in relation to the first matter (a pleadings dispute) it will be necessary to hear the parties in order to fully ventilate the arguments.

PLAINTIFF’S APPLICATION FOR LEAVE TO AMEND STATEMENT OF CLAIM

2 The plaintiff applies for leave to amend its statement of claim to plead matters raised against the sixth defendant (Mr Alan Golding) and to respond to other matters raised by the second to fifth defendants.

3 Leave was given to the plaintiff on 12 May 2011 to join Mr Golding as the sixth defendant and to file a second amended application in terms of the draft which was then annexed to an affidavit in support of the motion for leave. Leave was without prejudice to the rights of the defendants to object to the foreshadowed pleading.

4 Leave was also given to the plaintiff on 12 May 2011 to file a second amended statement of claim by 23 June 2011. On 27 June 2011, the plaintiff filed an affidavit of Mr Alan James Foster annexing a document titled ‘Minute of proposed Second Amended Statement of Claim dated 24 June 2011’. Mr Foster deposed that the plaintiff would seek leave to file and serve the proposed second amended statement of claim at the next directions hearing. The proposed second amended statement of claim had been filed a day late. Although complaint has been made about that ‘unexplained’ delay, the period of time is inconsequential in the context of this proceeding.

5 Nevertheless, it is not possible without hearing more detailed argument from the parties to resolve the question of whether the pleading should be permitted. It is clear that the defendants raise a substantial number of objections to the pleading. Unless agreement can be reached between counsel, I propose to list the matter for determination on oral argument as soon as possible.

6 Accordingly, in relation to the pleading issue therefore, orders will be made that:

1. The plaintiff’s application for leave to amend the amended statement of claim (Leave Application) be adjourned for oral argument on a date to be fixed.

2. The second to sixth defendants do file any further submissions in opposition to the plaintiff’s Leave Application 14 days prior to that date.

3. The plaintiff do file any further submissions in reply to the matters raised in opposition to the plaintiff’s Leave Application 7 days following service under order 2.

4. The plaintiff do file submissions in support of its application for further particulars of defence within 14 days.

5. The second to sixth respondents do file any submissions in reply 7 days following service under order 4.

DISCOVERY

General considerations

7 I have a general concern about the scope, content and utility of the extensive discovery sought by the parties in these proceedings. I recognise that the proceedings are commercially significant to the parties and potentially complex but it appears to me that the discovery sought goes well beyond that which is necessary. Although the discovery was sought prior to the introduction of the Federal Court Rules 2011 (the 2011 Rules), it appears to me that ordering discovery of all the documents sought by the parties would transgress not only the principles under the 2011 Rules but also under the former Rules. The principles under the 2011 Rules, as under the previous Rules, were designed to ensure that the Court controls the discovery process to ensure that the parties are not crippled with the cost and delay of that process. The objective is to ensure that discovery will be provided only when necessary for the just resolution of the proceedings as quickly, inexpensively and efficiently as possible having regard, in particular, to the ‘overarching purpose’ referred to in Pt VB of the Federal Court of Australia Act 1976 (Cth), s 37M(1).

8 For that purpose under the 2011 Rules, discovery is to be given only when ordered by the Court rather than pursuant to any private arrangements between the parties (r 20.12). Under both sets of Rules, documents must be directly relevant to the issues raised in the proceedings by pleading or affidavit or affidavits accompanying the originating application. In addition, it is necessary that the documents must meet at least one of the following criteria (r 20.14(2) of the 2011 Rules):

(a) The documents are those on which the party intends to rely;

(b) The documents adversely affect the party’s own case;

(d) The documents adversely affect another party’s case.

9 While more extensive and special discovery may be permitted where the party satisfies a Court as to the need (r 20.15 of the 2011 Rules), the overriding objectives and purposes must always be borne in mind.

10 Turning to the specific categories of discovery sought in the following case, in my view, the categories of documents should be considerably pared down to meet the objectives reflected in both the former Rules and the 2011 Rules.

Plaintiff’s discovery

11 The second to sixth defendants seek discovery of the following documents:

1. The Plaintiff’s books of account for the period commencing 1 July 2007, including without limitation to the foregoing:

(1) the Plaintiff’s general journal;

(2) the Plaintiff’s general ledger;

(3) the Plaintiff’s cash receipt and cash payments books; and

(4) the Plaintiff’s sales journal.

2. Detailed customer sales reports of the Plaintiff’s business for the period from 1 June 2008 to 31 May 2011, identifying:

(1) customer name;

(2) products supplied; and

(3) monthly amount of sales (by product).

3. All documents which record telephone calls made by the Plaintiff’s sales representatives to customers or potential customers during the period from 1 June 2008 to 31 May 2011.

4. All documents which record the volume of telephone calls made by the Plaintiff’s sales representatives to customers or potential customers during the period from 1 June 2008 to 31 May 2011.

5. All documents which record telephone calls made to the Plaintiff’s sales representatives by customers or potential customers during the period from 1 June 2008 to 31 May 2011 concerning the placement or possible placement of orders to purchase products from the Plaintiff.

6. All documents which record the volume of telephone calls made to the Plaintiff’s sales representatives by customers or potential customers during the period from 1 June 2008 to 31 May 2011 concerning the placement or possible placement of orders to purchase products from the Plaintiff.

7. All documents which record telephone calls made to the Plaintiff’s sales representatives by customers or potential customers during the period from 1 June 2008 to 31 May 2011 concerning complaints about:

(1) products supplied by the Plaintiff;

(2) the prices charged by the Plaintiff; or

(3) the service provided by the Plaintiff.

8. All documents which record the volume of telephone calls made to the Plaintiff’s sales representatives by customers or potential customers during the period from 1 June 2008 to 31 May 2011 concerning complaints about:

(1) products supplied by the Plaintiff;

(2) the prices charged by the Plaintiff; or

(3) the service provided by the Plaintiff.

9. All run sheets showing physical calls made on customers by sales staff of the plaintiff from 1 July 2008 until 31 May 2011.

10. The employment contract of Paul Higgins.

11. The resumes of sales staff employed by the Plaintiff from 1 April 2010 until 31 May 2011.

12. Profit and loss statements for the plaintiff for the financial years ended 2008, 2009 & 2010.

13. Monthly management accounts for the plaintiff without alterations of type in the management accounts presented in response to the order of 29 May 2011 for the years ended 2008, 2009 & 2010.

14. All documents referring to the Plaintiff’s discontinuing use of the sales analysis software package known as “Phocus”.

15. All records of log in histories for the sales analysis software package known as “Phocus” during the period from 1 June 2008 to 31 May 2011.

16. All documents relating to the competition experienced by the Plaintiff pleaded in paragraph (ii) of the particulars to paragraph 21B of the amended statement of claim.

12 As to category 2, the plaintiff has conceded that it will discover detailed customer sales reports by product. However, apart from adding to those reports that have been provided by the addition of the sale by product report, the plaintiff contends that the information being sought by the second to sixth defendants is oppressive and unnecessary. This then leads to a consideration of category 1.

13 The plaintiff submits that providing detailed customer sales reports by customer name, product and monthly amount of sales allows the second to sixth defendants to have sufficient detail to analyse the plaintiff’s trading. Additional information arising from general ledgers, sales journals, cash payment books and the like are said to be oppressive, fishing and unnecessary.

14 I accept the plaintiff’s submissions on the first two categories and would not order further discovery in those categories beyond that conceded by the plaintiff.

15 The plaintiff objects to discovery of categories 3-8 on the basis that providing such records would be oppressive, burdensome and unlikely to yield meaningful information. It argues that the number of telephone calls is irrelevant to the products sold to the customers in the period.

16 This material appears to be relevant to the aspect of the defence raised at para 35.6(f) of the second to fifth defendants’ defence (the defence), where it is pleaded that the plaintiff failed to engage new sales representatives to service the customers of the first defendant or Mr Foster following their departure, nor took any adequate steps to maintain the previous relationship with those customers. The particulars provided in response to a request were that the plaintiff failed to maintain a relationship with its customers by:

(a) not including a regular pattern of calling on customers in order to remain ‘top-of-mind’ as supplier;

(b) not calling on some customers at all;

(d) a list of the relevant customers (and further particulars may be provided after discovery), some 75-100 customers, in respect of whom it is alleged that no calls were made after Mr Foster and Mr Higgins had left the plaintiff’s employment.

17 The plaintiff complains that the categories of documents in categories 3-8 are simply an attempt to ‘trawl’ the plaintiff’s records for the purpose of finding out whether the allegation the second to sixth defendants have raised is true or not. Provision of those documents, the plaintiff says, has the potential to sidetrack the trial on a matter that is already covered by the further and better particulars given by the defendants. As a result of the inquiries of the customers in question, they already have the answer or the evidence required and should not be permitted to further ‘trawl’ through the plaintiff’s telephone records to ascertain if there was any further evidence. In contrast the defendants submit that the plaintiff is seeking to deny them a fair opportunity to conduct their case.

18 I am (similarly to the previous category) satisfied that the range of documents sought is fishing and oppressive. I do not propose ordering discovery of documents listed in categories 3-8.

19 The plaintiff also objects to discovery of the documents sought by category 9 saying that it is not relevant to the matters in dispute for the three year period. There is no evidence, the plaintiff says, that it records all physical calls made by its sales staff on customers. Without the evidence, the proposed discovery is meaningless and not relevant.

20 I consider this is in a different category. If there are no such records, discovery would not be burdensome. However, it is common ground that some of the defendants are former employees of the plaintiff. They would be aware of the system of operation, at least while they were employed. Presently it is anticipated there are such records which, in turn, would be relevant to the defence at para 35.6(f).

21 As to category 10, the plaintiff has discovered employment records in relation to Mr Paul Higgins.

22 As to category 11, the plaintiff contends that the resumés of sales staff employed by it are irrelevant to any matter raised in the pleading and contends that provision of this material is fishing. I accept this submission and note that the defendants do not appear to have specifically addressed this issue. I am unable to see the relevance of the resumés of sales staff. Discovery of category 11 will not be ordered.

23 In relation to category 12, the plaintiff says that it has already provided financial records for the relevant years as an exhibit to affidavit of Mr Cameron Clifton sworn on 27 June 2011. To this, the defendants argue that the disclosure sought in categories 1, 12 and 13 goes directly to any calculation of the plaintiff’s damages as particularised and that the confidentiality of the information will be protected by undertakings offered by the defendants’ advisors. The defendants rely on the fact that the plaintiff did not give proper discovery. It has become clear, the defendants say, that the plaintiff did not give discovery or inspection of documents in its possession but rather discovered documents it created by editing or collating existing documents for the sole purpose of providing them to the defendants.

24 The defendants argue that they are concerned by not only the failure of the plaintiff’s solicitors to disclose that fact voluntarily but by the certification of the plaintiff’s affidavit of discovery pursuant to O 14 r 5A of the Federal Court Rules by one of the plaintiff’s solicitors in those circumstances, and the claim that a company seeking over $8 million by way of damages does not keep separate accounts. On that basis the defendants seek discovery of the plaintiff’s books of accounts and ‘unadulterated’ copies of the plaintiff’s management accounts. Given the statutory obligation to maintain proper books of accounts and the size of the plaintiff’s business, the defendants submit that likelihood that such documents exist is high.

25 I accept the defendants’ arguments as to category 12 and category 13 and will make orders for discovery of those categories. At present, as already indicated, category 1 has been rejected.

26 Categories 14 and 15 are agreed and discovery will be made for the documents there sought.

27 Category 16 requires discovery of all documents relating to the competition experienced by the plaintiff pleaded in para (ii) of the particulars to para 21B of the amended statement of claim which pleads as follows:

21B. In breach of:

(1) the Higgins Employment Duties and the Daniel Golding Employment Duties; or alternatively

(2) the Higgins Post Employment Obligations and the Daniel Golding Post Employment Obligations,

Higgins and Daniel Golding conveyed Alanco Confidential Information to Dasco.

PARTICULARS

(i) Upon Dasco Supply Group commencing trading in April 2010 it immediately began selling stock which was the same as that sold by Alanco, and did so to persons who had until that time been customers of Alanco, and at prices less than those charged by Alanco.

(ii) Alanco has a number of competitors, but none of these competitors have competed effectively so as to reduce the sales made by Alanco to its top 20 customers.

(iii) The Court should infer that a new business could not immediately upon beginning trading compete as effectively as has Dasco Supply Group without specific knowledge of Alanco’s customers, their stock requirements, the prices charged by Alanco and the prices at which Alanco purchases its stock.

(iv) From or about July 2010, shortly after ending his employment with Alanco, Higgins retained his confidential access to the Alanco confidential data stored on the Alanco Micronet System and took photographs of computer screens containing reports or data generated by Higgins on not less than 125 occasions between 19 July 2010 and 2 September 2010 as detailed in Annexure 1. (The post employment Higgins extracted data).

(v) At our about 11.30am Perth time on 16 September 2010, the ‘Anton Piller’ search orders were served upon Daniel Goldberg, on his own behalf and on behalf of Dasco. At or about 11.40am Perth time on 16 September 2010 Higgins drove into the front car park of the Dasco Supply Group business premises and after a short discussion with Daniel Golding exited the car park. At or about 1.07 – 1.08pm Perth time on 16 September 2010 the post employment Higgins extracted data was deleted from the folders “Users/Paul/Pictures” (called 2010-08-05 work, 2010-08-23 work, 2010-07-22 work, 2010-08-13 work, 2010-09-03 work, 2010-07-19 Paul) and placed into the recycle bin on the laptop computer which was delivered up by Dasco to the independent computer expert designated as ‘Paul's laptop’, at about 1.45pm on 16 September 2010.

(vi) The overwhelming inference from the discovery of the post employment Higgins extracted data, and the attempts by a person or persons in the Dasco Supply Group to delete the data from ‘Paul's laptop’ is that:

(i) Higgins was using his confidential access to the Alanco Confidential Information without any legitimate reason in order to assist Dasco Supply Group to unfairly compete against Alanco.

(ii) efforts were made to prevent Alanco from discovering the misuse by Higgins of his confidential access to the Alanco Confidential Information.

(iv) Further particulars will be provided after discovery.

28 There were no changes to this paragraph in the proposed second amended statement of claim.

29 The plaintiff, however, submits that this request involves or relies upon a misinterpretation of the pleading. The plaintiff says that the particular subparagraph refers to competitors in existence prior to the commencement of business by the defendants which allowed it to create its top 20 customers. The allegation by the plaintiff is that it was the misuse of the plaintiff’s confidential information that allowed the defendants’ conduct to impact on the plaintiff’s top 20 customers.

30 The defendants submit it would be impossible for the defendants to meet the case at trial in the absence of disclosure of the competition claimed to be faced by the plaintiff. Equally, it would not be possible for the Court to assess the merit of that allegation.

31 In my view, the particular relied upon by the plaintiff requires clarification. If it is to be retained in a form which seeks to establish that the loss in sales could not be due to the activities of existing competitors, then discovery, at least to a limited extent, must be given. Discovery at large is not acceptable. In relation to this category, and subject to clarification of the pleading, the plaintiff must discover documents it will rely on in support of its case in relation to that aspect of the pleading and any documents that are adverse to its case.

Defendants’ discovery

32 Further discovery from the defendants has been sought by the plaintiff in various schedules which are annexed to these reasons.

33 Schedules B, C and E, attached are now agreed. Orders for discovery of those matters also will be made as part of these reasons.

34 In relation to Sch D also attached, categories 8 to 17 remain in dispute. Categories 1 to 7 have been agreed. (Those categories will also be the subject of an order). Categories 8-17 are as follows:

8. All documents passing between any of the proprietors of the business known as “Dasco Supply Group” and any supplier of the products offered by that business in the period from 1 October 2009 to 1 April 2010.

9. All emails and correspondence passing between customers of the business known as “Dasco Supply Group” and representatives of that business in the period from 1 October 2009 to 1 April 2010.

10. All emails, correspondence and data passing between Mr Alan Farley Golding and Mr Daniel James Golding in the period from 1 October 2009 to 1 April 2010.

11. All emails, correspondence and data passing between Mr Alan Farley Golding and Mr Paul Higgins in the period from 1 October 2009 to 1 April 2010.

12. All emails, correspondence and data passing between Mr Neville Barber and Mr Daniel James Golding in the period from 1 October 2009 to 1 April 2010.

13. All emails, correspondence and data passing between Mr Neville Barber and Mr Paul Higgins in the period from 1 October 2009 to 1 April 2010.

14. All emails, correspondence and data passing between Mr Neville Barber and Mr Scott Alan Golding in the period from 1 October 2009 to 1 April 2010.

15. All emails, correspondence and data passing between Mr Neville Barber and Mr Tim Foster in the period from 1 October 2009 to 1 April 2010.

16. All emails, correspondence and data passing between Mr Mike Scott and Mr Daniel James Golding in the period from 1 October 2009 to 1 April 2010.

17. All emails, correspondence and data passing between Mr Mike Scott and Mr Paul Higgins in the period from 1 October 2009 to 1 April 2010.

35 The defendants appear to have made no submissions in relation to these documents. The plaintiff’s submission on this topic is difficult to follow.

36 I will therefore address this aspect of the discovery dispute in oral argument when the motion for leave to file the further amended statement of claim is heard.

Further particulars of defence

37 The plaintiff does not appear to have made any submissions in support of its request for further particulars of defence. The defendants, for their part, have indicated they have no objection in principle to providing further particulars but maintain that they should have discovery first. In the circumstances, given that the prospective further particulars relate to information solely in the control of the plaintiff, I will accede to the defendants’ request to defer provision of those particulars until after the plaintiff has made the further discovery.

Timing of further discovery by the defendants

38 The plaintiff has made no submissions in support of the timing of this further discovery. The defendants submit that they should not be required to provide further discovery until the status of the proposed amended statement of claim is determined. (That is in a context where a great deal of the pleading is opposed). In particular, it is submitted that until the status of the proposed amended statement of claim, including the joinder of Mr Alan Golding is determined, he should not be subjected to some special regime solely because of the plaintiff’s unexplained failure to join Mr Golding as a party at an appropriate time.

39 I accept the submission of the defendants that giving this discovery should be deferred.

CONCLUSION

40 Accordingly, the followings orders will be made now but additionally, I would expect the parties at a later time to agree on further orders, if necessary, to reflect these reasons.