FEDERAL COURT OF AUSTRALIA

EBOS Group Pty Ltd v Team Medical Supplies Pty Ltd (No 3) [2012] FCA 48

THE COURT ORDERS THAT:

1.    By 17 February 2012 the first and second prospective respondents give discovery of all documents falling within paragraphs (a), (b), (f), (g) and (h) of the schedule to these reasons.

2.    Paragraph 10 of the orders made by Flick J on 1 August 2011 pursuant to s 50 of the Federal Court of Australia Act 1976 (Cth), that the exhibits identified in the affidavit of Anthony Raymond Norris dated 29 July 2011 as confidential (“the Confidential Exhibits”) be kept confidential and not be disclosed or published to any person except the parties to this proceeding and their respective legal representatives without the leave of the Court:

(a)    be continued in relation to:

(i)    the documents behind tabs 3, 4 and 19 of the Confidential Exhibits; and

(ii)    those documents behind tab 24 of the Confidential Exhibits which are identified in paragraphs [22]–[24] of the prospective applicants’ submissions of 5 October 2011; and

(b)    be otherwise set aside.

3.    The prospective applicants pay the costs of the first and second prospective respondents, unless substantive proceedings are started within 60 days of the first and second prospective respondents complying with order 1, in which case the costs of the application be costs in the substantive proceedings.

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

REASONS FOR JUDGMENT

1    This is a hotly contested claim for preliminary discovery brought by a group of companies against a new business competitor and two former employees, at least one of whom is intimately involved with the new business.

2    The third prospective applicant, EBOS Group Limited, is the holding company of a corporate group that includes the first and second prospective applicants. The group supplies medical and surgical products, equipment, consumables and retail products to all sectors of the healthcare market. On or about 1 July 2007 EBOS Medical Supplies (Australia) Pty Ltd (the former name of the first prospective applicant) bought the assets and business of a company then called Vital Medical Supplies (Australia) Pty Limited (“the VMS business”) from the third prospective respondent, Pieter Vriens, its founder and general manager, and his then wife.

3    For ease of expression I will omit the adjective “prospective” when referring to the parties, and refer to the prospective applicants collectively as EBOS.

4    The VMS sales agreement transferred the assets of the business (both tangible and intangible, including goodwill) to the first applicant and guaranteed employment to all the existing employees of VMS (around 30 in total). Two of those employees were Mr Vriens (with whom the first applicant entered into a management agreement) and his sister, Marijke, the second respondent. The sales agreement also contained a number of restraint of trade covenants. One, described as the “not compete” clause, prevented Mr Vriens, his wife and his company for four years from 30 June 2008 “either solely or jointly with any person directly or indirectly” from carrying on, engaging, being concerned or interested, or otherwise assisting in Australia, in the manufacture, distribution or sale of any goods or the supply of any services similar to, or competing with, any goods or services manufactured, sold or supplied by the VMS business during the previous two years. Another prohibited the use or disclosure of confidential information.

5    At the time of the purchase of the VMS business EBOS operated its own medical supply business known as Primary Health, established in 1997. After the purchase it operated the two businesses concurrently. Through those businesses the group sells medical products to general practitioners, medical centres, pharmacies and aged care facilities. The enterprise is a substantial one. Over the last two financial years the annual turnover of the first applicant was around $100 million. Turnover for the VMS business alone was over $30 million a year in that same period. In addition to the VMS and Primary Health care businesses, the group operates five other “core business units”: aged care, consumer, hospital, infection prevention and surgical innovations.

6    When the first applicant acquired the VMS business, it continued to operate the business from its existing premises at Dural, an outer suburb of Sydney, and no attempt was made to integrate the business with the other EBOS businesses. But in about October 2010 EBOS started to relocate the VMS business from premises at Dural in the northwest to premises at Kingsgrove in the south, some 60 km away, from which its other businesses, including Primary Health, operated. The original intention was to relocate only the warehousing and distribution operations to Kingsgrove. But in about April 2011 a decision was made to integrate the customer service operations of the VMS business with the group’s other businesses. By 30 June 2011, when the lease on the Dural premises came to an end, the first applicant had vacated the premises. All employees at the VMS business were offered employment at the Kingsgrove premises, as well as an incentive payment described as a bonus “goodwill payment” if they elected to move to Kingsgrove.

7    Over a period from August last year until May this year, ten of the first applicant’s employees resigned from their employment and became involved in a rival medical supplies business operated by the first respondent, Team Medical Supplies Pty Ltd (“Team”). They included the second respondent, Marijke Vriens, the first applicant’s communications and marketing coordinator, Lisa Anderson, and its purchasing manager, Raymond Brown, together with a number of warehouse employees and customer service operators. All bar two of these employees had signed contracts of employment with the first applicant which contained clauses requiring them to keep confidential all information relating to its business affairs.

8    Mr Brown resigned on or about 11 August 2010 and his last day of employment was 27 August 2010. Ms Vriens resigned from her employment on 30 August 2010 and her last day of employment was 29 September 2010. The other eight employees resigned in October or November 2010, early January 2011, March and April 2011. In June 2011 a further four employees resigned their employment and now also work for Team.

9    Team was incorporated in March 2011 and immediately began trading in competition with the applicants. Ms Vriens is a director of Team.

10    Before her departure Ms Vriens was employed by the first applicant as the marketing and logistics manager for the VMS business, reporting to Mr Vriens, who was the general manager, and in May 2008 she accepted a promotion to the position of marketing manager – group primary divisions. In the former position Ms Vriens had access to information, confidential to EBOS, including the information in the customer database of the VMS business (“the VMS customer database”), and was responsible for managing updates to that database. In the latter position she was also given access to the Acumen platform software on which the Primary Health business customer database (“the EBOS customer database”) was run. In both positions, under the terms of her contracts of employment, Ms Vriens undertook not to use or disclose to anyone any confidential information, and to use her best endeavours to prevent the unauthorised use or disclosure of such information to third parties. The undertaking applied both during her employment and “at any time thereafter”.

11    The application is based on the activities of Mr and Ms Vriens during the final weeks of their employment.

The application

12    The applicants are aggrieved by the respondents’ conduct. They say they intend to bring proceedings against Team for misleading and deceptive conduct contrary to s 18 of the Competition and Consumer Act 2010 (Cth) (“CCA”) but contend that they have insufficient information to decide whether it is worthwhile proceeding against Mr and/or Ms Vriens. They also contend that, despite carrying out extensive inquiries, they have insufficient information to decide whether to sue for misuse of confidential information and infringement of copyright in which they believe Team or Ms Vriens participated. They therefore seek an order for the discovery of a number of documents under r 7.23 of the Federal Court Rules 2011 (Cth) (“the Rules”).

13    On 1 August 2011 the applicants obtained ex parte orders against the three respondents requiring them to preserve evidence and to produce to the Court documents falling within paragraphs 1(a), (b), (e) and (g) of the application: Ebos Group Pty Ltd v Team Medical Supplies Pty Ltd [2011] FCA 862 per Flick J. On 4 August some documents were produced and, without objection, his Honour granted the applicants access to them. An application by the respondents to have those orders set aside failed: EBOS Group Pty Ltd v Team Medical Supplies Pty Ltd (No 2) [2011] FCA 1004 per Rares J.

14    This judgment is concerned with the application for preliminary discovery against Team and Marijke Vriens only, as Pieter Vriens has agreed to give discovery of various documents. The scope of that agreement is the subject of consent orders made on 29 September 2011. The orders originally sought against the remaining respondents have twice been amended. The final form of the order now sought is contained in a schedule to this judgment.

What must EBOS prove?

15    Rule 7.23 of the Rules provides:

(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).

16    Thus, to succeed against each of the respondents the applicants must prove that:

(a)    they reasonably believe they have the right to obtain relief in the Court from the respondents;

(b)    they have made reasonable inquiries;

(c)    despite making those inquiries they lack sufficient information to decide whether to start a proceeding in the Court to obtain the relief;

(d)    they reasonably believe that the respondent has or is likely to have or have had in its or her control documents directly relevant to the question whether they have a right to obtain the relief; and

(e)    inspection of the documents would assist them in deciding whether they have that right.

17    In the event that the applicants can make out these matters, the Court retains a discretion whether to order the relief sought. Thus, the remaining question is whether the Court should exercise its discretion in the applicants’ favour, and, if so, to what extent.

18    In substance, the respondents contend that the applicants have not discharged their onus of proof in relation to any prospective cause of action. For the reasons given below I am, however, satisfied that they have and that the application should therefore succeed.

19    Many of the principles applicable to the resolution of these issues were set out in the judgment of Flick J (cited above at [117]). I will refer to them in the context of the issues as they arise.

Do the applicants reasonably believe that they may have a right to obtain relief from Team and/or Marijke Vriens?

20    Rule 7.23 provides that a prospective applicant may apply for an order for preliminary discovery if it reasonably believes it may have the right to obtain relief in the Court from a known prospective respondent. The respondents argue that this means that the applicants must prove that they actually hold the belief and that in this respect the rule differs significantly from its predecessor, O 15A r 6 of the Federal Court Rules 1979 (Cth).

21    The evidence on this question was given by Anthony Raymond Norris, the general manager of the first applicant, who was also authorised to give evidence on behalf of all three applicants. For this reason, I accept that he speaks for them. He affirmed three affidavits. He was not required for cross-examination.

22    Mr Norris said he learned of the existence of a new competitor in the medical supply market on or around 17 May 2011 when he was in the United Kingdom. About ten days later, a VMS business customer called the customer service line to enquire about Team. The customer then sent to the VMS business a copy of a brochure Team had distributed on or around 16 May 2011. That brochure featured a photograph of the staff of Team above the words “YOUR TEAM PLAYERS” and listed their first names. Mr Norris said that each of them previously worked for EBOS and he believed that they all worked for Team from at least the date of the brochure.

23    Mr Norris said that upon becoming aware of Team’s existence he sought legal advice about what recourse EBOS might have against the respondents in relation to the establishment of the Team business. That legal advice is not before the Court but one would infer that the upshot of it was that there was insufficient material to justify the commencement of proceedings and an application for preliminary discovery was warranted.

24    After instructing their solicitors, the applicants made arrangements for Ms Vriens’s computers to be inspected by Michael Khoury, a specialist in computer forensics and electronic discovery. Mr Khoury swore two affidavits in the proceeding. His qualifications were not disputed. He was not cross-examined either. Mr Norris referred to and relied upon the information and opinions contained in it.

25    Arrangements were also made for covert surveillance to be carried out on Pieter Vriens and his wife and on the home of Marijke Vriens and her partner, which Mr Norris said supported his belief that Ms Vriens’s home was being used to conduct the business of Team after a change of address recorded in an ASIC search. The surveillance revealed, amongst other things, that various Team quotations, customer application forms, customer order forms, envelopes of customers, copies of client lists, invoices and envelopes sent to Team by Warner & Webster and a torn copy of a VMS business order form and, on its reverse side, a copy of the VMS business vaccine price list were in Ms Vriens’s rubbish bins on 21 June 2011.

26    The respondents were critical of the manner in which Mr Norris’s evidence was presented. In particular, they submitted that the application must be refused unless the applicants have proven that they have a belief, which is reasonable, in the existence of each of the elements of each of the causes of action they might have against the respondents. They emphasised the differences between the old and the new rule.

27    There are several differences in form. First, the new rule introduces the terms “prospective applicant” and “prospective respondent” in place of “applicant” and “that person”. Secondly, the threshold question in the old rule was whether there was reasonable cause to believe that the applicant has or may have the right to obtain relief in the Court from a person whose description has been ascertained. The threshold question now is whether the prospective applicant reasonably believes that he or she may have that right. This is a shift from what the authorities say is a purely objective test to what the respondents submit is a mixed subjective/objective test. Thirdly, “start” replaces “commence” in paragraph (b) of the rule. Fourthly, “directly” has been inserted before “relevant” in paragraph (c)(i). Fifthly, r 7.23(2) provides that the Court may order the prospective respondent to give discovery if it is “satisfied about matters mentioned in subrule (1)”. The old rule did not refer to the Court’s satisfaction.

28    Apart from the insertion of “directly” in paragraph (c)(i) I very much doubt that the rule was intended to effect any substantial change. At least two Justices of this Court have expressed similar opinions: see Ebos Group Pty Ltd v Team Medical Supplies Pty Ltd above per Flick J and Higgins v Hancock as Liquidator of 246 Arabella Investments Pty Ltd (in liq) [2011] FCA 1492 at [55]-[59] per Jacobson J. The Explanatory Statement issued by the judges of the Court on the new rule supports this view. It makes it clear that one of the purposes of rewriting the rules was to put them into plain English. “Reasonably believes” may therefore have been substituted for “reasonable cause to believe” for the sake of preferring plain English expression, just as replacing “commence” with “start” exhibits a preference for the Anglo-Saxon over words of Latin origin, consistent with the approach to good writing that George Orwell urged more than 50 years ago: Orwell G, “Politics and the English Language” in A Collection of Essays (Harvest Books, 1981). With regard to the rule in question the Explanatory Statement states (at p 10):

The provisions in Divisions 7.1 …, 7.2 … and 7.3 (Preliminary Discovery) adopt, simplify and streamline the process and procedures which operated under the former Rules and do not substantially alter existing practice.

[Emphasis added.]

29    The purpose of the current rule is no different from that of its predecessor. As Burchett J said of the former rule in Paxus Services Ltd v People Bank Pty Ltd (1990) 99 ALR 728 at 733 (“Paxus”):

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: cf Meth v Norbert Steinhardt & Son Ltd (1959) 33 ALJR 78 at 81. 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 …

It would be unfortunate if a rule designed to amplify the court’s power to penetrate obscurities and uncertainties in the interests of justice were to be weakened by restrictive and unnecessary glosses. I think the rule is of a beneficial kind within the meaning of the well known principle of interpretation, and should be given the fullest scope its language will reasonably allow. The proper brake on any excesses in its use

is the discretion of the court, which is required to be exercised in the particular circumstances of each case …

30    That the former rule was to be given a beneficial interpretation is settled: St George Bank Ltd v Rabo Australia Ltd (2004) 211 ALR 147 at 153 per Hely J (“St George Bank”); Optiver Australia Pty Ltd v Tibra Trading Pty Ltd (2008) 169 FCR 435 (“Optiver”) at [43], approving the above passage in Paxus. The same principle applies to the current rule.

31    The rule does not speak in terms of a belief in the existence of a cause of action. It speaks of a right to relief. And it is concerned with a belief in the possibility (not the existence) of such a right. The words used are “may have”. In these respects it is not materially different from its predecessor. Of course, in one sense, the expression “right to relief” begs the question. Relief for what? Satisfaction of the first criterion does, therefore, require identification of the nature of the relief which is the subject of the belief: Telstra Corp Ltd v Minister for Broadband, Communications and the Digital Economy (2008) 166 FCR 64 (“Telstra v Minister for Broadband”) at [58]. But an applicant does not have to make out a prima facie case (see St George Bank at [26](c)). Nor does an applicant have to establish every element of the cause of action. There is a tension between the respondents’ argument and the approach taken by the Full Court in Optiver. That was also a case about the misappropriation of confidential or copyright material. As the Court explained in that case (at [48]):

It was not incumbent upon [an applicant] to establish every element of the relevant causes of action, but a reasonable cause to believe that it “has or may have” the right to relief alleged. Of course, this is not to say that it is not necessary to examine the various elements of the potential cause of action that is sought to be relied upon to determine whether there is a reasonable cause to believe that each of the necessary elements exist (see Austrac Operations Pty Ltd v State of New South Wales (2003) ATPR 41-960 at [11]; Leighton Contractors Pty Limited (ABN 98 000 893 667) v Page Kirkland Management Pty Limited (ABN 46 097 111 245) [2006] FCA 288 at [5]; Dartberg Pty Ltd v Wealthcare Financial Planning Pty Ltd (2007) 164 FCR 450 at [44]).

32    For the reasons given earlier, I question whether the intention of the redrafted rule was to require an applicant to adduce evidence of the applicant’s belief in the matters covered by paragraphs (a) and (c) of the rule. For more abundant caution, however, and in the absence of any higher authority, I intend to proceed on the basis that evidence is indeed necessary.

What did Mr Norris believe? Was his belief reasonable?

Relief for a breach of confidence

33    All but two of the employees of the first applicant who left it to work for Team were contractually bound “to keep confidential all information [to which they may be privy] with regard to the business affairs of the Company”. Both of Ms Vriens’s two contracts of employment contained a clause in the following terms:

You represent and warrant that you will not either during your Employment or at any time thereafter, use or disclose to any person any Confidential Information, and will use your best endeavours to prevent the unauthorised use or disclosure of such information to third parties.

34    It is not entirely clear whether, in Ms Vriens’s case, the applicants rely on any possible contractual breach. In any case, it would not assist them against Team. But equity will provide relief where information obtained in confidence is used for an unauthorised purpose. In a case such as this, however, it is important to bear in mind, as Gleeson CJ explained in Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317 at 327, that there are two competing public policy considerations:

An employer is not entitled to protect himself against mere competition by a former employee, and the corollary of that is that the employee is entitled to use skill, experience and know-how acquired in the service of the former employer in legitimate competition. It is in the public interest that this should be so: Stenhouse Australia Ltd v Phillips [1974] AC 391 at 400. At the same time the law will protect trade secrets and confidential information, and will intervene to prevent their misuse.

35    To establish an equitable obligation of confidence an applicant must be able to identify “with specificity, and not merely in global terms”, what the information is and show that:

(a)    the information has the necessary quality of confidence and is not, for example, common or public knowledge;

(b)    the information was received by the respondent in circumstances importing an obligation of confidence; and

(c)    there is actual or threatened misuse of that information, without the consent of the applicant.

See Smith Kline & French Laboratories (Aust) Limited v Secretary, Department of Community Services and Health (1990) 22 FCR 73 at 87 per Gummow J.

36    The question then is whether Mr Norris reasonably believes that the relevant information was confidential, that Team and/or Ms Vriens received it in circumstances importing an obligation of confidence, and that there was or is actual or threatened unauthorised use of it by them or either of them. On a fair reading of the evidence I am satisfied that he does.

37    The relevant information here consists of the VMS and Primary Health customer databases. Mr Norris said, and I accept, that they were valuable assets of the EBOS companies. Over 16,000 customers were included in the Primary Health customer database and over 11,000 in the VMS customer database. A combined customer database made up of the information in the different EBOS databases (created after Ms Vriens left the first applicant’s employ but before her brother did) contains details relating to more than 44,000 customers of the group. Mr Norris’s evidence was that, apart from the addresses, telephone and fax numbers of the customers, the other information contained in the databases is not and never has been publicly available. Nor have the lists themselves been made public. Ms Vriens had access to the customer lists only because of her employment responsibilities for EBOS. Mr Norris said he believed that Ms Vriens understood that the databases and their contents were not to be used or disclosed otherwise than for the purposes of EBOS’s business as she would have understood that it was contrary to her employment obligations, by which I take him to mean the relevant clause in her contract of employment.

38    Here, the information has been identified with some specificity, it is not a matter of common or public knowledge, and Ms Vriens had access to it in circumstances that would import an obligation of confidence. In Telstra Corporation Ltd v First Netcom Pty Ltd (1997) 78 FCR 132 at 138 the Full Court described a customer list as “the most obvious example of information the confidentiality of which the courts will secure by injunctive relief”.

39    I therefore accept the applicants’ submission that the customer lists are inherently confidential and capable of protection in equity.

40    In his first affidavit Mr Norris said he was “concerned” that one or all of the respondents may have misused and/or are misusing confidential information of EBOS.

41    Mr Norris also said that he “suspected” that Team had a copy of one or all three confidential customer databases because:

(a)    The Team customer lists retrieved from the rubbish bin at Ms Vriens’s home showed that all but a small number of the Team customers were also current customers of the VMS and/or Primary Health business and included customers who had not been serviced by the sales representatives who had left VMS for Team. He thought it possible that the few Team customers who were not current customers of EBOS businesses were former VMS business customers whose details were not carried over from the old database to the new.

(b)    On 21 June 2011 the practice manager of a medical centre in Illawong sent to a VMS business sales representative an order form for Team which lists the prices offered by Team for a number of products that the medical centre had historically purchased from the VMS business. The prices shown in the order form indicate that in respect of a number of key products Team has undercut the VMS prices. Mr Norris said he did not think that Team would have been able to do this without access to the specific prices at which that medical centre had purchased products from the VMS business.

42    Further, Mr Norris gave evidence that he believed that in a conversation with a customer service supervisor he was told (and he believed) that Ms Vriens had told an EBOS warehouse employee that she had taken a copy of the VMS business customer database.

43    Mr Norris offered several reasons to support his concerns regarding the misuse of confidential EBOS information.

44    The first was based on information supplied by Mr Khoury.

45    Mr Khoury said that on 10 September 2010 (19 days before Marijke Vriens’s last day of her employment with the first respondent) a large amount of data was burned onto five discs from a laptop computer which Ms Vriens was using at that time.

46    Mr Norris said that he was told by Valeria Volpini, EBOS’s marketing manager, that on or about that date Ms Vriens gave her one disc containing copies of an EBOS promotion Ms Vriens had prepared for the Primary Health business. He said that Ms Volpini told him that the disc was provided for the purpose of enabling Ms Volpini to prepare a new EBOS promotion. He added that Ms Volpini told him that she was unaware of any copies of the same disc being given to another EBOS employee on that date.

47    Mr Khoury said that the process of burning (copying) all five discs started at around 1.07 pm and finished at around 5.35 pm. He explained that the DVD drive used to burn each disc was an 8 speed (or 8X) burner, which is capable of burning a full DVDs’ worth of data in 8-10 minutes.

48    He said that the standard capacity of a DVD is 4.7 gigabytes and on that basis he estimated that a total of around 23 gigabytes of data could have been burned onto the five DVDs. He noted that this was a substantial amount of data. He said that the evidence from the log file indicates that the user either wanted to burn:

(a)    an amount of data so large that he or she had to insert a new DVD each time a DVD was filled to capacity, until a total of five DVDs were filled; or

(b)    five copies of the same set of data onto the DVDs.

49    Mr Khoury’s opinion, based on the fact that each of the transfers was almost exactly the same duration, was that the second explanation was the most likely. Otherwise, the only circumstances in which the time of data transfer to each DVD would be the same would be where the final batch of data happened to consume the entire DVD.

50    As Flick J observed at [9] of his reasons for judgment, Mr Norris’s evidence may explain what happened to one DVD, but the inference is that there was no legitimate purpose for copying the same document five times.

51    The second reason Mr Norris gave for having these concerns was also based on information provided by Mr Khoury.

52    The evidence was that on 29 September 2010 (Ms Vriens’s last day of employment with the first applicant) most of the files in a “pictures” subfolder on the desktop folder of Ms Vriens’s user profile were sequentially accessed on a laptop allocated to her within seconds or milliseconds of each other. Mr Norris referred to Mr Khoury’s opinion that the user would have copied the entire “pictures” folder and pasted it to an external location which may have been a USB stick, a CD or DVD. He said he was told by Ms Volpini (and he believed) that she was unaware of Ms Vriens providing a copy of any digital images to any EBOS employee on or after 29 September 2010. The effect of Mr Khoury’s evidence was that amongst the material copied were documents that did not belong to Ms Vriens but to one or more of the EBOS companies.

53    As I have already observed, to succeed on this application the applicants have to show that Mr Norris reasonably believes the applicants have a right to relief.

54    The authorities indicate that a belief is an inclination of the mind towards the proposition and that something more than a mere assertion, suspicion or conjecture is required. See, for example, Telstra Corp Ltd v Minister for Broadband at [58], approving Emmett J in Austrac Operations Pty Limited v State of New South Wales [2003] FCA 1013 at [10].

55    Concern is not necessarily or even ordinarily synonymous with belief. The Oxford English Dictionary relevantly defines “to be concerned” as “to be troubled or distressed either with anxiety, or sorrow for misfortune”. There is a similar definition in the Macquarie Dictionary. Still, absent a belief in a matter, it is unlikely one would be troubled or distressed by it.

56    The task here, however, is not to apply a dictionary definition but to determine what Mr Norris meant. For that purpose it is necessary to look to his evidence as a whole. Approaching the matter in this way, I am satisfied that Mr Norris believed that the respondents may have been using information confidential to EBOS. There is no doubt that from the moment he learned about their post-employment activities Mr Norris was worried about what the respondents were up to. I dare say there was a number of reasons for this, not least the prospect of a new competitor in the business. It seems tolerably clear, however, that he was inclined to think (and therefore to believe) they had been using EBOS’s confidential information, although he did not in terms say so.

57    Furthermore, Mr Norris’s form of expression was not always precise. In his first affidavit he said he “believed” that the respondents may have infringed EBOS’s copyright, while in his third affidavit he said he was “still concerned” that they had. This alone might suggest that when he said he was concerned the respondents may have misused and/or are misusing confidential information he meant he believed it.

58    When one takes into account the fact that Mr Norris believed from what he had been told that Ms Vriens had been talking about setting up a business in competition with EBOS for some time whilst still in the employment of the first applicant, that he had been told she had taken a copy of the VMS business customer database, and that he knew that during her notice period she had burned EBOS documents onto DVDs for no apparent reason associated with her work for the first applicant, it is more likely than not that Mr Norris believed Ms Vriens was using, was likely to have used or to use confidential EBOS material for an unauthorised purpose.

59    In any case, on 4 August 2011 Ms Vriens produced a number of documents to the Court pursuant to an order made by Flick J. Mr Norris has had access to those documents.

60    The mere fact that Ms Vriens produced these documents is further evidence that, after she left the employ of the first applicant, she had in her possession a variety of EBOS documents. They included VMS catalogues and brochures and a DVD. All of these were admitted into evidence. The mere fact of production does not, of course, prove that Ms Vriens had in her possession confidential information. Some of the documents, such as the VMS catalogues, are obviously not confidential. But Mr Norris stated that one of them (document I, which was a copy of an internal EBOS document compiled for the purpose of instructing EBOS customer service operators), was created for internal use only and was confidential to EBOS. He said it contained confidential pricing information. An inspection of that material shows that it also includes product codes, promotional information, EBOS discount deals and other special offers, order forms and forms requesting demonstrations of equipment. Another document Ms Vriens produced on that day (document N4) contains information relating to the organisation and operation of the VMS business. Senior counsel for the applicants correctly characterised it in submissions as a virtual blueprint of how to organise employees into a new business. Mr Norris said that that information was also confidential to EBOS and would be useful to someone setting up a new business, I infer, in competition with the VMS business. The DVD produced by Ms Vriens on 4 August 2011 contained copies of draft employee contracts used in the VMS business, which Mr Norris said were also confidential, disclosing confidential terms on which employees of the VMS business were engaged to work. Mr Khoury’s evidence was that the data on this DVD was burned onto it on 23 September 2010.

61    Even if the proper interpretation of Mr Norris’s first affidavit is that he was merely suspicious of what the respondents were up to at the time he affirmed it, I am confident that, by 22 August 2011, when he affirmed his second affidavit, he had the necessary state of mind. Although he said in that affidavit that he remained “concerned”, his comments about some of the documents that were produced show that he was not merely concerned that the respondents may have had confidential information in their possession, he actually knew of some, although he did not know the full extent. Mr Norris’s evidence is that Ms Vriens had established a business in competition with EBOS for which that confidential information could be valuable. In all these circumstances, I am satisfied that Mr Norris’s mind is inclined towards the possibility (and therefore believes) that Ms Vriens and Team have confidential information which may have been or may be used for an unauthorised purpose.

62    I am also satisfied that the belief is a reasonable one.

63    Mr Norris gave evidence that Ms Vriens, in her position as marketing and logistics manager for the VMS business, had access to confidential information of EBOS, including the information in the VMS customer database, and, as marketing manager – group primary divisions, she also had access to the Acumen platform that held the Primary Health customer database. The evidence concerning what took place on 10 September 2010 suggests that there is no apparent legitimate business reason for her to have downloaded onto five discs, rather than only one, a large quantity of EBOS data. The documents found in Ms Vriens’s rubbish bin and the documents and DVD she produced to the Court indicate that she retained confidential EBOS information, after she left the employ of the first respondent, for no authorised purpose.

64    Furthermore, the evidence Mr Norris gave concerning the order form sent on 21 June 2011 from one of the VMS customers suggests that those responsible for the production of the Team catalogue had access to the VMS pricing system, enabling Team to undercut EBOS.

65    Now it is true that the description of the data on the disc given to Ms Volpini on 10 September 2010 does not establish that it contained confidential information. It is also true that Mr Khoury’s evidence points to the likelihood that the data burned on to the five discs was the same. What is not at all clear, however, is whether the data Ms Vriens burned on 10 September found its way onto the DVD given to Ms Volpini “on or about” that date. We simply do not know when the data was burned onto that disc. Ms Vriens could have given evidence about this but she did not.

66    Ms Vriens swore two affidavits in the proceeding. Her counsel chose not to read them but counsel for the applicants tendered them, arguing, with good reason, that the omissions from them were telling. Although it bears on all potential claims, it is convenient to refer to this evidence now.

67    In her first affidavit, sworn on 9 August 2011, 11 days after Mr Norris’s and Mr Khoury’s first affidavits, Ms Vriens denied making any copy of the EBOS database “in September 2010”. She did not, however, deny making a copy of the database at any other time. She did not explain what she did with the five discs copied on 10 September. That circumstance alone may permit an adverse inference to be drawn for the purpose of this proceeding: Blatch v Archer (1774) 1 Cowp 63; 98 ER 969. Ms Vriens said she copied her personal photos and her iTunes files from a laptop computer she had previously used, together with old emails from her family in the Netherlands. She also said she had copied her “contacts”. But she did not say whether those contacts included business contacts she acquired through her work for the first applicant or whether they included the contacts in the EBOS databases. Amongst the pictures Mr Khoury said he believed were copied from the pictures folder were pages of a VMS catalogue and pictures of medical equipment and supplies obviously used in the production of the VMS catalogues. Some of the pictures appear in the Team brochure. Ms Vriens offered no explanation for copying these photographs, which are plainly not personal, or for how they came to appear in the Team brochure.

68    Ms Vriens did not expressly deny making or taking with her copies of EBOS documents for unauthorised purposes. She did say that she relied on commercially available databases and a database that had been supplied to her by her “partners”, by which I understand her to be referring to Warner & Webster Pty Ltd, which, together with Ms Vriens, holds shares in Team. She did not say, however, that she relied exclusively on these databases. She provided no explanation for why she had in her possession, more than ten months after she severed her association with EBOS, a DVD containing EBOS pricing information and product codes, promotional information, EBOS discount deals and other special offers, order forms, forms requesting demonstrations of equipment, employment contracts drawn by or for the benefit of the first applicant, an organisational chart for the VMS business and job descriptions. Nor did she explain why, on 23 September 2011 – six days before she was due to leave the employ of the first applicant – she burned that material onto a DVD and kept the DVD after her departure. I accept the applicants’ submission that the fact that Ms Vriens took some EBOS confidential information heightens the apprehension that she may well have taken some or all of the customer databases.

69    The respondents relied on affidavit evidence from Ian Barry Ross, a director of Warner & Webster and a shareholder of Team. Mr Ross confirmed that he had supplied Ms Vriens and Team with certain information. He described that information as the Warner & Webster stock master file (without selling prices), mailing lists for Queensland, New South Wales and part of Victoria, images for brochures, supplier price lists and Warner & Webster sales histories for quantities and stock. Ms Vriens annexed to her affidavit a quote from a marketing firm, Cegedim Asia Pacific Pty Ltd for distributing the Team brochure. It referred to data supplied by Team and by Cegedim. It indicated that data relating to general practitioners in the NSW metropolitan area and between Wollongong and Newcastle, and podiatrists in the same areas of NSW as well as the Victorian metropolitan area and Geelong would be supplied by Cegedim, and the remaining data (3,500 addressees) by Team. Mr Norris listed in his first affidavit customers who had either received the Team brochure or to whom Team employees had spoken. That list demonstrates that Team had access to information concerning potential customers outside the areas covered by Cegedim and Warner & Webster. The information supplied by Warner & Webster and Cegedim does not account for Team’s contact with practices in South Australia, Western Australia, or the Australian Capital Territory. Counsel for the respondents suggested an innocent explanation for these contacts. Ms Vriens, however, who availed herself of the opportunity to give evidence, did not offer one. It is reasonable to infer from her evidence that, if there might be an innocent explanation, it does not apply here.

70    In her second affidavit (sworn on 9 September 2011, 18 days after Mr Norris’s second affidavit) Ms Vriens annexed a tax invoice from Cegedim for the mailing of the May launch catalogue (the Team brochure) and an invoice from a computer services company for the provision of software, the relevance of which was unexplained. Her affidavit asserted that she had not “used nor caused to be used any material that might have remained in [her] possession from [her] employment with [the first applicant]” and was not required to execute any deed containing covenants when she left the company. She did not say she had no intention of using EBOS material and she did not say whether or not she had received any material belonging to EBOS from Mr Vriens. Whether or not she was required on departure to execute a deed containing a covenant is no answer to the question of whether she might have misused confidential information. In any event, the confidentiality clause in her contract of employment applied to the use or disclosure of confidential information both during and after her employment.

71    Moreover, the Team quotations found in Ms Vriens’s rubbish bin on 21 June 2011 are identical in format to VMS business quotations generated under a software system used while Ms Vriens was employed by the first applicant (Distrib, since superseded by Acumen) and they use the same fonts and paragraph spacing. Once again, there may be an innocent explanation for this, but here, too, Ms Vriens did not offer one. Nor was any explanation given for the presence in Ms Vriens’s rubbish bin of the torn copy of a VMS business order and the copy of the VMS business vaccine price list that appeared on the reverse side of it, nearly nine months after she left the employ of the first applicant.

Relief for infringement of copyright

72    This potential claim is undefined. The applicants’ submissions refer to copyright in customer databases, brochures and catalogues as well as document H, appearing at pp 216-219 of annexure ARN-4 to Mr Norris’s second affidavit, entitled “EBOS Group Limited and EBOS Healthcare Brand Standards, Version two: 2009” (“the Brand Standards document”).

73    There does not appear to be any issue that these documents would meet the description of a literary work in s 10(1) of the Copyright Act 1968 (Cth) (“Copyright Act”), which includes a table or compilation. The applicants submit that the copyright could either be a compilation of literary and/or artistic works or a “published edition” copyright under s 88 of the Copyright Act. Published edition copyright protects the presentation of material, including the typographical arrangement, the juxtaposition of text and photographs and the use of headlines: Nationwide News Pty Limited v Copyright Agency Limited (1996) 65 FCR 399 at 418 per Sackville J (Jenkinson and Burchett JJ agreeing).

74    To establish a case for infringement of copyright, the applicants would have to prove that copyright in the databases, brochures and catalogues was owned by one or other or all of the applicants and that Ms Vriens reproduced the work in a material form, published it or made an adaptation of it: Copyright Act, s 31(1). “Reproduction” includes the conversion of a work into a digital or other electronic machine-readable form: Copyright Act, s 21(1A).

75    On 4 August 2011 Ms Vriens produced to the Court the VMS quarterly brochures for June and September 2010 and the VMS catalogues for 2009/10 and 2010/11. She did not explain, nor is it apparent, why she should have these documents nearly a year after her employment with the first applicant had come to an end. The evidence does not disclose whether she copied those documents or merely took them with her when she left. But there is evidence to which I have already referred that shows that she did reproduce copies of some EBOS documents.

76    Mr Norris testified that, “to the extent that Marijke Vriens made copies of EBOS documents for the purpose of use in the course of business, including the [Team] business or otherwise than for the purpose of her employment with EBOS”, then he believes “she may have infringed EBOS’s copyright in those documents”. He specifically referred to the earlier parts of his affidavit regarding the data being burned onto five discs from the laptop computer used by Ms Vriens on 10 September 2010 and the copying of the picture file from her computer to an external device on the last day of her employment. He noted in this context Mr Khoury’s forensic examination could not conclusively determine what data was burned onto the five discs. He made it plain that he was seeking access to the documents to enable the applicants to decide whether there was sufficient information to commence proceedings against Ms Vriens for infringement of copyright.

77    The only matter the respondents raised against the applicants in written submissions with respect to this potential cause of action was that the belief is expressed in a “conditional way”. The respondents contend that the way in which Mr Norris couched his belief is insufficient to establish that he reasonably believed the applicants had a right to relief for infringement of copyright. I reject the contention. It is evident that Mr Norris is simply saying that, in copying EBOS documents in the circumstances in which that was done and for apparently unauthorised purposes, he believes Ms Vriens may have infringed EBOS’s copyright in those documents (including at least the documents which she allegedly copied).

78    Mr Norris’s statement is properly to be taken as an expression of his belief that Ms Vriens may have infringed “EBOS’s” copyright. EBOS is a reference to all three applicants. The reference is a loose one but, in the absence of cross-examination, for present purposes I infer that Mr Norris believed that copyright held by all three applicants may have been infringed. Absent knowledge of all the documents Ms Vriens may have copied, this is entirely reasonable. There was, however, a paucity of evidence about who owned the copyright in the works in question.

79    Section 35 of the Copyright Act provides that ownership of the copyright in an original work lies with the author of the work, subject to that section and Parts VII and X of the Act. Section 35(6) provides that where, amongst other things, a literary work is made by the author in pursuance of the terms of his or her employment under a contract of service, ownership vests in the employer.

80    In submissions the applicants asserted that “EBOS” is the owner of the copyright which subsists in its customer databases, brochures and catalogues. The only evidence touching upon ownership is in Mr Norris’s first affidavit. Mr Norris noted there that the sales agreement entered into between the first applicant and the VMS business provided for the sale of the assets of the business including all tangible and intangible assets. The agreement itself bears this out. With the exception of trademarks, however, there is no mention of intellectual property rights. Nevertheless, “intangible assets” was defined to include goodwill and in turn goodwill was defined to include “the benefit of all customer lists and supplier lists, the benefit of all formulae, techniques, know how, trade secrets, specifications, designs used in the Business, historical customer and market sales data and the Trademarks”. Mr Norris’s evidence is that the database was updated and amended regularly as new customers were added, and contact and other details amended. He also said that the updates to the database were managed by Ms Vriens in her role as marketing and logistics manager of the VMS business under her contract of employment. In the circumstances, the proper inference from the evidence is that the first applicant is the owner of the copyright in the VMS customer database, its brochures and catalogues.

81    Mr Norris also testified that Mr and Ms Vriens were given access to the Primary Health business customer database but there is no evidence to indicate who owned the copyright in that database, nor even which EBOS company in the group ran that business. One of the documents contained on the DVD Ms Vriens produced to the Court on 4 August 2011 was the Brand Standards document. On the face of it, copyright in that document would appear to be owned by EBOS Group Limited, the third applicant, and EBOS Healthcare (Australia) Pty Ltd, the second applicant.

82    As for the question of infringement, I am satisfied that the evidence establishes reasonable grounds for Mr Norris’s belief. First, Ms Vriens had copied a number of “literary works” onto the DVD she produced to the Court. That included the Brand Standards document. The respondents did not dispute that that was a literary work. Copying it onto the DVD amounts to a reproduction under the Copyright Act. I accept the applicants’ submission that the fact that the DVD was made in the last week of Ms Vriens’s employment and that she kept it well after her employment was over give rise to an inference that she made the DVD otherwise than for the purposes of her employment with the first applicant and therefore had no licence from the copyright owner to make the reproduction. Secondly, certain images copied from Ms Vriens’s work computer onto an external device in the week before she left appear in the Team brochure. Thirdly, a comparison of the Team brochure and the VMS catalogues reveals that the fonts used to denote prices and other items are identical, and, in both, items are described within coloured boxes with curved corners, often in the same blue colour used in the VMS brochure. The unexplained access to customer information to which I referred earlier, taken together with Ms Vriens’s conduct during the notice period, provide reasonable grounds to believe that she may have copied the VMS, and possibly also the Primary Health, customer database without the authority of the owner.

Ms Vriens’s involvement in misleading or deceptive conduct

83    Mr Norris said that he believed that Team engaged in misleading and deceptive conduct by leading customers to believe that the Team business was in some way connected or associated with EBOS, and by failing to inform customers that the Team business is a new business which has no affiliation with EBOS. This belief is apparently based, at least in part, on information received from VMS customers who, he considered, were confused or misled by Team activities. He said that the applicants are bringing proceedings against Team on this basis. He also asserted that that conduct has caused and will continue to cause the applicants irreparable harm. Relevantly, however, he stated that he did not know the nature (if any) or the extent (if any) to which Ms Vriens was involved in the dealings with Team customers which are the subject of the action to be brought against Team.

84    Section 18(1) of the Australian Consumer Law (contained in Schedule 2 of the Competition and Consumer Act 2010 (Cth)) (“the ACL”) provides that a person must not, in trade or commerce, engage in conduct that is misleading or deceptive, or is likely to mislead or deceive. It replaces the former s 52(1) of the Trade Practices Act 1974 (Cth). It differs, however, from the former section in that s 52(1) only applied to corporations.

85    Section 232(1) of the ACL confers a power on a court to grant an injunction if it is satisfied that a person has engaged, or is proposing to engage, in conduct that constitutes or would constitute a contravention of (amongst other things) s 18 or aiding, abetting, counselling or procuring a person to do so, inducing or attempting to induce, whether by threats, promises or otherwise, a person to contravene such a provision, being in any way, directly or indirectly, knowingly concerned in, or party to the contravention by a person of such a provision. Section 236(1) permits a person who suffers loss or damage because of the conduct of another person which contravenes (amongst other things) s 18 to recover the amount of the loss or damage by bringing an action against the other person or “any person involved in the contravention”. Section 2 provides that a person who is involved is one who has aided, abetted, counselled or procured the contravention; has induced the contravention, whether by threats or promises or otherwise; has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention; or has conspired with others to effect the contravention.

86    In broad terms, then, the question here is whether Mr Norris reasonably believes Ms Vriens to be (or have been) relevantly involved in leading customers to believe that Team is in some way connected or associated with EBOS or in failing to inform customers that the business was a new business which has no affiliation with EBOS. That is, does he reasonably believe that Ms Vriens may, at least, in some way, whether directly or indirectly, be (or have been) knowingly concerned in, or party to, such conduct? Mr Norris said he did not know whether she was involved. He did not in terms say he believed she was. So is the evidence sufficient to enable an inference to this effect to be drawn?

87    The respondents submitted that, not only was there no evidence of Mr Norris’s subjective belief (or, for that matter, the subjective belief of anyone else who could speak for the applicants), but there were no reasonable grounds for any such belief. They emphasised that, for Ms Vriens to be involved in the required sense, she had to have formed the requisite intention and therefore she had to have knowledge of the essential matters making up the contravention: Yorke v Lucas (1985) 158 CLR 661. They pointed to the evidence about the Team brochure, which introduced “Team Medical” as “a new company” and urged customers to “make the switch” to Team. The exhortation was graphically illustrated by an image of two goldfish bowls with a goldfish jumping from one bowl to the other. A message from Ms Vriens appeared on the second page. This repeated the statement that this was a new company.

88    In my view the respondents’ position has an air of unreality to it. There is no doubt that for the applicants to establish a cause of action against Ms Vriens they would have to show that she had the necessary intent. The terms of the brochure may tend to militate against such a conclusion. But this is not the time for such an enquiry. Here, the question is not whether a cause of action has been proved against Ms Vriens. Nor, as I said earlier, is it whether the applicants have established a prima facie case.

89    Ms Vriens was the marketing director of VMS. In that role she may well have had contact with customers, indirectly, if not directly. The brochure features a photograph of ten people, every one of whom (Mr Norris knew to have) previously worked for EBOS. Some of them were customer service operators for VMS. Each of them will have had direct contact with customers. There is at least a possibility that customers could be misled into thinking that Team is in some way associated with VMS. There is also a possibility that Team was attempting to capitalise on the goodwill generated by the VMS business. No disclaimer appears in the brochure. Absent a suitable disclaimer the possibility is a real one. Ms Vriens is a director and secretary of Team and appears from the evidence to have been intimately involved in its creation.

90    Moreover, the evidence is that the Team brochure was distributed on or around 16 May 2011, two months after the company was incorporated. Ms Vriens did not say that she had done anything to distinguish Team from VMS before the brochure was distributed. The applicants pointed to similarities in the layout and style of the Team brochure and the VMS catalogue. One of VMS’s existing customers had commented upon these in an email to the National Sales Manager for the VMS business. The applicants also pointed to photographs in the brochure which were identical to photographs of equipment appearing in the VMS catalogue. I accept that there may be an innocent explanation for this. Mr Ross said he provided Ms Vriens with images for brochures, although his evidence is in the most general of terms and does not indicate how many or which images. But the evidence of Ms Vriens’s activities during the last month of her employment together with her work for VMS provide a sufficient basis for a reasonable belief that she may in some way have been involved in misleading potential Team customers into thinking that the business it was running was in some way connected or associated with the VMS business.

91    The remaining question is whether the applicants held such a belief. Senior counsel for the applicants submitted that evidence of subjective belief could be found in parts of Mr Norris’s first and third affidavits. In [109] of his first affidavit Mr Norris spoke only of his belief about the conduct of Team. He said nothing about what he believed about Ms Vriens’s involvement in that conduct or in any right the applicants may have to obtain relief against her. In [111] of the same affidavit, all he said was that the applicants do not know the nature (if any) or the extent (if any) of her involvement in the dealings with Team customers, which are the subject of the (proposed) action against Team, and that they require further information to determine whether she is involved in Team’s contraventions. In [23] of the third affidavit, under the heading “my current concerns, suspicions and beliefs”, Mr Norris said he was still “concerned”, amongst other things, that Ms or Mr Vriens “are persons involved in the misleading and deceptive conduct of [Team]”.

92    Senior counsel for the applicants also submitted that subjective belief may be inferred from the matters indicating an objective basis for belief and the act of giving instructions to bring these proceedings. Senior counsel for the respondents argued that this was an unsafe basis to form the necessary degree of satisfaction. I do not accept that the mere act of giving instructions is sufficient. But I do think that Mr Norris’s knowledge of Ms Vriens’s involvement in the activities of Team about which he deposed can support such an inference. In his final affidavit he said he was “still concerned” that she was involved in Team’s misleading and deceptive conduct.

93    On a fair reading of all of Mr Norris’s evidence I am satisfied that he believes Ms Vriens may be involved.

Have the applicants made reasonable inquiries?

94    Mr Norris deposed to conducting a number of inquiries from May 2011 when he first became aware of Team’s existence. Those inquiries consisted of:

(a)    Conducting company searches of Team;

(b)    Commissioning covert surveillance on Mr Vriens and his wife, Ms Vriens’s home and the St Kilda property;

(c)    Arranging for computer forensic experts to examine a number of computers, servers and files owned by EBOS;

(d)    Speaking with VMS employees;

(e)    Obtaining information from customers;

(f)    Contacting three of VMS’s suppliers “in order to understand their dealings with [Team]”;

(g)    Obtaining information from other third parties;

(h)    Commissioning inquiries to be made about the Distrib product which Mr Vriens’s company, Vital Medical Supplies (Australia) Pty Limited, originally licensed and which was used for the operation of the VMS customer database until it was migrated across to Acumen in November 2010.

95    Doubtless other inquiries could have been carried out. Nevertheless, the question is not whether all possible inquiries have been made or whether it is reasonable for additional inquiries to be made. It is whether reasonable inquiries have been made. The rule does not demand exhaustive or comprehensive inquiries. I am satisfied that the inquiries the applicants have, or have caused to be, undertaken are reasonable.

Do the applicants still lack sufficient information to start a proceeding to obtain the relief they seek?

96     Despite the receipt of this information the applicants contend that they lack the information necessary to start a proceeding to obtain the relief they seek. Indeed, there would seem to be no real dispute about this. In this regard, I would note the policy behind the rule to facilitate the making of such orders where the information is required in order to assess whether the costs and risks make embarking on the litigation worthwhile (Optiver at [36]). Preliminary discovery may therefore be ordered where the applicant desires the information to determine the extent of the breach or the availability or strength of any defences (Telstra Corporation Ltd v Minister for Broadband, Communications and the Digital Economy (2008) 166 FCR 64 at [61]). The applicants submit that, despite the circumstantial evidence to support their beliefs, they cannot ascertain whether that evidence is susceptible of an innocent explanation. The written submissions supporting the ex parte application suggest that one such explanation may be that the respondents have been scrupulous to ensure that no customer information obtained from the applicants have been used in Team’s business and that all customer information has been acquired through publicly available information, commercially available databases and direct customer inquiries. Ms Vriens’s evidence does not contain such an unequivocal statement and raises as many questions as it may answer. In any case, her denials cannot defeat the applicants’ assertions. Cf. Henley Arch Pty Ltd v McDonald Jones Homes Pty Ltd [2011] FCA 687 at [21], [25] and [28].

97    The documents produced by Mr and Ms Vriens to which the applicants have had access do not touch upon Ms Vriens’s involvement, if any, in the misleading or deceptive conduct in which the applicants believe Team has engaged.

98    Furthermore, although the applicants now know that some confidential information was taken by Ms Vriens and some copyright infringement has probably occurred, they do not know the extent of it and therefore whether it would be worthwhile embarking on expensive litigation.

99     I therefore accept that the applicants still do not have sufficient information to enable them to decide whether to commence the proceedings the subject of this application.

Do the applicants reasonably believe that Team and/or Ms Vriens has, or is likely to have, or has had, or is likely to have had, in its or her control documents directly relevant to the applicants’ rights to obtain relief?

100     “Likely” in this context does not mean more probable than not. In context, and having regard to the purpose of the rule, I also consider that it does not mean probable. In Black v Sumitomo Corporation [2003] 3 All ER 643 at [72] Rix LJ, with whom May and Ward LLJ agreed, said of the word as it appeared in the comparable English rules with respect to pre-trial discovery (Supreme Court Act 1981 (UK) s 33(2) and Civil Procedure Rules 1998 (UK) r 31.16) that it meant no more than “may well”:

[I]t is not uncommon for ‘likely’ to mean something less than probable in its strict sense. It seems to me that … it is plain that ‘likely’ must be given its more extended and open meaning (see Lord Denning Mr in Dunning’s case [Dunning v Board of Governors of the United Liverpool Hospitals [1973] 2 All ER 454]), because otherwise one of the fundamental purposes of the statute will have been undermined. … ‘[L]ikely’ here means no more than ‘may well’. Where the future has to be predicted, but on an application which is not merely pre-trial but pre-action, a high test requiring proof on the balance of probability will be both undesirable and unnecessary: undesirable, because it does not respond to the nature and timing of the application; and unnecessary, because the court has all the power it needs in the overall exercise of its discretion to balance the possible uncertainties.

101    In my opinion, the same approach is called for here. Whilst I accept that the power conferred on the Court is intrusive, any other interpretation would, in my view, defeat the purpose of the rule. It is an approach that accords with the beneficial construction given to the previous rule and which, in my view, is also required of this rule, with the brake on any excesses lying in the discretion of the Court, exercised in the particular circumstances of each case.

102    In his first affidavit Mr Norris said he suspected Team had a copy of one or more of the confidential customer databases. He also gave evidence of a conversation with a staff member to the effect that she had been told that Ms Vriens had taken the VMS customer database.

103    In his second affidavit, as I mentioned earlier, Mr Norris referred to the documents the respondents produced to the Court on 4 August 2011. That demonstrates that Team and/or Ms Vriens had documents falling within the particular categories.

104    Whilst on the authorities suspicion is insufficient to establish reasonable cause to believe, and the evidence about the hearsay conversation amounts to little more than gossip, I am satisfied on a fair reading of Mr Norris’s affidavits, that he believed that Team and/or Ms Vriens may well have, or have had, in its or her control documents directly relevant to the applicants’ rights to obtain relief. Indeed, Mr Norris’s statement that he did not think that Team would have been able to undercut VMS prices without access to the specific prices at which a customer had purchased products from the VMS business supports this conclusion. The evidence to which I have already referred (in particular, the documents found in Ms Vriens’s rubbish bin and those produced to the Court on 4 August 2011) provides reasonable grounds for concluding that she and (because of her position with Team) probably also Team have and are likely to have had in their control documents directly relevant to the applicants’ rights to obtain relief for the causes of action they have identified.

Would inspection of the documents by the applicants assist them in deciding whether they have a right to relief?

105    Mr Norris said that access to the categories of documents referred to in the application would provide EBOS with sufficient information to determine whether to commence proceedings against any or all of the respondents for misuse of information and infringement of copyright. He also said that, while EBOS are commencing proceedings against Team for misleading or deceptive conduct, they require further information in order to determine whether Ms Vriens is involved in Team’s contraventions.

106    I have no doubt that inspection of the documents would assist the applicants to decide whether they have a right to relief.

107    This means, then, that the conditions for the exercise of the power have been met. The remaining question is whether, and, if so, to what extent, the Court should exercise its discretion in the applicants’ favour.

To what extent, if at all, should the Court exercise its discretion in favour of the applicants?

108    The respondents pointed to two considerations which, they submitted, should be taken into account in the exercise of the Court’s discretion.

109    First, they emphasised the intrusive nature of the power and asserted that the application is motivated by Team “being a competitor”.

110    The power to order discovery before suit is certainly intrusive. It enables a court to order that a person who is not a party to any proceeding provide documents to another person so that that second person can decide whether or not to institute a proceeding against it with no corresponding right (as in discovery after suit) to reveal its own documents. For this reason the authorities indicate that the power must be exercised with some care and always with these considerations in mind. Nevertheless, as the Full Court noted in Optiver (at [44]), it is not only beneficial to an applicant; it also benefits, or at least is not unduly harmful to, a prospective respondent:

Litigation that is doomed to failure is in nobody’s interests, including the interests of the ultimately successful defendant. An order for preliminary discovery may avoid trouble and expense for all concerned.

111    I accept, too, that because the parties are trade rivals, an application of this kind could be used as a means of stifling the activities of a competitor. But neither the fact that the application is made nor the evidence adduced to support it point in this case to any ulterior motive. In Optiver, which also involved an application for preliminary discovery by a company of a trade rival’s documents, the primary judge, who found that the conditions for the exercise of the power had not been made out, said that in any event he would have been disposed to exercise his discretion against the applicant. One of the reasons he gave was that an order would be “unfairly prejudicial to [the respondents], in a commercial and litigious sense” and noted the extreme sensitivity of some of the information Optiver was seeking which, if disclosed, could, he said, undermine the respondents’ competitive advantage: Optiver Australia Pty Ltd v Tibra Trading Pty Ltd (2007) 247 ALR 199 at [29]-[37]. The Full Court allowed Optiver’s appeal on several grounds. On the question of the commercial sensitivities the Court observed at [40]:

The disclosure of highly sensitive confidential material to a trade rival is a routine exercise in this Court. Commercial confidentiality is protected by appropriate directions such as, typically, limiting disclosure to external lawyers and independent experts upon their giving undertakings to the Court. Without such regimes, most intellectual property litigation would be unworkable. We do not see anything in the present case to take it outside the ordinary practice. Confidentiality regimes have been seen as an answer to such concerns in preliminary discovery applications...

112    This case, in my view, is no different.

113    The second factor the respondents suggest should be taken into account is the rights of a third party, Warner & Webster. They did not develop the submission, save to complain that, although Mr Norris was aware of the connection between Team and Warner & Webster, his limited reference to it in his evidence was “remarkable”. They claim that the involvement of Warner & Webster in the business of Team provides a ready explanation for its success.

114    As I have already indicated, on the evidence before me, Warner & Webster’s involvement does not provide a complete explanation for the information apparently obtained by Team and Ms Vriens or for the similarities in documents produced by Team and EBOS. Warner & Webster did not seek to intervene to protect its rights.

115    The respondents also complained about the request to produce supplier databases but ultimately the applicants did not press this part of the application.

116    The Full Court said in Optiver at [45] that there will normally be little scope for refusing relief where the conditions for the exercise of the power have been met. It held that the remedy should not be refused without good reason. None has been shown here. Still, as Lindgren J said in Glencore International AG v Selwyn Mines Ltd (2005) 223 ALR 238 at [13]:

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 26-7. 

117    I have carefully considered whether the scope of the orders now sought goes beyond what is necessary to overcome the applicants’ deficit. I am satisfied that the documents in categories (a) and (b) and (f)-(h) do not. On the other hand, I do not consider that, at this point in time, it is necessary for the applicants to have access to a copy of the Team databases. If they know what documents were taken and copied, and they also have access to documents recording, referring or relating to the acquisition or creation of any of the Team customer databases, this should suffice.

118    It is true, as the respondents contended, that category (a) appears to include category (b). It is also inevitable that, if Team or Ms Vriens has any documents answering the description in category (g) the documents will also meet the description in category (a) and in all probability (b) too. But that does not mean that documents answering these descriptions are not necessary to overcome the deficiency in the information presently available to the applicants. Plainly, no hardship arises as a result of the way in which the various orders are drafted.

Orders

119     I therefore order, pursuant to r 7.23, that the first and second prospective respondents give discovery of all documents falling within paragraphs (a), (b), (f), (g) and (h) of the schedule to these reasons.

120    As for costs, the applicants sought an order of the kind made by Finkelstein J in SmithKline Beecham plc v Alphapharm Pty Ltd [2001] FCA 271 and Burchett J in Cappuccio v Australia & New Zealand Banking Group Ltd [1999] FCA 1188. That is, if substantive proceedings are started within 60 days of the respondents complying with the orders, the costs of this application should be costs in the substantive proceedings and, if not, then the applicants should pay the respondents’ costs. The respondents did not argue against this form of order in the event that the applicants were successful. I therefore propose to make such an order.

Confidentiality orders

121    Amongst the orders Flick J made on 1 August 2011 was an order (order 10) made pursuant to s 50 of the Federal Court of Australia Act 1976 (Cth) that, until further order, the exhibits identified as confidential in Mr Norris’s first affidavit of 29 July 2011 are to be kept confidential and not to be disclosed or published to any person except the parties to the proceeding and their respective legal representatives without the leave of the Court.

122    On 30 September 2011 the respondents applied to have the s 50 order lifted in relation to the documents behind tabs 21, 22, and 23 of exhibit ARN-2. They are three email chains between Mr Norris and representatives of three of Team’s suppliers whose products appear in Team’s brochure. If the order is not lifted, they ask to be relieved from their implied undertaking. The reason they give is that they wish to provide copies of the email chains to the Australian Competition and Consumer Commission.

123    The applicants now, however, only seek a continuation of the confidentiality orders with respect to documents behind tabs 3, 4, 19 and three documents behind tab 24 The remaining question, then, is whether the order should stay in place with respect to those documents.

124    The principles governing the question whether a confidentiality order should remain in force are the same as those governing the making of the order in the first place. The starting point is the principle of open justice. Section 50 provides that the Court may make an order, amongst other things, forbidding or restricting the publication of particular evidence, if it appears to the Court to be necessary to prevent prejudice to the administration of justice or the security of the Commonwealth. Plainly, it is the question of prejudice to the administration of justice which is in play here.

125    In Hogan v Australian Crime Commission (2010) 240 CLR 651 at [39] the High Court approved the following observations made by Jessup J (Moore J agreeing) in the Full Court in that case:

There are, of course, all manner of situations in which a claim to keep a particular document confidential will be recognised by a court. For example, equity recognises that the information contained in certain documents is, of its nature and by reason of the circumstances of its communication, subject to a duty of confidence. So too will the law protect trade secrets in well-recognised situations. And it is commonly the case that the court will protect from the public eye personal or commercial information the value of which as an asset would be seriously compromised by disclosure. In this latter category, the source of the jurisdiction (in this court) to provide such protection is s 50 itself. That is to say, the question will always be: is an order necessary to prevent prejudice to the administration of justice? Absent an affirmative answer to this question it is, in my view, almost meaningless to propose that documents themselves are, or that the information in them is, inherently confidential to an extent justifying, or assisting in the justification of, the making of an order permanently protecting them from public view.

126    In Australian Broadcasting Commission v Parish (1980) 43 FLR 129, where confidential information was the subject matter of the proceeding, Bowen CJ in the Full Court concluded (at 134) that it was in the interests of justice that the processes for determination of the very proceedings not destroy or seriously depreciate the value of the subject matter of the litigation.

127    It follows that, where the documents contain confidential information of the kind that equity will protect and the value of which as an asset would be seriously compromised by disclosure, it is likely that the Court will find that an order forbidding or limiting disclosure will be necessary to prevent prejudice to the administration of justice.

128    The respondents do not take issue with the continuation of the s 50 order over those documents in tabs 3, 4, 19 and 24.

129    The document behind tab 3 sets out details of the VMS business price class system. It lists particular products and price classes that inform the discount prices offered to customers of the VMS business. The document behind tab 4 is in the same class. It relates to the Primary Health business price class system. Both documents were created for the purpose of the proceeding to describe the pricing structure for products sold by the respective business units. The price information contained in these documents does not appear in the product catalogues and is not publicly available. I accept the applicants’ submission that, if a competitor were to have access to these documents, it could use the information to undercut EBOS prices, particularly if it had access to other documents tendered in evidence, over which the order is not sought to be maintained. The applicants sought orders to enable them to consider whether to bring an action against the respondents, amongst other things, for breach of confidence relating in part to information of this very nature. Disclosure of these documents would potentially seriously depreciate, if not destroy, the value of any such action. For this reason I am satisfied that it is necessary to continue the order over these documents, to prevent prejudice to the administration of justice.

130    The three documents behind tab 24 of the confidential exhibit can be loosely described as documents revealing or tending to reveal the profit margins of EBOS businesses (see [22]-[24] of the applicants submissions filed on 5 October 2011). One of them – the fourth document – includes a list of the customers of the Primary Health Business. Those documents are described in paragraphs [17]-[24] of submissions filed by the applicants on 5 October 2011. They would not be publicly available. I accept the applicants’ submissions that this is commercially sensitive and highly valuable information in the hands of a competitor or potential competitor. For these reasons I am satisfied that it is proper to continue the confidentiality order over this document.

131    I therefore vary order 10 of the orders made by Flick J on 1 August 2011 in the manner sought.

Associate:

Dated:    3 February 2012

SCHEDULE

EBOS Group Pty Ltd, EBOS Healthcare (Australia) Pty Ltd and EBOS Group Limited (“the prospective applicants”) seek an order that Team Medical Supplies Pty Ltd (“Team”) and Marijke Vriens give discovery to them of the following documents:

(a)    all documents which are the property of one or more of the applicants or which at any time came into the possession or control of Marijke Vriens as a result of their employment with EBOS Group Pty Limited and any documents containing a copy or reproduction thereof;

(b)    all documents which are the property of one or more of the applicants or which at any time came into the possession or control of Marijke or Pieter Vriens as a result of their employment with EBOS Group Pty Limited which were:

(i)    sent by Marijke or Pieter Vriens to a personal email address used by either of them;

(ii)    copied, transferred or exported by either Marijke or Pieter Vriens to a digital storage device including without limitation a computer, disc, CD, DVD, USB, iPod or smartphone;

(iii)    printed, photocopied or scanned and subsequently retained by either Marijke or Pieter Vriens; and

(iv)    any documents containing a copy or reproduction thereof;

(c)    [deleted];

(d)    [deleted];

(e)    a copy of Team’s customer databases;

(f)    all documents which record, refer or relate to the acquisition or creation of any of Team’s customer databases;

(g)    all documents which comprise a reproduction or copy of the whole or any part of the VMS Customer Database, the EBOS Customer Database or the Sole Customer Database (as defined in the affidavit of Anthony Norris sworn 29 July 2011 and served with the application); and

(h)    all documents which record, refer or relate to communications between Marijke Vriens; and

(i)    any director, employee, agent or representative of Team; or

(ii)    any customer or prospective customer of Team,

    regarding:

        (A)    the design and layout of Team’s marketing materials;

        (B)    the design and layout of other Team business documents, such as order             forms and invoices;

        (C)    representations to be made or omitted in dealings with customers or             prospective customers of Team regarding the nature of the relationship             between Team and any of the applicants; or the nature of the                 relationship between any director or employee of Team and any of the             applicants;

        (D)    the nature of any relationship between the business of Team and any of             the applicants.

Note:     For the purpose of these orders:

    a “document” means any record of information, and includes:

    anything on which there is writing; or

    anything on which there are marks; figures, symbols or perforations having a meaning for persons qualified to interpret them; or     

    anything from which sounds, images or writings can be reproduced with or without the aid of anything else whether digitally, electronically or otherwise; or

    a map, plan, drawing or photograph.

    “related body corporate” has the meaning ascribed to that term in s 50 of the     Corporations Act 2001 (Cth).