FEDERAL COURT OF AUSTRALIA

Matthews v Clifton [2014] FCA 415

IN THE MATTER OF ACN 007 940 936 IWH PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) ACN 007 940 936

IN THE MATTER OF SCARCE BUILDERS & DEVELOPERS PTY LTD (RECEIVERS AND MANAGERES APPOINTED) (IN LIQUIDATION)

ACN 056 879 175

THE COURT ORDERS THAT:

1.    The cross-claimants are, by 6 May 2014, to prepare minutes of the orders they propose to give effect to a regime for the inspection and identification of the confidential and privileged information of the cross-claimants on the Computers.

2.    The parties are, by 9 May 2014, to confer with a view to agreeing those orders.

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

REASONS FOR JUDGMENT

1    On 7 October 2012, acting under s 436A of the Corporations Act 2001 (Cth) (the Corporations Act), the members of ACN 007 940 936 IWH Pty Ltd (IWH) and Scarce Builders & Developers Pty Ltd (Scarce Builders) appointed joint and several administrators (Messrs Heard and Phillips) to their respective companies.

2    Following reports by the administrators, the creditors of each company resolved, pursuant to ss 439C and 446A of the Corporations Act, that each should be wound up. The respective resolutions were passed on 9 November 2012.

3    The plaintiff was appointed liquidator of each of the companies. Three days later, the defendants were appointed receivers and managers of the companies pursuant to a fixed and floating charge contained in separate debentures in favour of the ANZ Banking Group Ltd.

4    It is common ground that the assets of one or other of the companies include four computers, one of which is described as a “server”, currently in the possession of the defendants (the Computers).

5    The plaintiff seeks possession of the Computers in order to pursue the respective liquidations. For this purpose he applies for:

(1)    an order pursuant to s 434B(1) of the Corporations Act that the defendants give up possession and control of the Computers;

(2)    a direction, pursuant to s 511(1) of the Corporations Act, that he have unfettered access to the information on the Computers for the purposes of exercising his powers as a liquidator of the companies.

The application as filed also sought orders under s 530B of the Corporations Act. However, counsel indicated that those aspects of the application were not pursued.

6    To support the application under s 434B, the plaintiff also seeks an order from the Court that each of the companies be wound up. The plaintiff seeks this order with the object of removing any uncertainty arising from s 434B(4) as to whether an order under that section may be made only in relation to a court-ordered winding up.

7    The defendants do not oppose the plaintiff having possession of, or access to, the Computers. However, they were conscious of the claims of confidentiality and privilege made by the principals of the companies and of other companies associated with them. Those persons are Neil Scarce and Sylvia Scarce (Mr and Mrs Scarce), and Denarius Pty Ltd, Adrion Pty Ltd, Neil Scarce Real Estate Pty Ltd and Montmirail Pty Ltd (the Associated Companies). The Court granted leave to these persons to intervene in the proceedings brought by the plaintiff.

8    Mr Scarce is the sole director of IWH and Scarce Builders (which traded as Nusteel Homes), and a former employee of IWH. Mrs Scarce is his wife and was also formerly employed by IWH. Each of Mr and Mrs Scarce is a director of Adrion Pty Ltd and Montmirail Pty Ltd, and Mr Scarce is also a director of Denarius Pty Ltd and Neil Scarce Real Estate Pty Ltd. Mr and Mrs Scarce, and in the case of Adrion, Denarius, are the shareholders in the Associated Companies as well as in IWH and Scarce Builders.

9    Because of the claims of confidentiality and privilege, the defendants have not voluntarily handed over the Computers to the plaintiff. They indicated that they would abide the order of the Court and, save for the issue of costs, did not wish to be heard in the proceedings.

10    After the grant of leave to intervene, the interveners commenced a cross-claim seeking relief against the plaintiff liquidator. It is convenient therefore to refer to the interveners collectively as the cross-claimants.

11    By their cross-claim, the cross-claimants seek an order restraining the plaintiff:

[F]rom taking access to, using, disclosing or reproducing such of the contents as is located on or within the servers of the four computers … as contain:

1.1    the books and records or other documents of any of the Cross-claimants (“Cross-claimants’ Material”);

1.2    alternatively, confidential material contained within the Cross-claimants’ Material;

1.3    further alternatively, any documents contained within the Cross-claimants’ Materials which are subject to legal professional privilege.

In addition, the cross-claimants seek an order permitting them to delete the “Cross-claimants’ Material” from the Computers.

12    The plaintiff opposes the grant of this relief. Again, the defendants indicated that, save for the question of costs, they would abide the Court’s order.

13    The issues in the proceedings arise from the use which Mr and Mrs Scarce say they made of the Computers. Each had an email account on the server operated by IWH. They used their respective email accounts to send and receive emails on matters relating to the business of IWH and Scarce Builders, but assert that they also used them for purposes unrelated to the affairs of those companies. In particular, they contend that the server contains:

(a)    emails sent from or to their respective email accounts concerning their own personal and business affairs;

(b)    information concerning the Associated Companies contained in emails sent by or to the respective email accounts; and

(c)    information including the books and records of the Associated Companies which Mr Scarce found “convenient” to store on the Computers.

14    The cross-claimants claim that the information in the emails and in the books and records of the Associated Companies is not the property of IWH or Scarce Builders, is confidential to them (i.e., to the cross-claimants) and, to the extent that it includes communications with legal advisers, is subject to legal professional privilege in their favour. They contend, therefore, that the data on the Computers that pertains to them, and which is not part of the books and records of IWH and Scarce Builders, should not be made available to the plaintiff.

15    The cross-claimants did not seek to rest their claim for protection of the information on any proprietary claim. They accepted that information is not property: Breen v Williams (1996) 186 CLR 71 at 81, 90.

16    The plaintiff’s position is that, no matter how confidential the material stored on the Computers might be to the cross-claimants, or one of them, he, as liquidator of IWH and Scarce Builders, is entitled to inspect all material recorded on the property of those companies. Alternatively, he contends that the cross-claimants have not in any event established the necessary elements for equitable intervention for protection of confidential information.

17    The evidence at the hearing comprised affidavits from the plaintiff sworn 6 September 2013 and 13 November 2013, an affidavit from Mr du Plessis (who has expertise in information technology) sworn 25 October 2013, an affidavit from the cross-claimants’ present solicitor, Mr Mansueto, sworn 25 September 2013 and two affidavits from Mr Scarce sworn 8 October 2013 and 28 October 2013. In addition, there was some short cross-examination of Mr Matthews, Mr du Plessis and Mr Scarce. It is not necessary to make detailed findings concerning the evidence as, by and large, it was not contentious.

18    Section 434B of the Corporations Act provides as follows:

434B Court may remove redundant controller

(1)    The Court may order that, on and after a specified day, a controller of property of a corporation:

(a)    cease to act as receiver, or give up possession or control, as the case requires, of property of the corporation; or

(b)    act as receiver, or continue in possession or control, as the case requires, only of specified property of the corporation.

(2)    However, the Court may only make an order under subsection (1) if satisfied that the objectives for which the controller was appointed, or entered into possession or took control of property of the corporation, as the case requires, have been achieved, so far as is reasonably practicable, except in relation to any property specified in the order under paragraph (1)(b).

(3)    For the purposes of subsection (2), the Court must have regard to:

(a)    the corporation’s interests; and

(b)    the interests of the secured party in relation to the security interest that the controller is enforcing; and

(c)    the interests of the corporation’s other creditors; and

(d)    any other relevant matter.

(4)    The Court may only make an order under subsection (1) on the application of a liquidator appointed for the purposes of winding up the corporation in insolvency.

(5)    An order under subsection (1) may also prohibit the secured party from doing any or all of the following, except with the leave of the Court:

(a)    appointing a person as receiver of property of the corporation under a power contained in an instrument relating to the security interest;

(b)    entering into possession, or taking control, of such property for the purpose of enforcing the security interest;

(c)    appointing a person so to enter into possession or take control (whether as agent for the secured party or for the corporation).

As can be seen, s 434B(1) allows the Court to order that a controller of property give up possession or control of property of a corporation. By reason of the definition in s 9, a controller for the purposes of s 434B includes a receiver.

19    The exercise of the discretionary power vested by s 434B(1) is governed by subs (2), (3) and (4).

20    Subsection (2) precludes the Court making a subs (1) order unless it is satisfied that the objectives for which the controller was appointed or took control of the property of the corporation have been achieved so far as is reasonably practicable. The parties directed relatively little attention to this requirement. The plaintiff has deposed that the indebtedness secured by the charge pursuant to which the defendants were appointed “appears to have been discharged”. In correspondence to the plaintiff, the defendants have indicated that they are unable to indicate when the receivership will be concluded. However, it is pertinent that the defendants have not sought actively to oppose the making of an order under s 434B(1) and from this it may be inferred that they consider that the objectives for which they were appointed by the ANZ Banking Group have been achieved.

21    Section 434B(3) specifies matters to which the Court must have regard in considering subs (2). No party suggested that those matters were of any particular significance in the present case in relation to the Court’s satisfaction that the objectives for which the receivers were appointed have been achieved.

22    I will refer to subs (4) later in these reasons.

23    The cross-claimants accepted that the plaintiff was entitled to the delivery up of the Computers. They submitted, however, that their confidential information should be protected either by an order on their cross-claim or by the imposition of conditions on the order made under s 434B. Thus, the focus of the parties’ submissions was on the confidentiality of the data recorded in the Computers and, in the event that that confidentiality was established, on the means by which it could or should be protected.

Copyright Act

24    Counsel for the plaintiff referred briefly in his outline of submissions to the Copyright Act 1968 (Cth) (Copyright Act). He contended that any document created by Mr or Mrs Scarce in their capacity as an employee of IWH will be a literary work created pursuant to that employment with the effect that IWH would be the owner of the copyright in that work: s 35(6). He referred in this respect to passages in Breen v Williams (1996) 186 CLR 71 at 80-1 (Brennan CJ), 90 (Toohey and Dawson JJ), 110 (Gaudron and McHugh JJ) and 127-8 (Gummow J).

25    However, counsel did not develop any such argument in the oral submissions and it is not clear whether ultimately the plaintiff relied upon alleged copyright. Further, and in any event, as I understand the cross-claim, Mr and Mrs Scarce do not contend that the documents for which confidentiality is claimed were “created” by them in their capacity as employees of IWH. Accordingly, it is not clear how the provisions in the Copyright Act could have application in the present context and it need not be considered further.

Privacy Act

26    The cross-claimants contended first that the right to maintain the confidentiality of the personal emails of Mr and Mrs Scarce is found in the Privacy Act 1988 (Cth) (Privacy Act).

27    The possibility that the Privacy Act could be a source of a relevant right arose only belatedly in the proceedings. It was first articulated by the cross-claimants’ counsel in his closing submissions and, accordingly, after all the evidence at the hearing had been received. Counsel’s submissions indicated that he had not considered the possible application of the Privacy Act in detail. The effect was that the submissions were made at a level of generality and were not complete. In addition, the submissions were made by reference to the Privacy Act as in force before the substantial amendments effected by the Privacy Amendment (Enhancing Privacy Protection) Act 2012 which (relevantly) came into operation on 12 March 2014, after the submissions in this matter were completed.

28    As I understood them, the submissions proceeded as follows. Formerly, s 16A(2) provided that:

To the extent (if any) that an organisation is not bound by an approved privacy code, the organisation must not do an act, or engage in a practice, that breaches a National Privacy Principle.

The counterpart provision in the current Act is s 15 which provides:

An APP entity must not do an act, or engage in a practice, that breaches an Australian Privacy Principle.

An “APP entity” means an “agency or organisation”. The submission proceeded on the basis that each of the companies is an “organisation” (as defined in s 6C) and on the unstated assumption that neither was bound by an approved privacy code. No submissions were made addressing whether the companies are “small business operators” as defined in s 6D.

29    National Privacy Principle No. 2 (now Australian Privacy Principle No. 6) proscribes the use or disclosure by an organisation of “personal information about an individual” for a purpose other than the primary purpose for the collection of the information, unless at least one of several specified exemptions is applicable. The argument was that the personal emails of Mr and Mrs Scarce are “personal information about an individual” as defined, and that none of the exemptions to the disclosure of that information in Privacy Principle No. 2 are applicable.

30    Section 7B(3) of the Privacy Act also exempts from “acts” to which the Privacy Act applies acts by an employer which are directly related to:

(a)    a current or former employment relationship between the employer and the individual; and

(b)    an employee record held by the organisation and relating to the individual.

The effect of s 7B(3) is to exempt from conduct which may otherwise amount to a contravention of the Privacy Act acts done in conformity with the employer-employee relationship or which are closely related to that relationship. The cross-claimants submitted that s 7B(3) did not apply to the proposed disclosure of the personal emails of Mr and Mrs Scarce to the liquidator.

31    Counsel for the cross-claimants did not refer to s 98 of the Privacy Act which empowers this Court to grant an injunction to restrain persons from engaging in conduct constituting a contravention of the Act. It may be inferred, however, that the reference to the Privacy Act was an attempt, in effect, to invoke that power.

32    In my opinion, it is inappropriate presently to rely on any right arising from the Privacy Act, or upon s 98 of the Act, to justify the orders sought by the cross-claimants.

33    First, as the cross-claimants themselves acknowledged, the Privacy Act does not establish a relevant right in any corporate entity. The expression “individual” used in the Privacy Principles and elsewhere in the Privacy Act is defined in s 6 of the Act to mean “a natural person”. Accordingly, only Mr and Mrs Scarce and not the Associated Companies can invoke the provisions in the Privacy Act presently.

34    Secondly, the proscription in the former Privacy Principle No. 2 appears to relate to information “collected” by the organisation. This is evident in the expression “primary purpose of collection”. It is not clear that the recording of the personal emails of Mr and Mrs Scarce in the Computers answers the description of information “collected” by IWH or Scarce Builders.

35    The Privacy Amendment (Enhancing Privacy Protection) Act 2012 inserted, into s 6 of the Privacy Act, a definition of “collects”, namely:

Collects: an entity collects personal information only if the entity collects the personal information for inclusion in a record or generally available publication.

36    On its face, the voluntary disclosure by Mr and Mrs Scarce of their personal information to IWH and Scarce Builders by their use of their company email accounts appears not to answer the description of information “collected” by those entities. The information was received by the companies involuntarily. Although a computer would answer the description of a “record” as defined in s 6, it is doubtful that either company “collected” the information for inclusion in such a record. However, given the absence of submissions by either counsel on this issue, I would prefer not to express a concluded view about this issue. It is sufficient to say that the uncertainty gives rise to some pause about the application of the Privacy Act in the present circumstances.

37    Thirdly, the belated manner in which the cross-claimants raised reliance on the Privacy Act means that the issues concerning its application were not fully explored. In particular, the plaintiff was not given the opportunity to adduce all the evidence he may have wished concerning the application of the Privacy Act in these circumstances. That being so, the Court should be cautious before concluding that the plaintiff’s proposed conduct in relation to the data on the Computers may amount to a contravention of the Privacy Act, so as to found this Court’s powers to grant an injunction under s 98 of that Act.

38    This makes it unnecessary to consider the plaintiff’s other submissions concerning the application of the Privacy Act.

Equitable protection of confidential information

39    The cross-claimants relied principally on the equitable protection of confidential information. The jurisdiction of the courts to afford this protection is well-established: The Commonwealth of Australia v John Fairfax & Sons Ltd (1980) 147 CLR 39 at 50-52; Moorgate Tobacco Co Ltd v Philip Morris Ltd (No 2) (1984) 156 CLR 414 at 437-8; Johns v Australian Securities Commission (1993) 178 CLR 408 at 426-7, 436, 455, 459-60 and 474; Australian Broadcasting Corporation v Lenah Game Meats [2001] HCA 63 at [30] and [223]; (2001) 208 CLR 199 at 222-3 and 288-9. Equity’s protection of confidences does not rest on the existence of some proprietary or contractual right, but instead on the obligations of conscience arising from the circumstances in which the information was communicated or obtained: Moorgate Tobacco Co at 437-8. Equity intervenes only when the information has been communicated in circumstances imposing an obligation of confidence.

40    In “Meagher, Gummow and Lehane’s Equity: Doctrines and Remedies” (4th ed., Butterworths, 2002) at [41-050], the authors state:

What then is the equitable duty of confidence? Lord Denning MR in Seager v Copydex Ltd [1967] 2 All ER 415 at 417 spoke of “the broad principle of equity that he who has received information in confidence shall not take unfair advantage of it”. He must not make use of it “to the prejudice of him who gave it without obtaining consent”. This conveys the notion of receipt of the information in circumstances importing an obligation to treat it on a limited basis and the actual or threatened unauthorised use. The limited basis may be such that there will be a breach not only by disclosure to a third party but also by a use by the disclosee other than that for which the information was confided in him … The relevant question is what is the confidee entitled to do with the information, not what use is prohibited …

41    In Smith Kline and French Laboratories (Aust) Ltd v Secretary, Department of Community Services and Health (1990) 22 FCR 73 at 87, Gummow J (at first instance) formulated the circumstances in which equity will intervene as follows:

A general formulation apt for the present case of an equitable obligation of confidence has four elements: (i) the plaintiff must be able to identify with specificity, and not merely in global terms, that which is said to be the information in question, and must be able to show that; (ii) the information has the necessary quality of confidentiality (and is not, for example, common or public knowledge); (iii) the information was received by the defendant in such circumstances as to import an obligation of confidence; and (iv) there is actual or threatened misuse of that information, without the consent of the plaintiff.

See also this formulation by Gummow J in Corrs, Pavey, Whiting and Byrne v Collector of Customs (1987) 14 FCR 434 at 443. Gummow J’s dissent as to the result in that case does not affect his summary of the law.

42    It is convenient to consider the cross-claimants’ claim against this formulation. The limited circumstances in which equity intervenes means, as the cross-claimants’ submissions recognised, that relief may be available to them only in respect of the categories of documents specified in [1.2] and [1.3] of the relief claimed, as set out in [11] of these reasons.

The specificity of the claim of confidentiality

43    The plaintiff contended first that the Court could not uphold the claims of confidentiality because they had not been made with sufficient specificity. Counsel referred to the reasons of Bryson J in Mancini v Mancini [1999] NSWSC 800 at [7]:

It is not possible to address in any clear way and to come to a decision on protection of any alleged confidential information without identifying what the confidential information is in a sufficiently specific way to enable it to be identified. Without doing that it is not possible to come to a conclusion on whether the information truly is confidential, to consider and appraise the circumstances in which it came into existence and was communicated, to come to any conclusion about whether protection is appropriate, or to make any enforceable order. A case about confidential information cannot be nebulous. Confidential information which once existed may no longer be confidential; it may no longer be available although it was communicated in the past; it may not be material to any use which might now be proposed to be made of information. Without specificity a claim to protection cannot be defended or decided on any fair procedural basis, and a general allegation of the kind put forward here to the effect that from the nature of the past legal business confidential information must have been communicated should not in my opinion be upheld.

44    The emphasis on appropriate identification of the material said to be confidential reflects the first element in the formulation of Gummow J in Smith Kline. Similarly, in Moorgate Tobacco Co Ltd v Philip Morris Ltd (No 2) (1984) 156 CLR 414 at 438, Deane J, with whose reasons the other members of the Court agreed, said that the starting point must be “the identification of the relevant confidential information”.

45    In my opinion, there is some force in the plaintiff’s submissions concerning the lack of appropriate specificity.

46    Mr Scarce’s affidavit sworn on 8 October 2013 which comprises the principal evidence on this topic on which the cross-claimants rely is expressed in general terms. Mr Scarce deposes that he and his wife used their respective email addresses for personal use and for and on behalf of the Associated Companies, as well as in relation to the affairs of IWH and Scarce Builders. He deposes, in addition, that the email accounts include communications between the cross-claimants and their legal advisers, including the firm of Corsers, in respect of the personal and business affairs of the cross-claimants, and makes a claim of legal professional privilege in relation to those communications. Mr Scarce deposes that the books and records of the Associated Companies were maintained on the Computers for many years, both as entities in their own right as well as in their capacity as trustees of various trusts. He deposes that the taxation returns and financial statements of all the cross-claimants were maintained on the Computers.

47    Although in the interests of brevity I have paraphrased the relevant passages in Mr Scarce’s affidavit, I think it fair to say that the paraphrase captures the essence of the detail provided by Mr Scarce in his affidavit.

48    Mrs Scarce has not deposed at all to the confidentiality which she asserts, let alone providing specificity of the documents in respect of which the confidentiality is claimed.

49    Mr Scarce also deposes that correspondence exhibited by Mr Mansueto to his affidavit accurately set out the claims of the cross-claimants with respect to the material in the Computers. I have reviewed that correspondence, but do not regard it as adding to the identification of the material for which confidentiality is claimed. In addition, little weight can be attached to the affidavit of Mr Mansueto in this respect because, as Mr Mansueto himself acknowledged, his assertions as to the material recorded on the Computers were wholly hearsay.

50    Mr Scarce provided an explanation for the lack of specificity. He deposed that he was unable to “elaborate in more detail” as he had not had access to the Computers since 7 October 2012 when the administrators were appointed to IWH and Scarce Builders. Counsel also referred to a letter from the plaintiff’s solicitors to Mr Mansueto of 2 October 2013, which included the following:

5.    You should further note that unauthorised access to, or destruction of, files held on the Companies’ hard drives constitutes a trespass to goods. We seek your clients’ undertaking that this will not be done in the absence of an order of the Court.

However, as I indicated to counsel in argument, the plaintiff’s attitude, as evidenced by this letter, does not really avail the cross-claimants presently because they could, if minded to do so, have sought an order from the Court as to access to the Computers for the purposes of these proceedings. Further still, it is evident that there have been negotiations between the parties concerning the cross-claimants being permitted to make, at their own expense, an electronic image of the data contained on the Computers.

51    It is to be remembered that the principal relief sought by the cross-claimants in the proceedings is injunctive relief. Of necessity, any injunction restraining the plaintiff from using material on the basis of its confidentiality would have to identify with proper specificity the material to which the injunction related.

52    In these circumstances, there is, as I have said, some force in the plaintiff’s submission that the cross-claimants have not established a threshold requirement for the recognition of a claim for confidentiality.

53    However, despite these shortcomings in the cross-claimants’ evidence and not without some hesitation, I do not consider that the cross-claim should be rejected on this account. The following considerations have led me to that conclusion.

54    First, it is possible for the Court to order a regime by which the material which can be properly the subject of a claim of confidentiality or privilege can be identified and the cross-claimants’ interests in such material protected. The report from Mr du Plessis refers to such a regime. It is of a kind commonly implemented by courts in injunctive proceedings.

55    Secondly, although lacking specificity in relation to individual documents, the cross-claimants have identified categories of documents said to have the requisite confidentiality.

56    Thirdly, the cross-claimants’ claim that the Computers contain material in respect of which they have legal professional privilege is not lightly to be ignored. Legal professional privilege has been described as “a fundamental and general principle of the common law”: Baker v Campbell (1983) 153 CLR 52 at 116-7 (Deane J). In The Daniels Corporation International Pty Ltd v Australian Competition and Consumer Commission [2002] HCA 49 at [44]; (2002) 213 CLR 543 at 563, McHugh J emphasised the substantial legal immunity recognised by legal professional privilege:

Australian courts have classified legal professional privilege as a fundamental right or immunity. Accordingly, they hold that a legislature will be taken to have abolished the privilege only when the legislative provision has done so expressly or by necessary implication. Legal professional privilege describes a person's immunity from compulsion to produce documents that evidence confidential communications about legal matters made between a lawyer and client or between a lawyer and a third party for the benefit of a client. The immunity also protects the disclosure of documents that record legal work carried out by the lawyer for the benefit of a client, such as research memoranda. The immunity embodies a substantive legal right. Its operation is not limited to judicial or quasi-judicial proceedings. Where it applies, it may be used to refuse to produce documents that are the subject of a search warrant authorised by statute or other extra-curial process as well as a subpoena issued under or discovery required by rules of court.

(Citations omitted)

57    I am conscious that Mr Scarce has made the claim for legal professional privilege in very general terms, referring only to “some communications between the cross-claimants and their legal advisers, including Corsers, in respect of the personal and business affairs of the cross-claimants”. The extensive correspondence between the solicitors does not particularise this claim, for example, by indicating who exactly is making the claim, or the basis on which the claim is made. However, the claim for legal professional privilege in respect of some of the material is not implausible and, as I have said, that claim is not lightly to be ignored.

58    The fourth consideration is that the claim that the Computers contain confidential material of a more general kind is also not implausible. The circumstance that IWH, Scarce Builders and each of the Associated Companies is owned and controlled by Mr and Mrs Scarce makes it unsurprising that they may have used the Computers of one member in their group to record information of the other members of the group and for private purposes. It is commonplace for the owners of family-owned companies to ignore the distinctions of legal identity in the day-to-day running of their businesses and in their personal affairs.

59    For these reasons, I consider it appropriate for the Court to proceed on the basis that there are reasonable grounds to suppose that the Computers do contain confidential material, as claimed by the cross-claimants, even though they have not particularised that material.

60    Accordingly, in the particular circumstances of this case, I do not consider that the cross-claim should be dismissed on the ground that the cross-claimants have not identified individual documents with any specificity.

The confidentiality of the information

61    In my opinion, there is no difficulty in characterising the documents and information for which the cross-claimants have claimed confidentiality as having the requisite degree of confidence. Emails concerning the personal and business affairs of their senders or recipients are generally regarded as confidential. They are not available to the public.

62    Similarly, it is customary for communications between a lawyer and client to be confidential. The books and records of account of the proprietary companies are generally regarded as confidential. None of this information is generally available to the public.

63    Accordingly, I accept Mr Scarce’s claim that the information which the cross-claimants seek to protect is of a kind one would expect to be confidential and that it has not been made available to the public.

64    The plaintiff referred to the “Email and Internet Usage Policy” of IWH and Scarce Builders. This policy document contained a number of stipulations regarding email and internet usage and provided (relevantly):

Policy

The Email System and Internet Access is an important business tool and are provided to you by Nusteel Homes or Ian Wood Homes to facilitate the achievement of company objectives.

Email and internet facilities may only be used for business related communications and purposes.

The internet may be used for personal reasons during your lunch break only upon receiving permission from your immediate manager.

If you view or download material from the internet other than for business purposes, you may be disciplined. You will be liable to be dismissed in cases of serious or repeated misuse.

Privacy

Your emails at work are not private and may be reviewed by your employer. While there is no intention to snoop, the company is legally responsible for all email communications and will review all emails on an ongoing basis, as necessary.

In addition, all emails which remain unopened for 24 hours may be redirected to administration for action.

65    The plaintiff contended that this policy was a clear indication to Mr and Mrs Scarce that emails sent on the IWH server were not private and could be reviewed by their employer. This led the plaintiff to submit that, in recording personal information on the Computers, Mr and Mrs Scarce were consenting to the companies making use of that information for proper company purposes. That consent, so the plaintiff submitted, extended to any subsequently appointed company officers, whether they be directors, administrators or liquidators.

66    The Email and Internet Usage Policy was the subject of some oral evidence at the hearing. Mr Scarce, who was the Managing Director of each of the companies, said that he had no recollection of the document, could not recall approving the policy and had not signed the policy to authenticate its adoption as a policy of either of the companies. He said that the companies employed approximately 30 people in October 2008 and that employees were told that the company computers should not be used for private purposes. He acknowledged that, as Managing Director and owner of the companies, he had held the view that he was entitled, if he wished, to review all emails sent to, or received by, a company computer. However, he had not exercised that right.

67    Despite Mr Scarce’s evidence, I consider that the Email and Internet Usage Policy did form part of the policies in place in the companies. The Policy contains the names of the companies (in the case of Scarce Builders, its trading name); contains entries indicating that the policy was issued on 30 October 2008, became effective on that same date and was to be reviewed on 30 October 2010; and indicates, on its face, that it formed part of the policy manual of the companies. I consider that Mr Scarce must have forgotten that the policy formed part of the companies’ policies and procedures, perhaps because he had not been involved in any detail in its adoption.

68    However, that finding does not have the effect that the information, which I consider was otherwise confidential to Mr and Mrs Scarce and the Associated Companies, ceased to have the requisite degree of confidence. The approach of the Full Court of this Court in Smith Kline and French Laboratories (Australia) Ltd v Secretary to the Department of Community Services and Health (1991) 28 FCR 291 at 302-3 is pertinent:

To determine the existence of confidentiality and its scope, it may be relevant to consider whether the information was supplied gratuitously or for consideration; whether there is any past practice of such a kind as to give rise to an understanding; how sensitive the information is; whether the confider has any interest in the purpose for which the information is to be used; whether the confider expressly warned the confidee against a particular disclosure or use of the information – and, no doubt, many other matters.

69    In the present case, it is significant, in my opinion, that Mr and Mrs Scarce were not only employees of the companies. They were, either by direct or indirect shareholdings, the sole owners of the companies; and Mr Scarce was the sole director of each. He was also the Managing Director of each. In these circumstances, I consider that it would be artificial to treat Mr Scarce’s disclosure to “the companies” as akin to the disclosure of an ordinary employee. It is also inappropriate to draw any distinction between Mr and Mrs Scarce in this respect. They did “disclose” the information to the companies but in a context in which they controlled access to it. There was no suggestion that the information on the Computers was available to the companies’ employees generally.

70    I think it also reasonable to suppose that some of the information may have been “disclosed” to the company involuntarily. That is likely to have been the case in respect of confidential information sent to the respective email accounts. Information of that kind is often received involuntarily.

71    The plaintiff referred to the evidence that, following their appointment on 7 October 2012, the administrators accessed information on one computer by taking an electronic image of it, and that they had used some of the information so obtained when reporting to creditors on 2 November 2012. He contended that this copying meant that the information on the Computers lost the necessary quality of confidentiality.

72    Mr Scarce has deposed that none of the cross-claimants had been advised by the administrators that they proposed to commission Mr du Plessis to take an image of the Computers and that none of them had consented to an image being taken of their own records and information. He deposed to having a positive belief at relevant times that the administrators would have recourse only to the books and records of the companies for the purpose of conducting the administration of the companies and would not otherwise access records without obtaining permission.

73    That evidence was not contested. I consider it appropriate to accept it.

74    I also note that in January 2013 the defendants imposed a stipulation that the plaintiff could inspect only that data on the Computers relating to the companies and that the plaintiff accepted that condition. I am satisfied therefore that steps were being taken at relevant times to protect the confidentiality of the cross-claimants’ information.

75    I reject the plaintiff’s submission that the information sought to be protected by the cross-claimants lost its confidentiality by reason of its “disclosure” to the companies or by the access which the administrators had to the Computers.

An obligation of confidentiality is imported

76    The circumstance that the person who imparted the information intended to do so for a limited purpose will not necessarily be sufficient by itself to bind the conscience of the party to whom the information was imparted. A defendant’s knowledge that the information was confided to him or her for a limited purpose is, of course, a relevant circumstance but is not essential for equity’s intervention. The obligation of confidence will be imposed if the circumstances indicate that the defendant knew, or ought to have known, that information was being imparted for a limited purpose: Smith Kline and French Laboratories (1990) 22 FCR 73 at 95-6.

77    In the present case, it is appropriate to conclude that the companies had either actual or imputed knowledge of the limited purpose or purposes for which the information was being “disclosed” to them. The knowledge of Mr and Mrs Scarce, in particular, that of Mr Scarce, should be attributed to the companies in this respect. In particular, their knowledge that the information was being recorded on the company computers for the purpose of convenient storage and that the emails were being used for personal matters can be attributed to the companies.

78    I regard this element of the requirements for equitable protection of confidences as being established.

Actual or threatened misuse

79    Equity is moved to intervene by reason of the circumstances in which the defendant obtained the information, rather than by any intrinsic value or importance in the information itself, or by any apprehended damage to the plaintiff by misuse thereof: “Meagher, Gummow and Lehane’s Equity: Doctrines and Remedies” (4th ed., Butterworths, 2002) at [41-045].

80    The plaintiff’s correspondence indicates that he wishes access to the books and records of the company as well as “such other information as is relevant to the affairs of the companies for the purpose of the Corporations Act 2001”. Hence, the plaintiff seeks access to all information which may be relevant to the examinable affairs of the companies, even if that information is confidential to others.

81    I accept the cross-claimants’ submission that such a use of the information would be inconsistent with the purposes for which it has been recorded on the Computers. The circumstance that the cross-claimants made use of the Computers for their own personal and business purposes should not now have the consequence that that information, being confidential to them, can be used by the plaintiff in his capacity as liquidator for any purpose under the Corporations Act.

82    It is not necessary that the cross-claimants demonstrate that they would suffer some detriment if the plaintiff does have access to the confidential material: “Meagher, Gummow and Lehane’s Equity” at [41-050].

83    Accordingly, I am satisfied that this element is established.

Conclusion

84    For these reasons, I consider that the cross-claimants have made good their claim for protection of their confidential information and that orders disposing of the present dispute should be made on the cross-claim. I reject the two principal contentions of the plaintiff summarised in [16] of these reasons.

85    This conclusion makes it unnecessary to consider the plaintiff’s application for a court-ordered winding up of the companies, although I express some doubt, having regard to s 506 of the Corporations Act, that s 434B(4) required such an order in the circumstances of this case.

86    I set out earlier in these reasons the content of the orders sought by the cross-claimants. Although I will uphold the cross-claimants’ claim, it is inappropriate to make orders in those general terms. The plaintiff did on 19 December 2013 provide more specific descriptions of the Computers but those descriptions cannot be used presently to frame specific orders.

87    Accordingly, I direct that the cross-claimants prepare minutes of the orders they propose to give effect to the inspection and identification regime outlined by Mr du Plessis in paragraph 3.10.1 of his report relating to [1.2] and [1.3] of their claimed relief. The parties are to confer with a view to agreeing those orders.

88    I will defer the making of final orders, including orders on the plaintiff’s application, until those minutes have been provided.

Associate:

Dated:    30 April 2014