FEDERAL COURT OF AUSTRALIA

Rauland Australia Pty Ltd v Law [2020] FCA 516

ORDERS

THE COURT ORDERS THAT:

1.    The application by the second respondent for leave to issue a subpoena and serve it on Rauland NZ Ltd in New Zealand is dismissed.

2.    The second respondent is to pay its own costs of the application.

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

REASONS FOR JUDGMENT

STEWART J:

The nature of the application

1    The second respondent in the principal proceeding, Hills Ltd, applies under r 24.01 of the Federal Court Rules 2011 (Cth) (FCR) for leave to issue a subpoena, and under r 34.66 for leave to serve it in New Zealand.

2    The subpoena is proposed to be directed to Rauland NZ Ltd and served at an address in Auckland. Rauland NZ is not a party to the principal proceeding.

3    The interlocutory application for leave to serve the subpoena in New Zealand indicates that it is not intended by Hills to serve the application on any other party to the principal proceeding. That is one of the options that the prescribed form, Form 97, provides. An application for leave to issue a subpoena can be made without notice to any other party. That is made express in r 24.01(2).

4    As envisaged by the other two options given in Form 97, there may be circumstances in which an application for leave to serve a subpoena in New Zealand should be made only with notice to other parties to the proceeding. In view of the conclusion I have reached, which is that the application for leave should be refused, it is not necessary for me to consider whether notice should have been given in this instance.

The principal proceeding

5    The applicant, Rauland Australia Pty Ltd, is a company which provides integrated communication solutions to various healthcare organisations. The first respondent, Mr Law, joined Rauland in 2005 and worked in increasingly senior roles until 2015 when he commenced in the position of Product Manager – Nurse Call. In 2018, Mr Law informed Rauland that he was resigning. Shortly after his resignation, Mr Law informed Rauland that that he had accepted employment with Hills as its Research & Development Manager.

6    Hills is an Australian public company with a division called Health Solutions which provides hospital and aged care technology products and service solutions. Hills is considered to be Rauland’s key competitor.

7    Both Rauland and Hills through their subsidiaries also provide healthcare systems to hospitals and healthcare organisations in New Zealand. Rauland NZ, to whom the subpoena is directed, is Rauland’s subsidiary.

8    The principal proceeding was commenced on 15 October 2019 as an urgent application before the start of a proceeding for search orders. The search orders were directed to Mr Law and sought to discover certain confidential business documents which Rauland believed were in his possession and had been provided to Hills.

9    On the same date (and later on 19 October 2018), Burley J made search orders on the basis of undertakings provided by both Rauland and its lawyers.

10    The undertakings provided, inter alia, that Rauland and its lawyers “will not, without leave of the Court, use any information, document or thing obtained as a result of the execution of this order for the purpose of any civil or criminal proceeding, either within or outside Australia, other than this proceeding.”

11    In accordance with their terms, the search orders were executed on 26 October 2018 at the residence of Mr Law. The search party included solicitors acting for Rauland under the supervision of an independent lawyer and an independent computer expert.

12    Following the execution of the search orders, Rauland filed an originating application and statement of claim. In the principal proceeding, Rauland seeks a range of remedies against the respondents including declarations, injunctions, delivery up and pecuniary relief. The bases for the relief that is sought are breach of the Mr Law’s employment contract, breach of Rauland’s copyright, breach of equitable confidentiality obligations and contravention of s 183 of the Corporations Act 2001 (Cth).

The documents the subject of the subpoenas and the New Zealand proceeding

13    The documents sought to be produced under the subpoena are documents that were used in and relate to a proceeding between Rauland NZ and a former employee, Mr Delvo, in the Employment Court of New Zealand. A judgment was given in that proceeding which is reported as Rauland NZ Limited v Delvo [2018] NZEmpC 153 (New Zealand Reasons).

14    The New Zealand proceeding was commenced on or about 14 December 2018. Rauland NZ applied for search orders against Mr Delvo who had commenced work with Hills NZ Ltd, the New Zealand subsidiary of Hills. Those orders were granted on 14 December 2018, with the New Zealand Reasons following on 18 December 2018.

15    At para [12] of the New Zealand Reasons the New Zealand Court references the search orders made by this Court in this proceeding and in another matter also brought against another former Rauland employee, Ms Johnson, who had also moved to Hills in similar circumstances. The basis of the New Zealand Court’s knowledge of these and other matters is said at para [5] to be three affidavits which were relied on in the New Zealand proceeding.

16    Hills’s attention was also bought to the existence of two documents filed by Rauland NZ in the New Zealand proceeding and one instructions document from a letter dated 20 December 2019 which was provided by the solicitors representing Ms Johnson to the solicitors representing Hills.

17    On 14 February 2020, the solicitors for Hills wrote to the solicitors for Rauland requesting some of the documents referred to above and stating that if the documents were not provided they would apply for leave to issue a subpoena. In following correspondence, the solicitors for Rauland replied that as they are not the solicitors acting for Rauland NZ in the New Zealand proceeding, it would not be appropriate for them to provide any material filed in the New Zealand proceeding.

18    The documents (all dated after 26 October 2018, i.e. after the date of the execution of the search orders in this case) sought to be produced by the subpoena (which I will refer to as the subpoena documents) are:

(1)    the affidavit of Mr Steve Gomes, Managing Director of Rauland NZ, dated 13 December 2018;

(2)    the affidavit of Mr David William Geoffrey Thompson, General Manager of Rauland NZ, dated 13 December 2018;

(3)    the affidavit of Mr Michael Khoury, dated 13 December 2018 (Khoury Report);

(4)    the instructions from Athena Koelmeyer of Workplace Law Pty Ltd provided to Mr Khoury on or about 31 October 2018;

(5)    the Memorandum of Counsel in Support of Without Notice Application for Search Orders; and

(6)    the Statement of Problem filed on 19 December 2018.

The legislative scheme

19    Hills requires the granting of leave to issue the subpoena and leave to serve the subpoena in New Zealand. Clearly, if leave is not granted to serve it, then there would be no point in granting leave to issue it. The opposite is also true – there is no point in granting leave to issue the subpoena if leave is not granted to serve it.

20    A subpoena may only be issued with leave of the Court: r 24.01 FCR.

21    Although there are no requirements outlined in the FCR of what the Court must take into account when considering whether to grant leave to issue a subpoena, the applicable principles are now well established. The party issuing a subpoena bears the onus of demonstrating that the subpoena has a legitimate forensic purpose in relation to the issues in the proceeding and the documents sought must have apparent relevance to the issues arising on the pleadings: Wong v Sklavos [2014] FCAFC 120; 319 ALR 378 at [12] per Jacobson, White and Gleeson JJ.

22    Under s 31 of the Trans-Tasman Proceedings Act 2010 (Cth) (TTP Act) a subpoena in an Australian proceeding must not be served in New Zealand without leave of the Court.

23    Without limiting what can be taken into account in considering whether to give leave to serve a subpoena in New Zealand, under s 31(3) of the TTP Act the Court must consider:

(1)    the significance of the evidence to be given, or the document or thing to be produced, by the person named; and

(2)    whether the evidence, document or thing could be obtained by other means without significantly greater expense, and with less inconvenience to the person named.

24    An application for leave to serve a subpoena in New Zealand must be brought pursuant to rr 34.66 and 34.67 of the FCR. The formal requirements of those rules have been satisfied.

25    In relation to the test under the TTP Act, as has been observed, s 31(3)(a) does not provide any particular test except that the significance of the evidence to be given or the document or thing to be produced must be considered: Comeskey v New South Wales Bar Association [2015] NSWSC 12 at [15]; and Labruyere v Parsons Brinckerhoff Australia Pty Ltd (No 3) [2019] NSWSC 79 at [9].

26    The Court must also be satisfied under s 31(3)(b) of the TTP Act that the documents could not be obtained by other means without significantly greater expense, and with less inconvenience to the subpoena recipient. This requires consideration of whether the subpoena recipient needs to be compelled to provide the documents: Labruyere at [11].

27    The result is that the test for leave to serve a subpoena in New Zealand is more exacting than the test for leave to issue a subpoena. To start, there must be apparent relevance of the documents sought to be caught by the subpoena to the issues in the proceeding. In addition, the documents must be sufficiently significant to justify the expense and inconvenience likely to be caused by service of the subpoena. Greater expense and inconvenience would require greater significance of the documents in order to justify leave being granted. Moreover, if there is a less expensive and less inconvenient way of obtaining the documents, then leave might be refused on that basis.

Grounds for the issuing and service of the subpoena

28    Hills has advanced two bases for apparent potential relevance. They contend that the subpoena documents may evidence:

(1)    that information which Rauland has stated on the pleadings to be confidential and restricted to its employees only was available to employees of Rauland NZ; and/or

(2)    that there has been a breach of the undertakings provided in support of the search orders in this proceeding.

29    I have concluded that neither of these bases justifies leave to issue the subpoena and serve it in New Zealand. My reasons are outlined below.

Ground 1: Confidential Information

30    Rauland’s amended statement of claim (ASOC) alleges that whilst employed by Rauland Mr Law uploaded certain documents, referred to as the Employment Information, onto to his personal Microsoft OneDrive account and then used them while he worked for Hills. Rauland alleges, in paragraph 15(c) of the ASOC, that the Employment Information contained documents that contained information that was highly confidential to Rauland and which constituted trade secrets.

31    Hills submits that a central issue in the proceeding is the allegation made in particular (iv) to paragraph 15 of the ASOC that Rauland restricted access to the Employment Information, including the information referred to in paragraph 15(c) of the ASOC, to certain persons in its employ (i.e. only certain Rauland employees, not employees of any of its subsidiaries such as Rauland NZ).

32    Hills submits that the New Zealand Reasons show that the claims made in the New Zealand Court extend to documents containing information that is said to be confidential to Rauland, but which had been provided to Mr Delvo as an employee of Rauland NZ.

33    The basis for the above statement is said to come from the New Zealand Reasons:

[2] … Rauland NZ has filed a proposed form of statement of problem which it will file in the Employment Relations Authority (the Authority) after execution of the orders that have been made. Its causes of action in those proceedings in the Authority are based on an allegation that the applicant considers that the respondent has breached his ongoing obligations as set out in his employment agreement … in that he has:

…

(b) retained for his own benefit, copyrighted works belonging to the applicant and/or its parent company, Rauland Australia Pty Ltd (Rauland Australia);

(c) held or maintained works, documents and information that is the property of the applicant and/or Rauland Australia;

(d) by retaining, copying and, using and/or sharing copyright works of the applicant and/or Rauland Australia, the respondent has breached his duty to do all such acts to secure the applicant’s rights in respect to its copyrighted works; …

34    In addition, Hills submits that all documents in issue in the New Zealand proceeding, including those the property of Rauland, were made accessible to all staff members of Rauland NZ.

35    This is based on the following from the New Zealand Reasons:

[9] Mr Delvo had access to Rauland NZ’s business information which was confidential and commercially sensitive. The information is contained on a shared server which is accessible by all staff members through their unique user profile. Mr Delvo could access this shared server through the laptop, iPad and mobile phone issued to him by Rauland NZ.

36    Hills submits that the subpoena documents is each likely to contain information about the scope of information, including that said to be confidential to Rauland, which was provided to Mr Delvo and others as employees of Rauland NZ.

37    The only subpoena document which Hills refers to specifically in this regard is the Khoury Report. Mr Khoury is engaged as a forensic computer expert by Rauland in this proceeding and by Rauland NZ in the New Zealand proceeding. Hills expects on the basis of the report which was provided by Mr Khoury in this proceeding that the Khoury Report in the New Zealand proceeding will list files or folders of documents present on Mr Devlo’s work computer.

38    Apart from the Khoury Report, Hills has not pointed to any bases for the relevance of the subpoena documents to the issue of whether access to the Employment Information was restricted to Rauland employees only.

39    I am not satisfied that the Khoury Report or the other subpoena documents is likely to have any significance in the proceeding in this Court. There is nothing in the New Zealand Reasons to suggest that the documents or information that was available to Mr Delvo as an employee of Rauland NZ is the same documents or information that is referred to as being contained within the Employment Information in the proceeding in this Court and which particular (iv) of paragraph 15 of the ASOC applies.

40    In any event, it is a substantial exaggeration to submit, as Hills does, that “the central issue in the proceeding” is the allegation by Rauland, which Hills says in its submissions that it disputes, that the Employment Information was restricted to certain persons in Rauland’s employment.

41    First, that allegation is contained in a particular to a pleading, and does not form part of the pleading itself, which reflects on its significance. Second, in the amended defence Mr Law admits that some of the Employment Information is of a confidential nature and is of a type that is ordinarily treated as confidential, and Rauland says in relation to the allegation of confidentiality that it does not know and therefore cannot admit it. Thus the respondent who knows admits the confidentiality contention, at least in part, and the other respondent says that it does not know.

42    Even if the subpoena documents showed that particular (iv) to paragraph 15 was overstated and that the documents in question, or some of them, were also available to certain employees of Rauland NZ, or even all employees of Rauland NZ, that would have little bearing on whether the information is nevertheless confidential and could not have been used by Mr Law to the benefit of Hills without being in breach of confidence. The truly central issue in the proceeding is whether Mr Law used the information to the benefit of Hills, which both he and Hills deny. To the extent that the confidentiality of the information is in issue, whether it was restricted only to certain Rauland employees or also to employees of its subsidiary in New Zealand, is a side-show of no significance.

43    In my view, it follows that the subpoena documents have only a very tenuous relevance to the issue identified by Hills and there is no legitimate forensic purpose for their production in relation to that issue. I would accordingly not grant leave to issue the subpoena.

44    Further, given the low significance of the subpoena documents to the issue of confidentiality in this proceeding I would not grant leave to serve the subpoena in New Zealand under s 31(1) of the TTP Act.

Ground 2: Breach of the Undertakings

45    Hills contends that it is concerned that the New Zealand Reasons reveal that there may have been a breach of the undertakings.

46    Hills submits that the relevance to this proceeding of that concern is that if there has been a breach of the undertakings then Rauland would be in contempt and the respondents would be entitled to apply for a permanent stay of the proceeding.

47    There is a general principle that, until any contempt is purged, a party guilty of contempt should not be heard on any application for relief beyond an application to set aside or vary an order (or undertaking to the court) in respect of which they are in contempt or an appeal designed to set aside or vary that order or undertaking. The rule is not invariably applied, and is either subject to flexible exceptions or the discretion of the court: Stokes (by a tutor) v McCourt [2013] NSWSC 1014 at [18]-[52] per Lindsay J; Foster v Australian Competition and Consumer Commission [2014] FCA 240; 219 FCR 563 at [18] and [41] per Dowsett J; Chamberlain Group Pty Ltd v Kids for Life Academy Pty Ltd [2015] NSWCA 241 at [17] per Emmett, Leeming JJA and Sackville AJA.

48    Any application for a finding of contempt must be supported by affidavit evidence proving the charge as particularised in a statement of charge: r 42.12 FCR. Hills states that the subpoena is required to gather admissible evidence of the breach of the undertakings to be included in an affidavit in support of a contempt application.

49    Hills points to the New Zealand Reasons, especially to paras [5] and [12], to support the concern that there may have been a breach of the undertakings.

50    Paragraph [5] of the New Zealand Reasons states that the basis for the search order application was outlined in the three affidavits which are the subject of the subpoena (see [18] (a)-(c) above).

51    Paragraph [12] of the New Zealand Reasons refers to the search orders in this proceeding. It is useful to set out the paragraph in full:

[12]     Prior to Mr Delvo leaving the employment of Rauland NZ, two other employees of Rauland Australia had resigned and commenced working for Hills. As a result of the unexpected loss of a significant tender, which it was discovered had been awarded to Hills, Rauland Australia became concerned about the two former employees who may have misappropriated Rauland Australia’s confidential information. Forensic searching was carried out in respect of those two employees, and on 15 October 2018 and 1 November 2018 Rauland Australia obtained Anton Piller orders (search orders) against the two employees. As a result of this, Mr Gomes considered it prudent to have forensic examinations carried out on the contents of the laptop issued by Rauland NZ to Mr Delvo. This was to determine whether there was any evidence to confirm whether Mr Delvo had been in contact with specific former employees of Rauland NZ or Rauland Australia prior to commencing employment with Hills and whether he had retained Rauland NZ’s confidential information or maintained such information subsequent to his resignation. This forensic examination was carried out by Ferrier Hodgson and the results are contained in the affidavit of Mr Khoury.

52    Contrary to Hill’s contentions, the above paragraph does not reference any information, document or thing which could be expected to have been obtained as a result of the execution of the search orders in this proceeding. As Rauland’s solicitors state in their letter of 23 January 2020, these are matters of public knowledge. I have examined the New Zealand Reasons as a whole and there is nothing there which would indicate that the undertakings have been breached, or that would give rise to a reasonable concern that they may have been breached.

53    In addition to the New Zealand Reasons, Hills points to statements made in correspondence to demonstrate their concern for a breach of the undertakings. As discussed (above at [16]), Hills received a letter which has excerpts from the Memorandum and the Statement of Problem. A reply letter from the solicitors for Rauland dated 23 January 2020 seems to confirm that these are true excerpts of the Memorandum and the Statement of Problem.

54    On the basis of these excerpts, Hills states that it is concerned that Rauland NZ was provided with and relied on the results of the execution of the search orders in this proceeding.

55    The Memorandum, which contains written submissions filed in support of the New Zealand search orders, apparently includes the following (as quoted in the letter):

(1)    “The execution of the search orders [obtained by your client] resulted in information coming to light that had indicated those Australian employees had breached their obligations under their employment agreement with Rauland Australia…”; and

(2)    “Having regard to the results of the execution of the search orders in Australia, Mr Delvo’s commencement of employment at a competing business in breach of a restraint he had agreed to and the summary in the Ferrier Hodgson report, it is submitted that Rauland NZ has a strong prima facie case that Mr Delvo is in breach of multiple obligations under his employment agreement.”

56    The Statement of Problem document, which was filed after the New Zealand search orders were granted to initiate the New Zealand proceeding, apparently includes the following (as quoted in the letter):

“In October 2018, Rauland Australia obtained Anton Pillar orders against two former employees who had been engaged by Hills. On the basis of the information obtained, the Applicant decided to make further investigations regarding the Respondent’s activities.”

57    In a reply letter dated 23 January 2020, Rauland wrote to the solicitors for the respondent in the matter concerning Ms Johnson and denied that the information gathered in the search was used:

Secondly, we, and our client, strongly deny any allegation that there has been a breach of any implied undertaking or any of the undertakings provided to the Court on 7 November 2018. Neither our firm nor our client has used any information, documents or things obtained as a result of the execution of the search orders for the purpose of any other proceeding.

The excerpts of the Memorandum of Counsel in Support of Without Notice Application For Search Orders filed in the Employment Court on 14 December 2018 and the Statement of Problem filed on 19 December 2018 to which you refer in your correspondence, do nothing but disclose the fact that search orders were executed against two employees in Australia and that our client had thereafter formed a judgment that those employees had breached obligations under their respective employment agreements.

Such statements do not indicate any use of any information, documents or things obtained as a result of the execution of the search orders and cannot reasonably be relied upon as the basis for such an allegation. These were, in fact, matters of public knowledge and were disclosed in accordance with the obligation on parties making ex parte applications to provide full and frank disclosure to the court.

58    I agree with the conclusions in the letter extracted above. No evidence that has been outlined in the affidavit in support of the application would support a contention that the above statements are false. I do not accept the submission of Hills that the above statement is ‘evasive’.

59    The lack of evidence that the information gathered in the search orders was used in the New Zealand proceeding indicates that the subpoena documents do not have any apparent or potential relevance to the issues in the principal proceeding.

60    Suspicion alone that information obtained by the search orders has been used in the New Zealand proceeding is not sufficient to justify the intrusive process of a subpoena on a third party. Hills is apparently fishing for information in the hope that it catches something that will support a case for contempt so that it can then seek a stay of the proceeding. It is not in the interests of justice that leave be given on this basis for the subpoena to be issued and served.

61    There is a further consideration. Even if issue and service of the subpoena produced documents which showed that there had been a breach of the undertakings, it would not necessarily follow that there would be a finding of contempt or, even if there was such a finding, that that would bar Rauland from pursuing its case against Mr Law and Hills. The reason for that is that it would be open to Rauland to seek leave nunc pro tunc to use information obtained under the search orders in this proceeding in the New Zealand proceeding. It is not beyond contemplation that such leave might be granted given the serious breaches of confidence and misuse of confidential information that are alleged. Compare King (Trustee), in the matter of Zetta Jet Pte Ltd v Linkage Access Ltd [2019] FCA 1408 at [24]-[25] per Perram J.

62    The contempt basis for the issue and service of the subpoena is thus built on speculation (as to the breach) upon speculation (as to a finding of contempt) upon speculation (as to the proceeding being barred). That is far too tenuous a basis to justify leave being granted.

63    I find that there is insufficient basis to justify the issuing of the subpoena on the basis of a claim that the undertakings may have been breached. There is even less basis to justify leave to serve the subpoena.

Conclusion

64    The application must be refused and Hills must pay its own costs of the application.

Associate:

Dated:    21 April 2020