Federal Court of Australia

Cygnett Pty Ltd v Souris [2020] FCA 1754

ORDERS

THE COURT ORDERS THAT:

1.    The applicant’s application to inspect the second respondent’s discovered documents numbered TEM.001.003.0644, TEM.001.003.0704 and TEM.001.004.1844 is dismissed.

2.    Costs be reserved.

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

REASONS FOR JUDGMENT

O’CALLAGHAN J:

Introduction

1    This is a ruling in relation to a dispute about common interest privilege.

2    The applicant (Cygnett) is an Australian company that produces accessories for digital devices, such as power banks, chargers and cables for mobile phones and tablets.

3    The second respondent (Tempo) is a global supplier of consumer products, including consumer electronics products, such as televisions and home appliances. It supplies a range of digital accessory products sold under “private label” brands.

4    The first respondent (Mr Souris) is Cygnett’s former President of Sales – Global. He resigned in November 2019 to join Tempo.

5    Cygnett filed and served a statement of claim dated 10 December 2019 naming Mr Souris as the only respondent. By an amended statement of claim filed on 26 March 2020, Cygnett joined Tempo as a respondent. It alleges (and by their defences Mr Souris and Tempo substantially deny) in summary that:

(a)    From about July 2019 and until his departure from Cygnett, Mr Souris copied a large volume of Cygnett’s confidential information, including cost price lists, financials and business plans.

(b)    In about August 2019, Mr Souris approached Tempo and proposed that he would help Tempo develop a digital accessories business that would become a substantial competitor to Cygnett.

(c)    Mr Souris used Cygnett’s confidential information to prepare his “pitch” to Tempo and to develop business plans for the proposed Tempo accessories division.

(d)    Mr Souris also directly provided Cygnett’s confidential information to Tempo.

(e)    Between about September and November 2019, Mr Souris: (i) encouraged Cygnett employees to leave their employment and accept employment with Tempo; (ii) solicited Cygnett’s customers and distributors on behalf of Tempo; (iii) diverted Cygnett’s business opportunities to Tempo; and (iv) assisted Tempo to establish the Tempo accessories division.

(f)    Mr Souris engaged in this conduct without Cygnett’s knowledge or permission, for the purpose of assisting Tempo to establish its accessories division and to gain an advantage for himself and Tempo.

6    Cygnett alleges (and Mr Souris denies) that Mr Souris breached, among other things: (i) ss 181, 182 and 183 of the Corporations Act 2001 (Cth) (Corporations Act); (ii) his fiduciary duties owed to Cygnett; (iii) various of his duties of confidence owed to Cygnett; and (iv) his contractual duty to render faithful and loyal service to Cygnett.

7    Cygnett also alleges (and Tempo denies) that Tempo:

(a)    knew that Mr Souris was until 6 December 2019 an officer of Cygnett and employed by Cygnett as its President of Sales;

(b)    from about early September 2019: (i) knew that some or all of the information that Mr Souris disclosed to Tempo was confidential to Cygnett; (ii) used that information in establishing the Tempo accessories division; (iii) knew that Mr Souris was providing the information to Tempo for the purpose of gaining an advantage for himself and for Tempo; and (iv) encouraged, induced or permitted Mr Souris to provide Cygnett’s confidential information to Tempo;

(c)    from about early September 2019: (i) knew that Mr Souris was assisting Tempo for the purpose of gaining an advantage for himself and for Tempo; and (ii) encouraged, induced or permitted Mr Souris to continue assisting Tempo;

(d)    engaged in that conduct without Cygnett’s permission for the purpose of establishing the Tempo accessories division and in order to gain an advantage for Tempo;

(e)    knew that Mr Souris was improperly using information that he had obtained because he was an employee and officer of Cygnett to gain an advantage for himself and for Tempo and intentionally assisted him to do so;

(f)    aided, abetted, counselled, procured, induced or was otherwise knowingly concerned in, and a party to, Mr Souris’s contravention of s 183(1) of the Corporations Act, and was involved in that contravention within the meaning of s 79 of the Corporations Act;

(g)    knew that Mr Souris was exercising his powers and discharging his duties as an officer of Cygnett not in good faith in the best interests of Cygnett and not for a proper purpose, and intentionally assisted Mr Souris to do so;

(h)    aided, abetted, counselled, procured, induced or was otherwise knowingly concerned in, and a party to, Mr Souris’s contravention of s 181(1) of the Corporations Act, and was involved in that contravention within the meaning of s 79 of the Corporations Act;

(i)    had actual knowledge: (i) that Mr Souris owed Cygnett certain fiduciary duties; (ii) that Mr Souris was breaching those fiduciary duties; and (iii) that Mr Souris’s breaches of his fiduciary duties amounted to a dishonest and fraudulent design;

(j)    induced or procured Mr Souris’s breaches of his fiduciary duties and knowingly assisted his dishonest and fraudulent design;

(k)    breached its (Tempo’s) obligation of confidentiality to Cygnett by using Cygnett’s confidential information in establishing the Tempo accessories division without Cygnett’s consent; and

(l)    committed the tort of inducing a breach of contract, namely Mr Souris’s contract of employment.

8    Cygnett seeks, among other things, an account of profits, equitable compensation, common law damages (including exemplary damages against Tempo) and a compensation order under s 1317H(1) of the Corporations Act.

The privilege dispute

9    By an oral application, Cygnett seeks an order that it be permitted to inspect copies of three emails sent on behalf of Tempo to Mr Souris a matter of days after the first pleading was served. The emails disclose Tempo’s legal advice. They are included in Tempo’s list of discovered documents. Tempo says they are privileged. One is dated 13 December 2019. The other two are duplicate copies of an email dated 18 December 2019. They have discovered document numbers TEM.001.003.0644, TEM.001.003.0704 and TEM.001.004.1844. (I should add that no party suggested that anything flows from the fact that the amended pleading adding Tempo as a party was served after the date of the emails.)

10    Cygnett says that any privilege in respect of the contents of the emails has been waived by their communication to Mr Souris.

11    Mr Souris was represented at the hearing. I assume that he, as the recipient of the emails in question, has also discovered his copies of the documents, and he likewise submits that he is not obliged to produce them for inspection.

Common interest privilege

12    Privilege claims over documents required to be produced for inspection on pre-trial discovery are governed by common law principles, not the Evidence Act 1995 (Cth). See Esso Australia Resources Ltd v Federal Commissioner of Taxation (1999) 201 CLR 49.

13    As Mr Colin Passmore said in the fourth edition of his work Privilege (Sweet & Maxwell, 2020) at 613 [6-076]:

Common interest privilege is a recently developed—or arguably revived—concept that is principally concerned with the sharing of a privileged communication between parties who share a common interest, as opposed to a joint interest. Where the communication so shared is concerned either with the subject matter of the common interest or litigation concerned with the common interest, then the party sharing the communication [here, Tempo] does not thereby lose [its] right to assert privilege over it (save as against the party with whom it is shared); furthermore, the party with whom the communication is shared [here, Mr Souris] can assert the same privilege over it as against a third party. This ability to assert privilege on the part of the receiving party is referred to in the case law as ‘common interest privilege’ …

(Citations omitted.)

14    The term “common interest privilege” is “somewhat unfortunate”, because “it suggests a separate category of privilege, distinct from legal professional privilege”. It is really an exception to circumstances where such privilege would otherwise be waived. See Inlon Pty Ltd v Celli SpA [2017] NSWSC 569 at [103] (Parker J).

15    As Barrett JA (with whom McColl and Ward JJA agreed) explained in Marshall v Prescott [2013] NSWCA 152 at [57], [65]:

If a document in which legal professional privilege subsists is given to someone else so that the content ceases to be confidential, the privilege is usually lost. This is because the act of giving is, in the particular circumstances, inconsistent with any continuing intention to maintain confidentiality. An exception operates, however, where the person entitled to the privilege and the person to whom the content of the document is made known have such a commonality of interest in relation to the subject matter of the privilege that sharing of the content is consistent, rather than inconsistent, with an ongoing intention to preserve confidentiality and privilege. Questions of common interest privilege usually arise (as here) when litigation is on foot or foreshadowed.

…

Where there is, in relation to actual or pending litigation (or its course or outcome), a commonality of interest between, on the one hand, a party to the litigation who is also the holder of the privilege and, on the other, the person to whom disclosure of the privileged content is made by that party for a purpose relevant to that litigation, the commonality of interest supplies a rational basis for inferring an intention that the party’s confidentiality should continue and the party’s privilege should be maintained, even though the subject matter of the disclosure has passed into the hands of the other person.

(Citations omitted.)

16    “Common interest” in this context is not a “rigidly defined concept”. See Farrow Mortgage Services Pty Ltd (in liq) v Webb (1996) 39 NSWLR 601 at 609B (Sheller JA, Waddell A-JA agreeing). And, obviously therefore, the categories of relationship in which a sufficient commonality of interest will arise, or is likely to arise, are not closed. They include insurer and insured, a parent company and a wholly owned subsidiary, a company and a director, a liquidator and creditors (among other categories), and, relevantly for present purposes, co-respondents (or co-applicants). See, by way of example, Bankim Thanki QC (ed), The Law of Privilege (Oxford University Press, 3rd ed, 2018) at 301-302 [6.36].

17    In Buttes Gas and Oil Co v Hammer (No 3) [1981] QB 223 at 267-268, Brightman LJ explained how common interest privilege may arise in the context of contemplated or pending litigation:

… if two parties with a common interest and a common solicitor exchange information for the dominant purpose of informing each other of the facts, or the issues, or advice received, or of obtaining legal advice in respect of contemplated or pending litigation, the documents or copies containing that information are privileged from production in the hands of each. I think that this proposition follows from Jenkyns v Bushby (1886) LR 2 Eq 547 and other cases in the same line and is a legitimate extension of the principle that protects confidential communications between co-plaintiffs or co-defendants for the purposes of an action.

18    That passage was approved by the Court of Appeal in Guinness Peat Properties Ltd v Fitzroy Robinson Partnership [1987] 1 WLR 1027 at 1038-1039 (Slade LJ, Woolf LJ and Sir George Waller agreeing), and by Sheller JA in Farrow Mortgage Services Pty Ltd (in liq) v Webb (1996) 39 NSWLR 601 at 609-611 (Waddell A-JA agreeing).

19    It is now well established in Australia that a “mere” common interest in the outcome of litigation will be sufficient to enable any party with that interest to rely on common interest privilege. See, by way of example, Farrow Mortgage Services Pty Ltd (in liq) v Webb (1996) 39 NSWLR 601 at 609B (Sheller JA, Waddell A-JA agreeing); Media Ocean Ltd v Optus Mobile Pty Ltd (No 10) [2010] FCA 1348 at [53] (Katzmann J); Hamilton v New South Wales [2016] NSWSC 1213 at [75] (Beech-Jones J).

20    It is also clear that, although some of the English authorities (including Buttes Gas) suggested that the sharing of a common solicitor was a necessary (although not sufficient) condition to making good what is now called common interest privilege, it is now accepted, at least in Australia, that it is not. See, by way of example, Bulk Materials (Coal Handling) Services Pty Ltd v Coal and Allied Operations Pty Ltd (1988) 13 NSWLR 689 at 695 (Giles J); Rank Film Distributors Ltd v ENT Ltd (1994) 4 Tas R 281 at 294 (Crawford J); Network Ten Ltd v Capital Television Holdings Ltd (1995) 36 NSWLR 275 at 279-280 (Giles J); Rickard Constructions Pty Ltd v Rickard Hails Moretti Pty Ltd [2006] NSWSC 234 at [51] (Bergin J, as her Honour then was); Media Ocean Ltd v Optus Mobile Pty Ltd (No 10) [2010] FCA 1348 at [51] (Katzmann J); Woodings v WA Glendinning & Associates Pty Ltd [2019] WASC 54 at [171(a)] (Smith J). See too Edward Bray, The Principles and Practice of Discovery (Reeves and Turner, 1885) at 424 (“[n]or should it make any difference … whether the same solicitor is acting for both defendants, or whether each has a separate solicitor, so long as the communications have been made in furtherance of the same interest and not in respect of adverse interests”).

21    What circumstances may give rise to a want of common interest between co-respondents?

22    In Ampolex Ltd v Perpetual Trustee Co (Canberra) Ltd (1995) 37 NSWLR 405 at 410A (in a passage approved by Tamberlin J in Patrick v Capital Finance Corporation (Australasia) Pty Ltd [2004] FCA 1249; 211 ALR 272 at 277 [22] and by Katzmann J in Media Ocean Ltd v Optus Mobile Pty Ltd (No 10) [2010] FCA 1348 at [52]) Giles CJ Comm D said that parties to litigation “interested in a particular question” will not “have a common interest for the purposes of common interest privilege if their individual interests in the question are selfish and potentially adverse to each other. In such a case there will not be the necessary identity of interest”.

23    In Inlon Pty Ltd v Celli SpA [2017] NSWSC 569 at [107], Parker J posed the question: “What did [Giles CJ Comm D] mean by referring to the parties’ interests being ‘potentially’ adverse to each other”? His Honour answered that question, relevantly, in these terms:

… his Honour was not referring to the mere possibility that at a later point the parties’ commercial interests might come into conflict; rather, I think the reference to ‘potential’ adversity of interest was a reference to an adversity of interest which potentially existed at the time, depending upon the advice that might be given. This is consistent with the approach by Katzmann J in Media Ocean Ltd v Optus Mobile Pty Ltd (No 10) [2010] FCA 1348; see in particular at [69]-[70] and [102]-[103]. I also think it is important to bear in mind … that the ultimate question is whether, at the time the communication is made, there is an express or implied obligation of confidentiality. If the parties’ interests are adverse in the relevant sense, then it will not be possible to imply an obligation of confidentiality; but in my view the Court should not refuse to imply such an obligation if the circumstances otherwise justify it, merely on account of the potential for some sort of change in the parties’ relationship at a later point.

24    With respect, I agree with his Honour, and in particular I agree that the authorities make it clear that “the ultimate question is whether, at the time the communication is made, there is an express or implied obligation of confidentiality” and that a court “should not refuse to imply such an obligation if the circumstances otherwise justify it, merely on account of the potential for some sort of change in the parties’ relationship at a later point”.

The parties’ contentions

25    In this case, Cygnett accepts that Tempo and Mr Souris have a primary common interest in defeating Cygnett’s claims against both of them. It was submitted, however, that because Tempo’s liability is essentially secondary or accessorial “they also have secondary interests that are selfish and potentially adverse, and these secondary interests … existed from the beginning and they existed at the time … the privileged material was disclosed”. Mr Ternovski, who with Mr Wood AM QC and Ms Murphy appeared for Cygnett, made submissions on the point at the hearing of the application, and asked that I “consider what will happen if Cygnett’s claim succeeds. Tempo may want to dismiss or discipline Mr Souris, or try to recover its loss from him, and to resist this, Mr Souris would presumably want to point the finger back on Tempo and say, in effect, ‘you, Tempo, were involved in this. You knew what was going on. You authorised me to do this’”.

26    Cygnett also submitted that “[a]nother area of conflict is the value and importance of the assistance that Mr Souris provided to Tempo, particularly while he was still employed by Cygnett”. Counsel took me to a few paragraphs in some witness statements filed in the proceeding which he said demonstrated the following adverse interests:

… in order to defeat Cygnett’s claims of effectively accessorial secondary liability for Mr Souris’s wrongdoing, it’s in Tempo’s interests to – to distance themselves, if you like, from the information being provided. ‘Well, I didn’t know why he sent me that email. I didn’t look at it. I didn’t ask him to send it’, that sort of thing. At the same time, if Tempo is found liable … there will be a question of an account of profits, and it’s in Tempo’s interests to play down the value of the assistance provided by Mr Souris, we say, in breach of his fiduciary duties in which Tempo is complicit, because that assists them to minimise the award of [an] account of profits. But … neither of these things is in Mr Souris’s commercial interest.

27    Tempo, on the other hand, submits that it is clear that its relationship with Mr Souris in respect of the subject matter of this litigation is sufficiently close that the transmission of documents between them should not be taken to be an implied waiver of any privilege in respect of the contents of those documents.

28    Tempo submits that, because Cygnett alleges that Tempo participated in Mr Souris’s breaches of duty, and that it misused confidential information said to have been disclosed by Mr Souris to Tempo, Tempo and Mr Souris share a common interest in the outcome of the litigation.

29    Further, Tempo submits that the court should not refuse to recognise that common interest merely because there is potential for some sort of change in the parties’ relationship at a later point.

30    In his oral submissions, Mr Maiden QC, who appeared with Mr McRobert for Tempo, developed his case in these terms:

The majority of the claim, as [Mr Ternovski] quite properly accepted, against Tempo is derivative of the claims against Mr Souris. If the claims against Mr Souris fail, then the great bulk of the claims against Tempo, at least, will also fail …

… the documents in question all concern a period where … an employee had defected from one business to another or was in the process of defecting. The decision to move had been communicated to the former employer, and the former employer had accused the employee of having taken a large volume of commercial information and given it to the prospective employer … which, of course, became the employer, an employer who, it is alleged, is a competitor of the original employer.

The two parties stand shoulder to shoulder in answering those allegations. They envisaged from the time of the first of these documents a working relationship going forward, and were under a joint attack from the former employer of the employee. They were under attack by the same antagonist for actions allegedly taken together … that is, the taking of information by Mr Souris from Cygnett, the giving of it to Tempo and the utilisation of it by Mr Souris in conjunction with Tempo. In those circumstances of common adversity, they chose to enter into the employment relationship, and then, as now, continued to work together. At the time each of the communications was made, there was a clear common interest.

Consideration

31    I am unable to accept the submissions made on behalf of Cygnett, principally for reasons advanced on behalf of Tempo.

32    This is an orthodox case in which the person entitled to the privilege (Tempo) and the person to whom the content of the document containing legal advice is made known (Mr Souris) have such a commonality of interest in relation to the legal advice the subject of the privilege that the sharing of it is consistent with an ongoing intention to preserve confidentiality and privilege. As Mr Maiden submitted, the majority of the claims against Tempo are derivative of the claims against Mr Souris; if the claims against Mr Souris fail, then most of the claims against Tempo will also fail; and as a result Tempo and Mr Souris stood – and they stand – “shoulder to shoulder in answering [the] allegations [in Cygnett’s pleading]”. So much is obvious from the summary of Cygnett’s pleaded case at [5]-[7] of these reasons. And as the cases show, that interest is sufficient to enable any party with that interest to rely on common interest privilege.

33    It seems to me that the additional spectre of “adverseness” between Tempo and Mr Souris founded upon a few excerpts from witness statements, although artfully put by Mr Ternovski, does not confront what Parker J called the relevant “ultimate question”, namely, whether at the time the communication is made there is an implied obligation of confidentiality.

34    Although Tempo had not yet been made a party to the proceeding at the time the emails were sent, it was evident on the face of the then existing pleading that Cygnett’s case contemplated that Tempo was complicit in what Mr Souris is alleged to have done.

35    As Parker J explained, the court should not refuse to imply an obligation of confidentiality in such circumstances “merely on account of the potential for some sort of change in the parties’ relationship at a later point” (if the circumstances otherwise justify it, which they do here).

36    For those reasons, the application will be dismissed.

37    A number of other matters were the subject of debate at the hearing on 24 November 2020, including the question of who should pay the costs of various other interlocutory skirmishes. For that reason, I will order that the costs of this application be reserved, and dealt with together with the other costs questions at a later stage, if the parties are unable to resolve them.

Associate:    

Dated:    7 December 2020