Sydney Tools Pty Ltd v Neicho & Ors

In proceedings commenced by a summons filed on 9 April 2019 and continued on pleadings (with a statement of claim filed on 30 June 2020 and a defence filed on 30 October 2020) the plaintiff Sydney Tools Pty Ltd claims relief that includes, inter alia, claims for damages, equitable compensation or an account of profits arising from use by the defendants of information confidential to the plaintiff.

There are presently 32 named defendants but, for present purposes, they can be grouped together. They have common representation in the proceedings.

Before the Court are two competing notices of motion which, together, crystallise case management questions. The two motions have been heard together. By its notice of motion filed on 15 February 2021, the plaintiff seeks orders for disclosure by the defendants of categories of documents ostensibly required for the preparation of expert evidence. By a notice of motion filed on 17 February 2021, the defendants seek an order for the separate determination of questions of “liability” and “relief”, to the intent that they not be required to make the extensive disclosures sought by the plaintiff before (at least) a determination of questions of liability.

The genesis of the principal proceedings lies in the departure of the first defendant from the employment of plaintiff in November 2018 and his commencement of employment, shortly thereafter, with the plaintiff’s principal competitor, a business known as “Total Tools” operated by several of the defendants (principally the eighth defendant) and franchisees.

When he left the plaintiff’s employ, the first defendant took with him his access credentials to an email account owned by the plaintiff, an account used by members of the plaintiff’s staff to communicate business confidential to the plaintiff.

In about January 2019, the first defendant provided his access credentials to the plaintiff’s email account to the second defendant, a senior manager of the Total Tools business and a director of various of the corporate defendants.

Commencing on or about 17 January 2019, for a period of several months, the second defendant secretly accessed emails stored in and received by the plaintiff’s email account, forwarding them to his own email address and then circulating them to directors and other senior managers within the Total Tools business. The content of the emails thus accessed related to a wide variety of products, product ranges and proposed business practices and plans confidential to the plaintiff.

Upon discovery of Total Tools’ access to its emails, the plaintiff commenced these proceedings by summons and, on 11 April 2019, secured, by consent, interlocutory orders restraining the use of its confidential information and providing for the production of documents and the provision of affidavits attesting to defendants’ compliance with the Court’s orders.

The parties subsequently became enmeshed in fruitless discussions about the nature and extent of disclosures to be provided by the defendants to the plaintiff.

On 30 June 2020 the plaintiff filed a lengthy Statement of Claim detailing its allegations about misuse of its confidential information by the defendants.

On 30 October 2020 the defendants filed a Defence, the effect of which is that:

The pleadings have closed.

The parties’ evidence has not yet been served.

Although the plaintiff’s notice of motion was predicated upon an expressed need to obtain expert evidence going to questions of the nature and quantity of relief to be granted upon establishment of liability in the defendants, the defendants’ application for a separate determination of questions as to liability caused the plaintiff to rethink its position. It now contends that the disclosures it seeks are necessary to enable it to address questions of liability as well as questions relating to relief. Questions of liability are said to require an analysis of the extent to which information in the plaintiff’s emails was used in the conduct of the defendant’s business.

For their part, the defendants contend that (having regard to Practice Note SC Eq 11) the plaintiff’s application for disclosure is premature and that the nature and extent of any disclosures to be made by them are likely to be best dealt with in the light of a determination by the Court as to whether the defendants have any liability to the plaintiff.

A problem for the plaintiff is that, although it has established that the defendants had access to their emails, it cannot readily, without disclosures on the part of the defendants, ascertain what use was made of its confidential information throughout the Total Tools business.

The plaintiff seeks, inter alia, information about the defendant’s sales for a period commencing before the defendants had access to the plaintiff’s emails and extending to a time after they had access to the emails so that an analysis (“a trend analysis”) can be undertaken charting movements in the performance of the defendants’ business over that time. Access to this type of information is the most contentious part of the plaintiff’s application.

The sales information sought by the plaintiff is available on databases maintained by the defendants in the ordinary course of business. One (the SQL server database) contains sales and other financial performance information at a relatively high level. The other (“the Pronto database”) contains more detailed information about sales data.

In my opinion the plaintiff has established a proper forensic purpose for the disclosures it seeks. It has articulated its purpose by reference to advice received from an expert accountant as to the utility of the information. The information sought is peculiarly within the knowledge of the defendants. It is of a type one might reasonably expect to be available for decision making purposes within the defendants’ management.

The defendants’ submissions in opposition to the plaintiff’s motion draw a distinction between processes of “discovery” and processes of “disclosure” to reinforce a contention that they should not be required to “create” documentation for the benefit of the plaintiff as their adversary.

These submissions reflect an old world view of discovery procedures, minimising the fact that information the subject of inquiry is held in databases (a present reality) accessed by administrative steps (conceptually, a process of “creation”). The practical reality is that if orders are not to be made for the defendants’ computer-ware to be impounded for interrogation by an outside expert, a degree of cooperation is required on the defendants’ side of the record.

The Court’s case management powers extend to imposition of a regime designed to operate, in an orderly and reasonable way without oppression, to extract information from databases within the control of a party. There may be a necessity for supplementary orders in the working out of orders for the disclosure of information on a database. However, in most cases (and, one trusts, in the present case) practical problems are best dealt with by cooperation between parties once an entitlement to information has been established.

Practice Note SC Eq 11 provides no impediment to disclosure orders being made in these proceedings because I am satisfied that: (a) the plaintiff’s case has been articulated in great detail in its statement of claim; (b) the defendants’ admission that the plaintiff’s emails were accessed without the plaintiff’s permission carries with it an acceptance that many primary facts (including identification of emails accessed, the content of the emails, the nature of the information they contained, and the recipients of the emails) are not in dispute; (c) questions about whether confidential information of the plaintiff was used by the defendants involve layers of inquiry beyond identification of the recipients of emails; (d) a legitimate line of enquiry is whether the defendants’ use of the plaintiff’s emails manifested itself in the defendants’ business performance; and (e) the information sought by the plaintiff is essentially within the knowledge of the defendants, and available in forms accessible by them without the imposition of an unreasonable burden.

Accordingly, I propose to make “disclosure orders” substantially in the form propounded by the plaintiff after several modifications responsive to commentary of the defendants.

Annexure “A” to the Court’s orders retains a numbering system that emerged in the parties’ negotiations for a workable regime of disclosures. It is retained because it is familiar to the parties and its familiarity may facilitate implementation of the Court’s orders.

Paragraphs 3 and 7 of the Annexure “A” include alternative means of compliance with the Court’s orders indicative of a preparedness on the part of the plaintiff to accept provision of information in a form more informal than the primary means of compliance. Subject to such (if any) supplementary orders as may be made in due course, the defendants have a discretion as to the means of their compliance with the Court’s orders.

Having given consideration to the defendants’ application for a separate determination of questions of liability, the view that I have formed is that an order for the determination of liability as a separate question should not be made in the absence of a better understanding of the evidence proposed to be adduced at a final hearing “on all questions”.

As presently advised, I am not satisfied that questions of liability and relief can conveniently be kept distinct. I cannot disregard the plaintiff’s contention that its witnesses (the same witnesses) are likely to give evidence directed to both liability and relief.

At this stage, neither side of the record is committed to calling, or not calling, particular witnesses. The likely course of the evidence at a final hearing “on all questions” is not yet clearly marked out.

In the course of debate on the parties’ two motions, I did give consideration to the possibility that the plaintiff’s concern about a need for disclosure of information, and the defendants’ concern about limiting the ambit of a final hearing pending a determination of liability, might each be accommodated by an order for a separate determination of questions of liability conditioned upon an undertaking by the defendants to make particular persons within its camp available for cross examination if required by the plaintiff.

The view that I have since formed is that such an expedient could not reasonably satisfy the plaintiff’s perceived need for disclosure orders and could not offer any assurance about facilitation of a well-managed final hearing.

Even if orders are not made for the separate determination of questions of liability, it remains open for a judge presiding over a final hearing of “all questions” to give directions for the conduct of a final hearing staged in a way that might permit questions about liability and relief to be addressed separately.

An assessment of the utility of an order for the separate determination of questions of liability requires a greater appreciation of the likely course of evidence than is presently realistically to be had.

The defendant’s application for a separate trial of questions of liability is, at least in part, directed towards a contention that the plaintiff’s forensic need for disclosures can be limited by confining current preparations for trial to a trial of questions of liability. Having determined that the plaintiff has a proper forensic purpose in obtaining disclosure orders of the nature and scope it seeks, I doubt the utility of an order for the separate determination of questions of liability.

Accordingly, I propose to dismiss the defendants’ motion.

In a practical sense, the directions hitherto given for case preparation and for the conduct of a mediation have been displaced by a need to determine the current motions.

I propose to list the proceedings for a directions hearing following completion of the process of disclosure to be ordered on the plaintiff’s motion, requiring the parties in the meantime to focus attention on an orderly completion of that process.

It may be that an opportunity for the conduct of a meaningful mediation will occur upon completion of the disclosure process.

The parties’ competing motions have provided an occasion for the Court to consider questions about management of the proceedings looking beyond the text of each motion.

In these circumstances, the appropriate order for costs is that the costs of both motions be the parties’ respective costs in the proceedings.

I do not propose at this stage to make any special orders about payment of the costs of compliance with the Court’s orders for disclosure. Prima facie, the costs of compliance should be borne by the defendants in the ordinary course, subject to any entitlement they may have to seek an order for payment of their costs in due course. If, in the meantime, an application is made for a special costs order it should be accompanied by evidence.

In this context, I note a preparedness on the part of the plaintiff to fund employment of an independent expert to interrogate the defendants’ databases should a regime for such interrogation be agreed or ordered.

Accordingly, I make the following orders: