DHR International, Inc. v Challis (No. 2)

By statement of claim filed on 13 November 2015 DHR International, Inc. (the plaintiff) seeks injunctive relief and damages against Darren Challis (the defendant). The proceedings were commenced by summons filed in the Equity Division on 16 October 2015, as urgent interlocutory relief was sought. Following a hearing on 16 October 2015 (the Interlocutory Hearing), White J refused interlocutory relief (DHR International, Inc a company incorporated in Delaware in the United States of America v Challis [2015] NSWSC 1567 (the Interlocutory Judgment)) and transferred the matter to the Common Law Division.

The causes of action alleged against the defendant arise from the defendant’s posting of a blog in which he published representations and comments which denigrate the plaintiff and its business practices (the Blog). The plaintiff claims damages and seeks an injunction on the basis of allegations that, if proved, amount to the tort of injurious falsehood and would entitle the plaintiff to damages pursuant s 236 of Sch 2 to the Competition and Consumer Act 2010 (Cth) (the Australian Competition Law) for misleading or deceptive conduct in trade or commerce in contravention of s 18. It is not necessary for present purposes to set out, or to provide examples of, the representations made.

By notice of motion filed 27 November 2015, the plaintiff seeks an order for discovery of the following categories of documents:

Ultimately, for the reasons given below, I understood the defendant to accept that category (a) was an appropriate category for discovery to permit the plaintiff to investigate the business relationship, if any, between the defendant and others, including an entity referred to as Amrop Partnership SCRL (Amrop) and Challis & Company Pty Ltd, a company of which the defendant is the sole director. However, the defendant submitted that discovery of the remainder of the categories ought not be ordered.

The plaintiff relied, in support of the notice of motion, on the affidavit of its solicitor, Bryan Belling, sworn 27 November 2015, which was read without objection. It also tendered paragraphs 1 - 42 of the defendant’s affidavit sworn 25 November 2015 (the Challis affidavit). The defendant objected on the ground of relevance. I admitted the tender subject to relevance. I reject paragraphs 13 to 42 as irrelevant.

The defendant relied on his affidavit sworn 14 December 2015 which was read without objection, and the exhibits thereto (DCS-1 (Exhibit 1) and DCS-2 (Exhibit 2)) (the Second Challis affidavit).

At the commencement of the hearing before me on 16 December 2015, the plaintiff called on a notice to produce addressed to the defendant dated 11 December 2015 which sought production of the documents set out in paragraphs (f), (g) and (h) of the notice of motion set out above. Mr Gration, who appeared on behalf of the plaintiff, explained that the notice to produce had been served because there had been a delay in obtaining a hearing date for the notice of motion. The plaintiff wanted to have access to the hard drives so that its expert could work on an expert report in the course of the court vacation in order that the plaintiff would be in a position to comply with the direction made by the Registrar on 3 December 2015 that it file any further evidence by 12 February 2016.

Mr Gration submitted that, effectively, these paragraphs of the motion were more apposite for a notice to produce rather than discovery because they were confined to particular things (the hard drives) and that it was not necessary for their production to be delayed pending preparation of a list of documents (which, according to the rules, would be required within 28 days: Uniform Civil Procedure Rules 2005 (NSW) (UCPR), r 21.3).

Mr Gration confirmed that if I were disposed to order discovery of those categories the plaintiff would be content to forego their inclusion in a list of documents as long as their production pursuant to the notice to produce was ordered.

The facts that are relevant to the present application can be shortly stated.

The plaintiff is, and was, engaged in the business of recruiting business executives. The defendant had been employed by the plaintiff but his services were terminated. Following the termination of his services, the defendant created the Blog which, as referred to above, contained statements critical of the plaintiff. The defendant, or the company of which he is sole director, also entered into a business relationship (the precise nature of which does not appear from the evidence) with an entity known as Amrop, which the defendant described as “an executive search network incorporated in Belgium”. I infer, for the purposes of this application, that the plaintiff and Amrop are, in a broad sense, competitors, because they are each engaged in executive recruitment.

In the statement of claim the plaintiff alleged as follows in support of its claim for damages pursuant to s 236 of the Australian Competition Law:

The plaintiff retained an expert, Bryan Webster, for the purposes of the Interlocutory Hearing, to identify the person who had posted the Blog. Mr Webster, in a report relied on at the Interlocutory Hearing, identified certain indicia which tended to suggest that the Blog originated from an Internet Protocol (IP) address associated with the defendant and that a particular email address was associated with the Blog and with the defendant. At the Interlocutory Hearing the defendant neither gave evidence, nor made admissions as to his connection with the Blog. As White J said at [45] of the Interlocutory Judgment, “Mr Challis has sought to protect himself by the veil of anonymity”.

The Challis affidavit contained the following paragraphs (which included those tendered by the plaintiff in support of the present notice of motion and admitted into evidence):

In paragraph 94 of the Challis affidavit, the defendant deposed:

By affidavit sworn on 27 November 2015 Mr Belling annexed searches undertaken that showed that the sole owner of the business name Amrop Challis & Company is Challis & Company Pty Limited, of which the defendant is sole director. Mr Belling deposed as to the following reasons for seeking discovery of the categories sought in the notice of motion:

In the Second Challis affidavit, the defendant admitted operating the email address and deposed that no other person operates that address. He also deposed that he worked on the Blog on his own personal computer, one of which was an Apple MacBook Air, which had a particular IP address; and that he had purchased that computer himself. The defendant set out his relationship with Amrop and when it began. Mr Challis also referred to discussions with representatives from Amrop, who had apparently been made aware of the Blog by the plaintiff. He annexed correspondence between himself and Amrop which indicated that Amrop was unaware of the Blog until its attention had been drawn to it by the plaintiff.

Mr Sibtain, who appeared with Mr Horobin on behalf of the defendant, admitted for the purposes of the proceedings that the defendant was responsible for the Blog and for the comments published on the Blog, even if posted by third parties, as he was, relevantly, the publisher.

Mr Gration submitted generally that the basis for an order for discovery is that it is necessary in the interests of a fair trial. He referred to Percy v General Motors-Holden’s Pty Ltd [1975] 1 NSWLR 289. He contended that the documents sought are orthodox and that the categories are relatively confined. He contended that the categories describe documents that are plainly relevant to issues in the proceedings and necessary to enable the plaintiff to prepare its case for hearing.

Further, the plaintiff contended that it was entitled to investigate the nature of the commercial partnership to which the defendant referred in [94] of the Challis affidavit, with a view to identifying whether Amrop, or other entities, might be liable to the plaintiff by reason of the Blog, either as publisher, or in some other capacity. On that basis, Mr Gration argued that discovery ought be ordered for category (a).

Mr Gration also submitted that the documents required to be produced by category (b) were relevant to the role the defendant played in the publication of the Blog and whether he did so as a private individual or as a principal, agent or employee of another entity such as Challis & Company Pty Limited, Amrop or some other entity. These documents could also rationally affect the question whether the relevant conduct was in “trade and commerce”, a matter about which White J was not satisfied to the requisite standard on the material tendered at the Interlocutory Hearing.

The plaintiff submitted that categories (c), (d) and (e) would require the discovery of documents that would show whether the publications from the IP address identified were made under a contract with the relevant business entity. Mr Gration also referred to Exhibit 2 (exhibit DGC-7 to Mr Challis’ Second Affidavit) in support of the plaintiff’s submission that it had a legitimate forensic interest in investigating the internal rules of the so-called partnership between Amrop and a company associated with the defendant.

Mr Gration contended that the documents (being the hard drives) in (f), (g) and (h) were relevant to the extent to which the defendant himself established and operated the Blog; whether he did so alone or with others; and whether the “comments” posted on the Blog were generated by him or by others. He contended that the provenance of particular items on the Blog was particularly relevant to the element of “malice” required to be proved by the plaintiff as an element of the tort of injurious falsehood.

As to categories (i), (j), (k) and (l), Mr Gration argued that discovery of these categories would tend to show which entity or entities owned the computer devices and back-up devices which could rationally affect which entity or entities were responsible for the publication and its contents and whether the conduct occurred in trade and commerce.

The defendant submitted that the orders the plaintiff sought were in the nature of a Norwich Pharmacal order (named after Norwich Pharmacal Co. & Others v Customs and Excise Commissioners [1974] AC 133) and that the restrictions that apply to the grant of such orders were applicable in the present case.

The defendant accepted that the plaintiff was entitled to discovery of the documents in category (a) on the basis that it was entitled to ascertain whether other entities were involved in the publication of the Blog by the defendant. Mr Sibtain submitted that the orders for discovery ought be limited to that category at this stage and contended that, once the plaintiff had seen the relevant documents, it would be satisfied that the defendant was acting alone and not in conjunction with any other entity who was potentially responsible for the publication. He submitted that a staged approach would obviate the need for further discovery.

Part 6 of the Civil Procedure Act 2005 (NSW) (the Act) applies. The overriding purpose of the Act and the rules is to facilitate the just, quick and cheap resolution of the real issues in the proceedings: s 56. The court is obliged to seek to act in accordance with the dictates of justice: s 58. The practice and procedure of the court is to be implemented with the object of eliminating delay: s 59.

Rules 5.2 and 5.3 of the UCPR do not apply in the present case since they apply only to preliminary discovery for the purpose of bringing proceedings against the person against whom discovery is sought. In the present case, the plaintiff seeks discovery against the defendant in relation to matters that would tend to identify further putative defendants. Accordingly UCPR 21 applies.

Rule 21.1 of the UCPR provides that a document or matter is taken to be “relevant to a fact in issue” if it “could, or contains material that could, rationally affect the assessment of the probability of the existence of that fact” regardless of whether the document is admissible. UCPR 21.2(4) provides that an order for discovery ought not be made in respect of a document unless it is relevant to a fact in issue. Accordingly, it is necessary, for the purposes of determining the plaintiff’s application, to identify, in respect of each category of documents, whether the documents could contain material that could rationally affect the assessment of the probability of the existence of that fact.

On 3 December 2015 the Registrar listed the plaintiff’s motion for discovery for hearing and directed the defendant to file and serve its defence by 18 December 2015. Commonly, discovery is not ordered until the pleadings have closed since the assessment of relevance depends on the issues, which are generally defined by the pleadings. However, in the present case, where the plaintiff wishes to progress the matter as expeditiously as possible because of the harm which it alleges the Blog is causing to its business, I am satisfied that it is appropriate to determine the motion although no defence has yet been filed. I consider the issues to be tolerably clear. Of present relevance, the defendant says that he acted alone and does not admit that he was acting in trade and commerce.

Relevance is not the only issue, since matters such as oppression, relative cost and so on, may arise in particular instances. However, nothing of that nature has been raised by the defendant in opposition to the present application, save for his objection to production of the hard drives, in respect of which submissions have been made separately as to a protocol that should be imposed to protect the defendant’s privacy.

I reject the defendant’s submission that the present application is in the nature of an application for a Norwich Pharmacal order. In Norwich Pharmacal Co. v Customs and Excise Commissioners the owner and exclusive licensee of a patent, which was infringed by unknown importers of the chemical into the United Kingdom, brought proceedings against the Excise Commissioners to compel the disclosure of information which would identify the importer of the chemical, and therefore those who infringed the patent. The House of Lords held that a court could, in certain circumstances, compel an innocent third party, such as the respondent, to produce documents relating to unlawful conduct, to assist the alleged victim of such conduct. However, their Lordships rejected the proposition that discovery would be ordered against anyone who could give information as to the identity of a wrongdoer. Of present relevance, Lord Reid said at 174:

Lord Reid summarised the effect of the authorities at 175 as follows:

Although in the present case the purpose of some of the categories of discovery is to identify whether there are other wrongdoers, and whether the defendant’s alleged wrongdoing occurred in trade and commerce, the documents are sought from the defendant, who is the putative wrongdoer, not from apparently innocent parties who were somehow involved in the wrongdoing. Accordingly, the ordinary principles relating to discovery apply. The first sentence of the passage set out above from the judgment of Lord Reid: “discovery to find the identity of a wrongdoer is available against anyone against whom the plaintiff has a cause of action in relation to the same wrong”, is the relevant principle.

I am satisfied that the documents described in category (a) are relevant to facts in issue in the proceedings: the identity of the person or persons responsible for the publication of the Blog; and the representations and comments it comprises. Further, I understood the defendant to concede as much. For the reasons given above, the restrictions on orders for preliminary discovery do not apply to this category as the order is sought against a party to the substantive proceedings. I reject Mr Sibtain’s submission that a staged approach is appropriate. It does not seem to be justified and would, in any event, have the disadvantage of causing further delay.

I am satisfied that the documents described in category (b) are relevant to the following facts in issue in the proceedings: the role the defendant played in the publication of the Blog; and whether he did so as a private individual or whether he did so as a principal, agent or employee of another entity who is therefore arguably responsible for the publication, such as Challis & Company Pty Limited, Amrop or some other entity. These documents could also rationally affect the question whether the relevant conduct was in “trade and commerce” as required by s 236 of the Australian Competition Law.

These categories can be considered together since each is in similar terms and seeks discovery of documents evidencing supply of telecommunications data services to Amrop Challis & Company Pty Limited; Challis & Company Pty Limited; and the defendant. I understand it to be common ground that the Blog was first published in December 2014. The forensic purpose of the documents sought in these categories is to investigate which IP addresses were used by which entity. This is relevant to the following facts in issue: whether and which entity has a contract for that IP address (which would tend to implicate it in the publication of the Blog); and whether the IP address is associated with a business, or whether it was used solely for matters private to the defendant.

The documents sought under these categories are the hard drives used by the defendant to establish, and work on, the Blog and to operate the email address apparently associated with the Blog. These categories are plainly likely to contain documents relevant to a fact in issue. Although, as referred to above, the defendant admits that he is responsible for the Blog as publisher, including for comments apparently posted by third parties, his admission does not remove the issue of who posted what. The plaintiff seeks damages for the tort of injurious falsehood, and is, accordingly, required to prove malice. In these circumstances, the identity of the maker of each relevant representation is relevant.

It is common ground that the hard drives are likely to contain a substantial amount of material which is not germane to the proceedings.

The plaintiff proposed draft orders (which are modeled on Practice Note No. SC Gen 13: Supreme Court – Search Orders (also known as ‘Anton Piller Orders’)) to protect the interests of the defendant in the documents described in (f), (g) and (h) of the motion (and in the notice to produce). The defendant sought to propose his own orders and make submissions in support of them. Accordingly, I made provision at the conclusion of the hearing of this matter on 16 December 2015 for the defendant to provide his draft orders and submissions and the plaintiff to respond to the defendant’s proposal.

In summary, the principal differences between the plaintiff’s and the defendant’s proposals are as follows:

In my view, there is no reason why the expert who is engaged to perform this task be appointed by the court, as opposed to the plaintiff. No particular objection having been raised to Mr Klein, the expert nominated by the plaintiff, I consider it to be appropriate that he be appointed.

I reject the defendant’s proposal as to the task to be performed by the expert since I consider it to be unduly confined and of limited utility. I regard the plaintiff’s proposal, including as to the definition of “Relevant Information” to be appropriate, and no wider than necessary to fulfil the forensic purposes which the plaintiff has identified, as referred to in the reasons given above. The plaintiff’s draft minute forms the basis for my orders, although some alteration has been made to them.

In accordance with the plaintiff’s request that these matters be dealt with by reference to the notice to produce rather than the motion for discovery, production will be ordered as sought in the notice and the minute or order rather than as reflected in the prayers to the notice of motion.

I am satisfied that it is appropriate to order discovery of these categories. In conjunction with (f), (g) and (h), they require production of documents which will tend to rationally affect whether the defendant acted alone or with others; and in what capacity he published the Blog.

In my view, each of the categories of discovery sought by the plaintiff seeks documents or things that are relevant to facts in issue in the proceedings. It is in the interests of justice that the orders be made since the defendant can be expected to have the documents or things in its possession that would tend to reveal his relationship with Amrop; his own company (Challis & Company Pty Limited); and the business known as Amrop Challis & Company and what role, if any, those entities played in the creation, development, or publication of the Blog, or any part of it. Those matters are germane not only to the identification of putative defendants, but also to the defendant’s own responsibility, as well as the issue whether the conduct constituted by publication of the Blog was, relevantly, in trade or commerce so as to be subject to the prohibition in s 18 of the Australian Consumer Law, thereby making available to the plaintiff the remedy of damages for loss causally related to any contravention by the defendant pursuant to s 236.

The parties agreed that it was appropriate to reserve the question of costs.

I make the following orders, directions and notations: