Federal Court of Australia Trentham Enterprises Pty Ltd v Rahui [2024] FCA 1065 File number: WAD 189 of 2024 Judgment of: COLVIN J Date of judgment: 10 September 2024 Date of publication of reasons: 12 September 2024 Catchwords: PRACTICE AND PROCEDURE - application for pre-action discovery pursuant to r 7.23 of the Federal Court Rules 2011 (Cth) - where request for pre-action discovery made after prospective applicant made detailed allegations against prospective respondents in correspondence and threatened commencement of proceedings - whether information upon which allegations were based sufficient to enable prospective applicant to decide whether to commence proceedings - consideration of principles applicable to exercise of discretion to order pre-action discovery - application dismissed Legislation: Federal Court Rules 2011 (Cth) r 7.23 Cases cited: Pfizer Ireland Pharmaceuticals v Samsung Bioepis AU Pty Ltd (No 3) [2021] FCA 1428 Poole v Australian Pacific Touring Pty Ltd [2017] FCA 424 Division: General Division Registry: Western Australia National Practice Area: Commercial and Corporations Sub-area: Commercial Contracts, Banking, Finance and Insurance Number of paragraphs: 28 Date of hearing: 10 September 2024 Counsel for the Prospective Applicant: Mr JR Marzec Solicitor for the Prospective Applicant: Zafra Legal Counsel for the Prospective Respondents: Mr AI Guy Solicitor for the Prospective Respondents: Oswald Legal ORDERS WAD 189 of 2024 BETWEEN: TRENTHAM ENTERPRISES PTY LTD Prospective Applicant AND: JORDON RAHUI First Prospective Respondent APEX NDT PTY LTD Second Prospective Respondent order made by: COLVIN J DATE OF ORDER: 10 September 2024 THE COURT ORDERS THAT: 1. The application is dismissed. 2. The prospective applicant pay the prospective respondents' costs of and incidental to the application. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT COLVIN J: 1 Mr Jordon Rahui is a former employee of Trentham Enterprises Pty Ltd. It carries on business under the name MJ Engineering Inspection Services. MJ Engineering provides non-destructive testing services. Mr Rahui commenced his employment with MJ Engineering in July 2018 as a non-destructive testing technician. He signed an employment contract. It included a confidentiality clause. 2 Mr Rahui was paid a modest hourly rate for his work. Mr Rahui resigned from his employment with MJ Engineering in September 2023 and ceased working for the business on 13 October 2023. 3 A company controlled by Mr Rahui, Apex NDT Pty Ltd, is now providing non-destructive testing services. The time when it commenced to do so is in dispute as between the parties. Apex NDT was incorporated in February 2023. There are documents that have been provided to MJ Engineering by Mr Rahui from which it may be inferred that arrangements were being made for Apex NDT to establish a business providing non-destructive testing services in and after April 2023. For present purposes, it is not necessary to express any view as to whether such an inference may be drawn. 4 After Mr Rahui ceased his employment, Trentham Enterprises, by its lawyers, made a number of detailed allegations against Mr Rahui. Over the period November 2023 to February 2024 the lawyers sent several letters detailing claims and making demands. They threatened the commencement of court proceedings against Mr Rahui and Apex NDT, including proceedings seeking urgent injunctive relief. The terms of the letters included demands for precisely calculated amounts said to have been overpayments made to Mr Rahui. No proceedings were commenced. 5 Then, at the end of February 2024, Trentham Enterprises claimed for the first time that it needed pre-action discovery because, so it alleged, it did not have enough information to make a decision whether to commence proceedings or not. The letter said that it needed to seek pre-action discovery 'because it has limited information and records relating to Apex NDT and [Mr Rahui's] engagements during and after his employment with [MJ Engineering]'. The letter demanded a quite detailed list of documents by way of pre-action discovery. 6 On 12 July 2024, Trentham Enterprises commenced proceedings seeking orders for pre-action discovery, naming Mr Rahui and Apex NDT as prospective respondents to the proceedings. 7 The categories of documents sought by the application included the following: any books, records, invoices or contract documents between your client, his commercial vehicle Apex NDT, and The Simcraft Group Pty Ltd …; any books, records, invoices or contract documents between your client, his commercial vehicle Apex NDT and Conveyor Pulleys and Solutions Pty Ltd …; any documents your client copied, downloaded or emailed to himself or any other person from [MJ Engineering's] database, including but not limited to any client lists or client information; 8 The parties named in the first two categories (who I will refer to as Simcraft and CPS) had been parties to whom Mr Rahui as an employee of MJ Engineering had provided services. Trentham Enterprises claimed that they both ceased requesting services from MJ Engineering after Mr Rahui ceased his employment. In correspondence sent by lawyers acting for Mr Rahui and Apex NDT they have admitted that work is being done for Simcraft and CPS, but they say that this circumstance has come about because of 'goodwill' rather than the use of confidential information. 9 The pre-action discovery application also sought a number of other categories of documents said to be relevant to ascertaining when Mr Rahui established the business conducted by Apex NDT such as lease agreements, financing agreements for equipment, pay slips and employment records and information relating to Mr Rahui obtaining his accreditation to provide non-destructive testing services. 10 Rule 7.23 of the Federal Court Rules 2011 (Cth) provides for pre-action discovery. It is expressed in the following terms: 7.23 Discovery from prospective respondent (1) A prospective applicant may apply to the Court for an order under subrule (2) if the prospective applicant: (a) reasonably believes that the prospective applicant may have the right to obtain relief in the Court from a prospective respondent whose description has been ascertained; and (b) after making reasonable inquiries, does not have sufficient information to decide whether to start a proceeding in the Court to obtain that relief; and (c) reasonably believes that: (i) the prospective respondent has or is likely to have or has had or is likely to have had in the prospective respondent's control documents directly relevant to the question whether the prospective applicant has a right to obtain the relief; and (ii) inspection of the documents by the prospective applicant would assist in making the decision. (2) If the Court is satisfied about matters mentioned in subrule (1), the Court may order the prospective respondent to give discovery to the prospective applicant of the documents of the kind mentioned in subparagraph (1)(c)(i). 11 The principles to be applied when considering whether to order pre-action discovery are well established: see the summary of the authorities by Bromwich J in Poole v Australian Pacific Touring Pty Ltd [2017] FCA 424 at [39] (see also [70], [101]-[102]); and by Burley J in Pfizer Ireland Pharmaceuticals v Samsung Bioepis AU Pty Ltd (No 3) [2021] FCA 1428 at [42]-[54]. 12 Relevantly for present purposes, I note the following (adapting the language used in the authorities): (1) the purpose of the Rule is to enable a party to have sufficient information to decide whether to commence proceedings and not to provide further comfort in taking the decision which the party already has sufficient information to take; (2) the states of reasonable belief required by the Rule must be subjectively held and also have an objective basis; (3) given the nature of the orders and the burden they are likely to impose, a party seeking an order for pre-action discovery must be frank as to the information available to the party and the particular deficiency that is said to give rise to a difficulty in deciding whether to start a proceeding; (4) it is no answer to an application to say that the party seeking the order has sufficient information to advance 'a bare pleadable case'; (5) further, even where there is a reasonable cause to believe that a person may have a right to relief, nevertheless that person may need information to know whether the cost and risk of litigation is worthwhile; (6) it is no answer to an application to assert that it is 'fishing' because the Rule provides for a form of fishing if the matters specified in the Rule are established; (7) the Court retains a discretion whether to make the order sought if the matters specified are established and the exercise of the discretion is the proper brake on any excesses as to the use of the procedure (rather than restrictive or unnecessary glosses on the extent of the Court's power under the Rule to make orders for pre-action discovery); and (8) if the required matters as specified in the Rule are established, normally there will be little scope for refusing the application on the basis of discretion. 13 The prospective respondents (Mr Rahui and Apex NDT) accepted that a relevant officer of Trentham Enterprises reasonably believed that Trentham Enterprises had a right to relief based upon claims of breach of the duty of fidelity as an employee duty and use of confidential information (and other claims concerning alleged overpayment for hours worked). 14 Broadly speaking, the prospective respondents opposed the orders sought on the basis that: (1) Trentham Enterprises has already made detailed calculations of its alleged claims as to overpayment and has demanded payment of precise sums thereby advancing claims in terms that 'are conclusive, decisive and certain'; (2) as to Simcraft and CPS, Trentham Enterprises has its own records as to the extent of the earnings from the business of MJ Engineering providing services to those clients so they know how much would be at stake as to those parts of their claims; (3) Trentham Enterprises has already threatened to commence proceedings as to all claims; (4) Trentham Enterprises has access to the computers and other devices used by Mr Rahui whilst he was an employee (which he returned when he ceased employment) and therefore has all the electronic records at the time of his employment, yet has not referred to having reviewed those records; (5) Trentham Enterprises has not demonstrated that it has made reasonable inquiries by interrogating its own records or by making direct inquiries of Mr Rahui; and (6) Trentham Enterprises has not demonstrated that, viewed objectively, it has insufficient information to determine whether to commence proceedings. 15 By his affidavit in opposition to the application, Mr Rahui admits the timeline as to the incorporation of Apex NDT and says on oath that he did not take copies of any documents (including client lists or information) from MJ Engineering's database. He refers to documents that MJ Engineering has concerning the establishment of his business. 16 He says also that the orders sought, if made, would be oppressive and confer an advantage upon MJ Engineering as a competitor of Apex NDT. 17 Mr Rahui and Apex NDT also contended that MJ Engineering would be further benefited as a direct competitor of Apex NDT by the production of some of the documents sought which reveal confidential pricing information. 18 The affidavit of Mr Simon Bates (the sole director of Trentham Enterprises) sworn in support of the application is very general. It does not identify why particular information is needed having regard to the extent of information available to MJ Engineering and the detailed allegations it has already advanced through its lawyers. 19 Also, the written submissions for Trentham Enterprises in support of the application are expressed in very general terms. They do not explain why the further information sought is needed. They provide no indication as to the order of magnitude of the claim that might be made based upon the misuse of the confidential information or why there is uncertainty as to what is at stake. Therefore, there is no basis to determine whether the extent of the documents sought bears any proportionality to what may be in issue. 20 In the above circumstances, for the following reasons, I was not persuaded that the orders sought on the application (or any of them) should be made. 21 On the evidence, Trentham Enterprises has made detailed allegations and has threatened the commencement of proceedings on the basis of those allegations. The terms in which those allegations have been expressed in correspondence do not suggest uncertainty or equivocation on the part of Trentham Enterprises as to whether Mr Rahui has established a competing business using confidential information. They maintain that the information as to the identity of Simcraft and CPS as purchasers of non-destructive testing services was not publicly known and therefore could only have been obtained by Mr Rahui through his employment. 22 Trentham Enterprises has not demonstrated an objective foundation for why further information is needed in order for it to decide whether to commence proceedings. The main issue raised in support of the application concerned the need to know when Apex NDT commenced supplying services and the extent to which Mr Rahui provided services to Simcraft and CPS during the term of his employment with MJ Engineering. As has been noted, Mr Rahui and Apex NDT admit to supplying services to those parties. Trentham Enterprises says that Simcraft and CPS terminated their relationship with MJ Engineering. Trentham Enterprises will have its own information as to the value of the services that were generally acquired by those parties from MJ Engineering. It is not explained why that information is not sufficient to ascertain, in general terms, when the supply of those services by MJ Engineering fell away and the quantum of what may be at stake. 23 Trentham Enterprises already has information which shows that steps were taken to establish the business of Apex NDT well before Mr Rahui ceased employment with MJ Engineering. It has alleged in correspondence from its lawyers that Apex NDT commenced its business activities whilst Mr Rahui was still an employee of MJ Engineering and has referred to the basis for that allegation. 24 Trentham Enterprises does not dispute that Mr Rahui has returned his computers and other devices and has not explained why the access to its own electronic records does not enable it to conclude whether Mr Rahui emailed confidential information to himself or to some third party during the term of his employment. 25 Mr Rahui has stated on oath that he did not take copies of any documents (including client lists or client information) from MJ Engineering's database. To the extent only that such documents are sought, the orders sought would serve no purpose in the face of the sworn statement. 26 The orders would impose a considerable burden upon Mr Rahui and Apex NDT in circumstances where there is no evidence to suggest that the amounts that might be in dispute would justify the making of the orders. 27 However, I did not consider the concerns raised that the information would be of assistance to MJ Engineering as a competitor to be a matter that counted against the making of orders. Appropriate orders could have been made to preserve the confidentiality of matters such as information about the pricing of services by Apex NDT if I had been persuaded otherwise that the orders were appropriate. 28 For those reasons, I made orders dismissing the application with costs. I certify that the preceding twenty-eight (28) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Colvin. Associate: Dated: 12 September 2024