New South Wales Supreme Court CITATION : Contour Building and Construction Pty Ltd v Kerr [2008] NSWSC 883 HEARING DATE(S) : 13/08/08 JUDGMENT DATE : 29 August 2008 JURISDICTION : Equity Division JUDGMENT OF : Barrett J DECISION : Preliminary discovery refused CATCHWORDS : PROCEDURE- discovery - preliminary discovery - inability to obtain "sufficient information to decide whether or not to commence proceedings" - where explicit threat of particular proceedings already made LEGISLATION CITED : Uniform Civil Procedure Rules 2005, rule 5.3 CATEGORY : Procedural and other rulings Contour Building and Construction Pty Limited - Plaintiff PARTIES : Peter Kerr - First Defendant Resipro Group Pty Ltd - Second Defendant FILE NUMBER(S) : SC 3782/08 Mr T Saunders - Plaintiff COUNSEL : Mr B DeBuse - First Defendant Mr G A Donnellan - Second Defendant UTR Law - Plaintiff SOLICITORS : Armstrongs Solicitors Pty Limited - First Defendant Turnbull Hill Lawyers - Second Defendant IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION BARRETT J FRIDAY, 29 AUGUST 2008 3782/08 CONTOUR BUILDING AND CONSTRUCTION PTY LIMITED v PETER KERR & ANOR JUDGMENT 1 By its summons filed on 11 July 2008, the plaintiff seeks relief under rule 5.3 of the Uniform Civil Procedure Rules 2005 by way of orders that the defendants give discovery to the plaintiff of documents within categories specified in the summons. 2 The application is an application for preliminary discovery and it is appropriate to set out at once the whole of rule 5.3: " 5.3 Discovery of documents from prospective defendant (cf Federal Court Rules , Order 15A, rules 6, 7 and 9) (1) If it appears to the court that: (a) the applicant may be entitled to make a claim for relief from the court against a person ( the prospective defendant ) but, having made reasonable inquiries, is unable to obtain sufficient information to decide whether or not to commence proceedings against the prospective defendant, and (b) the prospective defendant may have or have had possession of a document or thing that can assist in determining whether or not the applicant is entitled to make such a claim for relief, and (c) inspection of such a document would assist the applicant to make the decision concerned, the court may order that the prospective defendant must give discovery to the applicant of all documents that are or have been in the person's possession and that relate to the question of whether or not the applicant is entitled to make a claim for relief. (2) An order under this rule with respect to any document held by a corporation may be addressed to any officer or former officer of the corporation. (3) Unless the court orders otherwise, an application for an order under this rule: (a) must be supported by an affidavit stating the facts on which the applicant relies and specifying the kinds of documents in respect of which the order is sought, and (b) must, together with a copy of the supporting affidavit, be served personally on the person to whom it is addressed. (4) This rule applies, with any necessary modification, where the applicant, being a party to proceedings, wishes to decide whether or not to claim or cross-claim against a person who is not a party to the proceedings." 3 The first question to be addressed is whether it has been shown that the plaintiff "may be entitled to make a claim for relief from the court against a person". The affidavit filed in support of the summons (being an affidavit of a director of the plaintiff) refers to the fact that the first defendant was employed by the plaintiff from 1 July 2006 until his resignation on 17 August 2007, having been previously employed (from about September 1999 to 30 June 2006) by another company associated with the plaintiff. The first defendant was initially a salesman and afterwards sales manager. It is said in the affidavit that, while in the plaintiff's service, the first defendant was given access to information about prices charged by the plaintiff (and prices proposed to be charged), the identity of the plaintiff's customers and potential customers and the existence of planned potential developments for which the plaintiff wished to quote. I should say at this point that the plaintiff conducts a building and construction business in the Newcastle area. 4 According to the affidavit, the first defendant said, when tendering his resignation, that he was moving to Sydney to work for a property investment company specialising in high rise properties. Soon afterwards, however, it was discovered not only that the first defendant was working with the second defendant (Resipro Group Pty Ltd) but also that he had been a director and shareholder of the second defendant since its incorporation in September 2006, that is, almost a year before the first defendant left the plaintiff's service. 5 After the plaintiff had become aware of these connections between the first defendant and the second defendant, the plaintiff had its solicitors write to the first defendant as follows: "We act for Contour Building and Construction Pty Ltd. We are instructed you were employed by our client company from late 2006 to August 2007. As employee of our client company you were obliged to act in our client's interests and not against those interests and, in particular, to devote your working time to your employment with your employer and no other. Contrary to your legal obligations, we are instructed you spent much of your working time without the consent of your employer working in the interests of another business enterprise, Resipro Group Pty Ltd, a company of which you were a director and shareholder since its incorporation on 21 September 2006. Accordingly, during your employment with our client you generated sales and income for the benefit of another party. It follows that you neglected your employer's interests and, for example, you did not follow up leads which was your job. We have advised our client it is entitled to commence proceedings against you for damages for breach of contract and other causes of action. In the course of having those damages assessed we will be entitled to obtain from you documented information as to those transactions you were involved in during your employment with our client company. In particular, we will require access to your financial records. Resipro Group Pty Ltd, whose interests you served, will be joined as a party in proceedings against you. We will wait 10 days from this date to give you the opportunity to comment on the above after which time our client may seek preliminary discovery pursuant to the Uniform Civil Procedure Rules 2005 or commence proceedings without further notice." 6 A copy of this letter was sent by the plaintiff's solicitors to the second defendant together with a covering letter as follows: "We act for Contour Building & Construction Pty Ltd. We enclose copy of a letter of same date to Mr Peter Kerr, a director of your company. We have advised our client that in addition to any action it may take against Mr Kerr, it is entitled to commence proceedings against Resipro Group Pty Ltd for damages pursuant to the Trade Practices Act 1974. We will wait 10 days from this date to give you the opportunity to comment on the above after which time our client may seek preliminary discovery pursuant to the Uniform Civil Procedure Rules 2005 or commence proceedings without further notice." 7 Both these letters were dated 8 February 2008. 8 In the circumstances thus briefly outlined, it is, I think, established that the plaintiff "may be entitled to make a claim for relief from the court" against each defendant. The circumstances are such that it is at least conceivable that the first defendant may have breached obligations of confidentiality and loyalty owed to the plaintiff, particularly in circumstances where he did not inform the plaintiff of his connection as director and shareholder with the second defendant established in September 2006 and led the plaintiff, at the time of his resignation in August 2007, to think that he was going to work in Sydney. It is also conceivable that the second defendant has become liable to the plaintiff because of its knowledge of the first defendant's connection with the plaintiff and the nature of the obligations inherent in such a relationship. 9 The next question posed by rule 5.3 is whether the plaintiff has been "unable to obtain sufficient information to decide whether or not to commence proceedings against the prospective defendant". If that question is answered in the affirmative, it will be necessary to decide whether the inability exists after and despite the making of "reasonable inquiries". 10 The two letters of 8 February 2008 show quite clearly, in my opinion, that the plaintiff has already made a decision to commence proceedings against both the first defendant and the second defendant. 11 The letter to the first defendant refers to the plaintiff's solicitors' instructions that the first defendant spent much of his working time working in the interests of the second defendant without the consent of the plaintiff. Those instructions, having been given by the plaintiff to its solicitors and communicated by them to the first defendant, must be presumed to have some cogent factual foundation. The same is true of the solicitors' statement that the first defendant neglected the plaintiff's interests by, for example, not following up leads as his employment required him to do; and that he "generated sales and income for the benefit of another party". Again, it must be presumed that the plaintiff has a factual basis for the delegations conveyed by the solicitors. 12 The solicitors' letter to the first defendant then says explicitly that the solicitors have advised the plaintiff that it "is entitled to commence proceedings against you for damages for breach of contract and other causes of action". The plaintiff is not in the position contemplated by rule 5.3(1), that is, the position where it is "unable to obtain sufficient information to decide whether or not to commence proceedings against" the first defendant. On the contrary, the plaintiff's solicitors have themselves indicated unequivocally that, on their assessment, the plaintiff "is entitled to commence" proceedings against the first defendant – from which one must infer that the plaintiff has (and has given to its solicitors) information which, upon a proper assessment by the solicitors, is sufficient to support a decision to commence proceedings. 13 The position in relation to the second defendant is exactly the same. The plaintiff's solicitors say in their letter to the second defendant that they have advised the plaintiff that it "is entitled to commence proceedings against Resipro Pty Ltd". Again, there is no indication of doubt or uncertainty. 14 Because, on the plaintiff's own evidence, the threshold condition created by the "unable to obtain sufficient information to decide" specification in rule 5.3(1)(a) is not satisfied in relation to proceedings against either the first defendant or the second defendant, the application under rule 5.3 in relation to each defendant must be dismissed with costs. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.