Principal Financial Group Pty Limited ACN 068 318 507 v Gabriel Joseph Vella [2011] NSWSC 327

Supreme Court New South Wales

Medium Neutral Citation: Principal Financial Group Pty Limited ACN 068 318 507 v Gabriel Joseph Vella [2011] NSWSC 327 Hearing dates: 14 April 2011 Decision date: 15 April 2011 Jurisdiction: Equity Division Before: Ball J Decision: Application dismissed with costs Catchwords: PROCEDURE - interlocutory issues - Anton Pillar orders - duty of full disclosure in ex parte applications - whether failure to notify of links to independent computer expert breach of duty - whether should exercise discretion to set aside order Cases Cited: Brags Electric Ltd v Gregory [2010] NSWSC 1205 Savcor Pty Ltd v Cathodic Protection International APS [2005] VSCA 213 Thomas A Edison Ltd v Bullock [1912] HCA 72 (1912) 15 CLR 679 Category: Procedural and other rulings Parties: Principal Financial Group Pty Ltd (First Plaintiff) King Financial Group (NSW) Pty Ltd (Second Plaintiff) Gabriel Joseph Vella (First Defendant) Taurean Financial Planning Pty Ltd (Second Defendant) Representation: Counsel: RRI Harper SC / T D Anderson (Plaintiffs) MF Holmes QC / DCP Stewart (First Defendant) Solicitors: LFS Lawyers (First and Second Plaintiff) Aitken Lawyers Pty Ltd (First Defendant) File Number(s): 2011/097213

Judgment 1The plaintiffs carry on a financial planning business. The first plaintiff (PFG) holds an Australian Financial Services Licence and the second plaintiff (KFG) is one of its authorised representatives. 2From about 21 January 2008 the first defendant, Mr Vella, worked as a financial planner in the business carried on by KFG, although there is an issue about precisely which entity employed him. For the purposes of the present application, nothing turns on the resolution of that issue. After taking up his employment, Mr Vella was appointed an authorised representative of PFG. 3In January this year Mr Vella decided to leave KFG. There is a dispute about the circumstances in which that came about, but again it is not necessary for the purposes of this application to resolve that dispute. Not long after leaving KFG, Mr Vella commenced employment as a financial planner with the second defendant, Taurean. 4After Mr Vella left his employment with KFG or one of its associated entities, KFG discovered that a number of hard copy files relating to clients for whom Mr Vella had been responsible were missing. In addition, the computer records in respect of a number of those clients had been altered by changing the names of the clients to which the records related making it difficult to locate the electronic records for those clients. 5Based on this evidence and some other evidence, the plaintiffs made an ex parte application for search orders against the defendants. Those orders were granted by White J on 24 and 25 March 2011. The orders were based on the model orders set out in Practice Note SC Gen 13. Order 3 provided: You may apply to the court at any time to vary or discharge this order; including, if necessary, by telephone to the Duty Judge (phone number 9230 8025). 6Order 12 relevantly provided: Before permitting entry to the premises by anyone other than the independent solicitor you, for a time not exceeding 2 hours from the time of service or such longer period as the independent solicitor may permit: (a) May seek legal advice; (b) May ask the court to vary or discharge this order. 7Order 20 relevantly provided: (a) If it is expected that a computer will be searched, the search party must include a computer expert who is independent of the applicant and of the applicant's solicitors (' the independent computer expert '); (b) Any search of a computer must be carried out only by the independent computer expert; (c) The independent computer expert may make a copy or digital copy of the computer hard drive and remove that copy or digital copy from the premises; (d) The independent computer expert may search the computer or the copy or digital copy of the computer hard drive at the premises and/or away from the premises for listed things and may copy the listed fees electronically or by hard copy or both; (e) The independent computer expert must as soon as practicable and, in any event, prior to the hearing on the return day, deliver the copy or digital copy of the computer hard drive and all electronic and hard copies of listed things to the independent solicitor, together with a report of what the independent computer expert has done including a list of such electronic and hard copies. (f) The independent solicitor must, at or prior to the hearing on the return day, deliver to the Court all things received from the independent computer expert and serve a copy of the latter's report on the parties. (g) If no independent computer expert has been appointed, but the independent solicitor considers it necessary to remove a computer from the premises for safe keeping or for the purpose of copying its contents electronically and printing out information in documentary form, the independent solicitor may remove the computer from the premises for that purpose and cause that purpose to be achieved. 8The independent computer expert was identified in schedule A to the orders as Mr Hemendra Baghela. Mr Baghela swore an affidavit in support of the application for a freezing order in which he said that he was a senior systems engineer with a company called Anittel Group Ltd, that he had been requested to perform the role of an independent computer expert and that he gave various undertakings to the court relating to the way in which he would discharge his duties. Schedule A to the orders also listed the things that were the subject of the order and included client lists, records and client files, including client lists contained in specified spreadsheets. 9Order 23 required Mr Vella to file an affidavit setting out various information in relation to the things that were the subject of the search order. That affidavit was due to be filed by 6 April, although it was not in fact filed until 14 April. 10The search order was executed by Mr Paul Chapman who was an independent solicitor appointed by the orders for that purpose. Following execution of the orders, Mr Chapman, in accordance with the orders, swore an affidavit on 4 April 2011 setting out what happened during the execution of the orders. According to Mr Chapman's affidavit, the search party arrived at Taurean's offices at Kogarah at about 10.30am. After various delays, at around 12.40pm Mr Campbell explained the orders in detail to Mr Vella. Mr Vella's solicitor arrived at around 12.50pm and Taurean's solicitor arrived at around 1.00pm. Eventually the search commenced at about 1.55pm. Shortly after Mr Baghela commenced searching a laptop computer, Mr Vella took objection to Mr Baghela on the basis that he had done contracting work for companies associated with KFG in the past. Mr Chapman asked for evidence of that and then asked Mr Baghela whether it was true. Mr Baghela agreed that it was. After further discussions, Mr Chapman gave Mr Vella and Taurean two options. One of those options was to allow Mr Chapman to take possession of Mr Vella's computer and Taurean's server and deliver them to the court on or before 4 April 2011 pending further orders of the court. The other option was to permit Mr Baghela to make an image of Mr Vella's computer hard drive and Taurean's server on to an external hard drive which Mr Chapman would then take possession of and deliver to the court. 11In fact, Anittel has over a period of time been engaged by companies associated with KFG to provide the group with external computing services and it has done a significant amount of work for the group, some of which has been carried out by Mr Baghela. In addition, Anittel provided some services to the plaintiffs in connection with their investigations of the activities of Mr Vella, although there is no evidence that Mr Baghela himself was involved in the provision of those services. 12In an affidavit sworn by Mr Vella on 12 April 2011 and filed on 14 April, Mr Vella concedes that he has a number of client lists of the plaintiffs. He says that he emailed those lists to a personal email account on 18 January 2011 in order to be able to access the information so that he could visit clients after hours and on weekends. In the absence of further explanation, that evidence is not altogether plausible. Why Mr Vella should wait until 18 January 2011 to have access after hours to the information is not clear. Moreover, shortly before 18 January Mr Vella had been told how to obtain remote access to KFG's computer system. In those circumstances, it is difficult to see why he needed to email the information to a personal email address. 13Mr Vella now submits that the search order should be set aside because the plaintiff failed to make full disclosure to White J at the time the search order was obtained and, in particular, failed to disclose the fact that Mr Baghela was not independent. 14The general principle is that a party who makes an ex parte application to the court owes a duty to bring before the court all the material facts which the opposing party, if it had been present, could be expected to have brought to the court's attention. As Isaacs J explained in Thomas A Edison Ltd v Bullock [1912] HCA 72 (1912) 15 CLR 679 at 681, that is the price that the party seeking the order must pay if the court is to dispense with a primary precept governing the administration of justice that no order should be made to the prejudice of a party unless that party has been heard. The principle applies as much to the grant of a search order as to any other ex parte order. 15If there has been a material non-disclosure, the court may set aside the order ab initio: see Brags Electric Ltd v Gregory [2010] NSWSC 1205 at [17]. However, the court has a general discretion whether to exercise that power or not. As Gillard AJA pointed out in Savcor Pty Ltd v Cathodic Protection International APS [2005] VSCA 213 at [33]: In my opinion a court does have a discretion to not set aside an order despite a material non-disclosure or misrepresentation of law or fact. Setting aside does not follow as a matter of course. Relevant to the discretion is whether the material non-disclosure was serious or otherwise the importance or weight that should be attached to the omitted fact in the decision making process and also any hardship if the order was set aside. The approach is different if the plaintiff has acted culpably in the sense that the omission to disclose relevant matters was done deliberately to mislead the court. The most likely result in those circumstances would be that the order would be vacated. 16In my opinion, it was material for the court to know that Mr Baghela was employed by Anittel and that Anittel was the company which provided consulting services to the plaintiffs. The court would then have been in a position to make an assessment whether he was an appropriate person to act as the independent computer expert. The answer to that question would depend on a number of factors, including the urgency with which the order should be made, the availability of an alternative expert and the likelihood that the policy behind the requirement of an independent expert would be undermined by the appointment of Mr Baghela. It may be that, having considered those matters, the court would have concluded that Mr Baghela was still an appropriate independent expert. 17In order for information to be material for this purpose, I do not think it is necessary that the information would have or was likely to have made a difference to the orders of the court. It is sufficient if the information is information that it could be expected that the opposing party would have wanted to bring to the court's attention and the court would have wanted to consider before making an order. It is only if the requirement of materiality is interpreted in that way that full disclosure is an adequate substitute for a party's right to be heard. 18Nonetheless, in this case I am not prepared to set aside the search order. I say that for a number of reasons. 19First, I do not think that there has been any deliberate breach of the duty of full disclosure. It appears that Mr Baghela was treated as an independent expert because he was an employee of external consultants. He was not chosen because he had any particular relationship with the plaintiffs. Indeed, the evidence suggests that he had limited previous contact with the plaintiffs and the choice of him as the independent expert among various employees of Anittel was arbitrary. As I have said, the mere fact that Anittel has done work for the plaintiffs previously did not necessarily make one of its employees unsuitable for appointment as the independent expert. That depended on all the circumstances of the case. 20Second, there is no evidence to suggest that Mr Baghela did not discharge the duties expected of the independent expert. He gave personal undertakings to the court and there is no suggestion that he has not honoured them. 21Third, the issue was raised at the time the search order was executed and considered by Mr Chapman. Mr Chapman gave the defendants a choice. One option was simply to remove Mr Vella's computer and Taurean's server. That was an option available to Mr Chapman in the absence of any independent expert. The other option was to limit Mr Baghela's role, which is what happened. That occurred in the context where both defendants' legal representatives were present and where the orders made it clear that an application could be made to the Duty Judge, by telephone if necessary. No application, however, was made. 22Fourth, I think that the order sought by Mr Vella would be disproportionate to the breach. His interests have not been prejudiced by what has happened. On the other hand, the evidence supports the view that there is a serious question to be tried in relation to the question of whether Mr Vella breached obligations of confidence that he owed to PFG, at least. Justice would not be served by setting aside the orders in those circumstances. 23Mr Vella's application should be dismissed with costs.