Global Medical Solutions Australia v Axiom Molecular [2012] NSWSC 1262

Supreme Court New South Wales

Medium Neutral Citation: Global Medical Solutions Australia v Axiom Molecular [2012] NSWSC 1262 Hearing dates: 21/09/2012 Decision date: 21 September 2012 Jurisdiction: Equity Division - Commercial List Before: McDougall J Decision: Search orders granted. Catchwords: [PROCEDURE] - civil - interlocutory issues - equity - fiduciary duties - breach - whether defendants have neglected and breached their fiduciary duties - whether defendants diverted aspects of the plaintiff's business opportunities. Legislation Cited: Uniform Civil Procedure Rules 2005 (NSW) Cases Cited: Barnes v Addy (1874) 9 Ch App 244 Category: Procedural and other rulings Parties: Global Medical Solutions Australia Pty Ltd (Plaintiff) Axiom Molecular Pty Ltd (First Defendant) Mathew Farag (Second Defendant) Sally-Ann Cornellus (Third Defendant) Christopher Quinn (Fourth Defendant) Andrew Winthorpe (Fifth Defendant) John O'Brien (Sixth Defendant) Representation: Counsel: P Durack SC / S A Keizer (Plaintiff) Solicitors: Jones Day (Plaintiff) File Number(s): 2012/295084

Judgment (ex tempore - revised 25 september 2012) 1HIS HONOUR: The plaintiff carries on within Australia a business that includes the manufacture and supply of what are called time sensitive pharmaceuticals and radiopharmaceuticals. It wishes to commence proceedings against the defendants, alleging that the five personal defendants (all of whom were former officers or employees) have acted in breach of their fiduciary obligations, and have effectively given the benefit of business opportunities of the plaintiff to the first defendant, their new employer. 2The evidence satisfies me that the availability of a cyclotron is an essential part of the plaintiff's business. It has used what has been called the Southernex cyclotron for the purposes of that business. However, it became apparent some years ago that the Southernex cyclotron was reaching the end of its useful life. It was therefore necessary for the plaintiff either to arrange for that cyclotron to be upgraded or to obtain access to another one. 3The second defendant, Mr Farag, who was the plaintiff's managing director, worked with a Mr Jay Simon, who is not a defendant in these proceedings, to investigate the availability of an alternative cyclotron. One possibility was that I-MED, the group which owned the company which owned the Southernex cyclotron, might upgrade the Southernex cyclotron. However, Messrs Simon and Farag reported to Mr Bagerdijan, the chief executive officer of the group of companies of which the plaintiff forms part (the GMS group), that I-MED was not interested in doing this. The plaintiff says that, contrary to the fact, I-MED had in fact expressed interest in doing this, but did not proceed because it thought that others of the defendants, Mr Winthorpe and Mr O'Brien (the fifth and sixth defendants), were opposing this action. 4Thereafter, Mr Simon and Mr Farag negotiated with the University of Queensland or its research arm, Uniquest, to allow the plaintiff access to the University's cyclotron. However, Mr Simon reported to Mr Bagerdijan that the University had decided to keep the use of its cyclotron to itself, for research purposes. 5Later, however, Mr Farag resumed discussions with the University. Those discussions proceeded so far as investigating the possibility of a joint venture between the plaintiff and the University (or its research arm, and I will not distinguish between the two) in relation to the cyclotron. That went as far as a formal proposal, which apparently Mr Farag continued to investigate. Mr Farag did not report any of this to Mr Bagerdijan or others senior to him in the GMS group. 6While all this was happening, Mr Farag appears to have applied for a position with what became the first defendant, Axiom. Axiom is a "start-up" company owned by the Zuellig Group, a competitor of the GMS Group. 7Mr Farag resigned on 13 October 2011. Mr Simon resigned on 18 November 2011. On the plaintiff's evidence, neither of them told Mr Bagerdijan, or any other superior, that the University had proposed the joint venture to which I have referred. Nor did either of them mention the start-up of Axiom or their desire to work with it. 8The result of all this, on the plaintiff's case, is that the plaintiff has been denied access to the new or upgraded cyclotron that it needs for the purposes of its business. At least as significant, and perhaps more significant, is that, on the plaintiff's case, its start-up competitor, Axiom, has had access to such a cyclotron. It is the plaintiff's case that the ability to do a deal with the University was a maturing business opportunity that Messrs Simon and Farag were required to cultivate for the benefit of the plaintiff, not to divert and exploit for the benefit of Axiom. 9The third and fourth defendants, Ms Cornelius and Mr Quinn, appear to have been involved in all this. Indeed, it is the plaintiff's case that all of the personal defendants acted in concert, between themselves and with Mr Simon, to divert business opportunities of the plaintiff to Axiom. 10In addition, the plaintiff alleges against Ms Cornelius and Mr Quinn that in breach of their duties of employment, having procured a distribution agreement for the plaintiff with a German company known as Eckert & Ziegler, they neglected that business to the extent that Eckert & Ziegler terminated the distribution arrangement and, once Ms Cornelius and Mr Quinn went to Axiom, gave its business to Axiom. Again, the plaintiff says, that was a course of conduct designed to deprive it of that business opportunity. 11I am concerned today with the plaintiff's application for search orders against all the defendants. That directs attention to UCPR rule 25.20. The first requirement is that the plaintiff should satisfy the court that it has a strong prima facie case against each of the defendants on an accrued cause of action. 12The available evidence is substantial. It comprises some four affidavits, which have exhibits (in some cases, voluminous). The very brief narration I have given does no more than trace the barest outline of that evidence. However, on the basis of that evidence, I am satisfied that the plaintiff does indeed have a strong prima facie case that the second to sixth defendants (the personal defendants) have neglected and breached their fiduciary and contractual duties as employees, and in some cases their statutory duties as officers. That they appear to have done, on the evidence and on the plaintiff's submissions, by diverting aspects of the plaintiff's business opportunities to Axiom, to the detriment of the plaintiff, the direct benefit of Axiom and the indirect benefit of themselves. 13As against Axiom, the case is put that it has received confidential information of the plaintiff in circumstances that must have made it plain to Axiom (at least through the knowledge of Mr Farag) that the information in question was confidential. The plaintiff argues that it is clear, or at least "highly likely" that Axiom knowingly made use of that confidential information in its dealings with the University and with Eckert & Ziegler. 14In addition, the plaintiff says, Axiom has exploited a maturing business opportunity of the plaintiffs which, Axiom must have known through Mr Farag, was property of the plaintiff. On that basis, the plaintiff says, it has a Barnes v Addy [1874) 9 Ch App 244] case against Axiom. 15The second requirement of the rule which is required to be satisfied is that the plaintiff will suffer potential or actual loss or damage if the search order is not made. In the circumstances of this case, that is closely tied up with the third requirement, that it be shown there is a likelihood that the defendants possess important evidentiary material which they might destroy if given any opportunity to do so (a rough but sufficient paraphrase). 16It is clear, on the plaintiff's case, that it may have lost significant advantages and business opportunities. It is equally clear, on the plaintiff's case, that in order to obtain access to a cyclotron (in the event, as it has turned out, that the University's cyclotron may be unavailable), it will be required to spend substantial sums either to upgrade the Southernex cyclotron or to build or acquire access to another one. 17Finally, it is clear that the plaintiff, on its case, has a substantial claim against the defendants including variously for damages and account of profits. 18The potential or actual loss to the plaintiff, of the benefit of those alleged causes of action, is to be measured by reference to the likely availability or unavailability of further evidence. That is why I have said that the second and third requirements of the rule are inter-related. 19The plaintiff has caused to be carried out an analysis of its computer records. It has demonstrated, by that analysis, that each of the personal defendants from time to time used personal email addresses, including in conjunction with the plaintiff's business. It shows, further, that after Mr Farag applied for a job with Axiom and shortly before he accepted a job offer, he ceased dealing by email with the University, at least using the plaintiff's email servers. That is somewhat surprising, given that the dealings were on the plaintiff's business, and hitherto had been conducted using the plaintiff's servers. It is open to infer, on the evidence, that Mr Farag conducted his communications with the University through other email addresses, so as to keep them secret from the plaintiff. 20There is some evidence that Mr Farag had access to the plaintiff's email server after he ceased employment, at least for a relatively short while. 21Finally, there is some evidence that Mr Farag and Ms Cornelius forwarded to themselves, at private email addresses, documents relating to a tender that the plaintiff might undertake and to a supplier to the plaintiff. It is entirely unclear why the ordinary course of their duties with the plaintiff would have required them to do this. 22The analysis that has been carried out shows also that each of the personal defendants engaged in significant deletions of emails at times shortly prior to their resignations and the termination of their employment. The expert in question characterises these as "spikes" in deletions. Although the emails themselves have been deleted, the expert has been able to determine, from the traces of information that remain, that many of the emails were work related. It is open to infer in at least some cases that the deleted emails related to the University and its cyclotron. 23Further, in relation to Mr Farag, there is evidence from the computer expert that Mr Farag made extensive attempts to find out how hidden files could be located (which, it could be thought, was done to enable him to locate them with a view to deleting them). Further, between 6pm and midnight on Mr Farag's last day of employment, he engaged in a further campaign of deletions and, having done that, uploaded an entire movie film to the email server. That was deleted shortly afterwards. A consequence of this, if not its purpose, was to make more difficult recovery of material that had been previously deleted. 24In those circumstances, it is open to infer that each of the personal defendants has acted in a way designed to hinder or prevent the plaintiff in having access to what might be important information on the plaintiff's own email servers and computer systems. On that basis, I conclude, on the evidence before me, that there is certainly a real possibility that, unrestrained, the defendants might destroy incriminating material on their own computers now if they get wind of these proceedings. 25Thus, I am satisfied, the plaintiff has made good the requirements of rule 25.20. 26It is necessary, of course, to consider the impact on the defendants of the orders that are sought. First, the making of the orders will constitute a very significant intrusion into the defendant's business and personal affairs. It is inevitable that, if the orders are made, much of the material that is recovered through execution of the orders will turn out to be personal, and much will turn out to be completely irrelevant to anything likely to be an issue in these proceedings. 27Further, the very process of execution, involving as it does giving the plaintiff's solicitors and experts access to the defendant's properties and to their computers, is intrusive. However, the extent of that intrusion has to be measured against the fact that, on the plaintiff's evidence, it is open to infer that the defendants have acted privily and in concert to set up a business in competition with the plaintiff's business, and to divert to that new business information and business opportunities of the plaintiff's. To the extent that this case can be made good, one could conclude that the defendants are in large extent the authors of the inconvenience they will suffer. 28I also take into account the limitations proposed by the plaintiff on the enforcement of the orders. It is proposed that the enforcement will be effected at the business premises of Axiom and at the homes of each of the personal defendants. Each search will be undertaken in the presence of an independent solicitor and by an independent computer expert. Further, it is proposed that no-one will have access to such material as may be recovered by the expert from the computers, and as may otherwise be recovered, without the leave of the court. That leave would not be given (if at all) until the defendants have been given an opportunity to be heard on the matter. 29In those circumstances, and balancing as best I can the case the plaintiff has made out with the undoubted significant intrusion into the defendants' personal lives, I am satisfied that appropriate steps have been or will be taken to modify, so far as possible, the undoubtedly significant impact of the orders on the defendants. 30I take into account also that the plaintiff offers the requisite undertakings, as does the plaintiff's solicitor, and that the independent solicitors and independent computer expert likewise offer the requisite undertakings. 31For those reasons, I am satisfied it is appropriate to make the orders sought, as modified in the course of discussions with Senior Counsel for the plaintiff. 32I note that the plaintiff gives to the court the "Undertakings Given to the Court by the Applicant" set out in schedule B to the form of search order which is Annexure B to the notice of motion filed in court today (the draft order). 33I note that the plaintiff's solicitor, Mr Philip Jacob Hoser, gives to the court the "Undertakings Given to the Court by the Applicant's Solicitor" in schedule B to the draft order. 34I note that the partner or employees of Mr Hoser who will assist in the execution of the search orders each gives to the court the undertakings set out in paras 3 to 8 of the "Undertakings Given to the Court by the Applicant's Solicitor" set out in the draft order. 35I note that each of the independent solicitors gives to the court the undertakings set out under the heading "Undertakings Given to the Court by the Independent Solicitor" set out in schedule B to the draft orders. 36I note that each of the independent computer experts gives to the court the undertakings set out under the heading "Undertakings Given to the Court by the Independent Computer Expert" set out in schedule B to the draft orders. 37Upon production of the forms of order sought, I will make orders against each of the defendants accordingly. I direct that these orders be entered forthwith.