Supreme Court New South Wales Medium Neutral Citation: Pritchard Lees Pty Ltd v Cathleen Heather [2013] NSWSC 1521 Hearing dates: 9 October 2013 & 16 October 2013 Decision date: 16 October 2013 Jurisdiction: Equity Division Before: Slattery J Decision: Application for preliminary discovery granted. Defendant to swear and serve on the plaintiff an affidavit setting out the details of persons from whom she received the identified confidential documents. Catchwords: PROCEDURE - application for preliminary discovery under UCPR, r 1.4 - discovery sought in the form of an affidavit setting out the details of persons from whom the defendant received particular documents - a director of the plaintiff and the defendant are former spouses - the plaintiff company runs an accounting practice - the defendant revealed that she has in her possession documents of the practice - whether the documents are prima facie confidential - whether it should be inferred that the documents were provided to the defendant by a third person - whether the preliminary discovery sought offends the "mere witness rule" - whether preliminary discovery should be granted - whether the plaintiff should pay the defendant's costs. Legislation Cited: Uniform Civil Procedure 2005, rr 5.1, 5.2 Cases Cited: Bio Transplant Inc v Bell Potter Securities Ltd [2008] NSWSC 694 Computershare Ltd v Perpetual Registrars Ltd & Ors (2000) 1 VR 626 Mercantile Group (Europe) AG v Aiyela [1994] QB 366; [1994] 1 All ER 110 McLean v Burns Philip Trustee Co Pty Ltd (1985) 2 NSWLR 623 Norwich Pharmacal Co v Customs and Excise Cmrs [1974] AC 133 Sega Enterprises Limited v ALCA Electronics [1982] FSR 516 Totalise plc v Motley Fool Ltd [2002] 1 WLR 1233 Category: Procedural and other rulings Parties: Plaintiff:- Pritchard Lees Pty Ltd Defendant:- Cathleen Heather Representation: Counsel: Plaintiff:- J. O'Connor Defendant:- A. Radojev Solicitors: Plaintiff:- Christopher Sydes, Pigott Stinson Defendant:- Kenneth Richard Montague Stidwill, Stidwill Solicitors File Number(s): 2013/203849 Publication restriction: No. EX TEMPORE Judgment 1Robin Raymond Lees and Douglas Pritchard conduct practice as chartered accountants in Annandale through the corporate entity Pritchard Lees Pty Limited ("Pritchard Lees"), the plaintiff in these proceedings. The defendant in the proceedings is the former wife of Mr Pritchard, Cathleen Heather. After unhappy matrimonial differences, Mr Pritchard and Ms Heather separated, apparently under the one roof, in March of 2011, and then separated entirely on or about 11 July 2011. There are proceedings in the Family Court of Australia between them which, I understand, are not fully resolved. 2The plaintiff Pritchard Lees applies for preliminary discovery. The application arises out of exchanges that occurred between Mr Pritchard and his former wife on Australia Day this year. In short, she revealed to him, so the evidence shows at least to a prima facie level, that she had confidential documents of the plaintiff's practice. Ms Heather gave certain documents to Mr Pritchard and intimated indirectly that they had been obtained from the practice by persons other than her. The present application is brought under the Court's inherent power to give preliminary discovery to assist in the commencement of proceedings against the person or persons who gave the documents to her. 3I am satisfied for the reasons that follow that this is a case in which preliminary discovery should be granted. Mr O'Connor of Counsel appears for the plaintiff and Mr Radojev of Counsel appears for the defendant. 4The plaintiff has put its submissions solely on the basis of common law doctrines of preliminary discovery. The Court has powers under Uniform Civil Procedure ("UCPR"), r 5.2 to make orders for the revealing of the identity or the whereabouts of a person to assist a plaintiff to commence proceedings against that unknown person. Pritchard Lees indicates that it does not rely upon this provision. But there is a very substantial overlap in the relevant considerations that the Court should address in dealing both with UCPR, r 5.2 and the common law principle; but first to the facts. The nature of the Confidential Information 5The plaintiff says its confidential information is in the hands of Ms Heather and unknown third persons. It identifies and establishes the information is confidential in the following way. The information is said to be largely taken from a MYOB accounting system conducted within the plaintiff's practice since the year 2000. The accounting system was not password protected within the firm until April 2013 and was therefore accessible to employees or other persons at the practice. The MYOB system records, in respect of the practice's clients, many aspects of their financial affairs. The MYOB records show for any transaction with Pritchard Lees: the name of the client, the type of transaction, the date of the transaction, the entity from whom any deposit is received, a description of the transaction, the amount of the transaction and the balance of the client's trust account. The MYOB data files allow a "Account Quick Report" to be printed out containing a history of transactions relating to a particular client or clients. 6I am satisfied on the basis of Mr Lees' and Mr Pritchard's evidence such that information was generated for the purposes of the Pritchard Lees practice and was kept, although not password protected, in circumstances that imply it was information confidential to the practice. 7The first indication that unauthorised access to this Pritchard Lees information may have been obtained occurred at the meeting on Australia Day this year. On that day Ms Heather arranged to meet with Mr Pritchard at a park in the southern suburbs of Sydney. She and he had domestic discussions, undertook some exchanges about their matrimonial affairs and a possible property settlement, none of which needs to be included in this judgment. But what seems clear on the evidence that Ms Heather appears to have made an offer to settle her matrimonial differences with Mr Pritchard as to property. In doing so the evidence would support the conclusion that Ms Heather indicated a willingness to provide information about clients of the practice to third parties. The evidence also is that at the same time she handed a bundle of documents to Mr Pritchard in a manila folder. Those documents have been tendered before me in these proceedings and have been marked as Exhibit A. 8The documents in Exhibit A are of two kinds. One is a document dated 30 November 2009 and entitled "Share Sale and Shareholders Agreement" made between Mr Lees and Mr Pritchard and what appears to be their family companies. The Court is not further concerned with this document, which is not the subject of any claim in this application. The other documents in Exhibit A, which, for the purposes of these proceedings, will be described as "the remaining Exhibit A documents" are 29 documents of the same kind: MYOB printouts or reports of transactions of the practice in respect of the affairs of clients. The printouts are all done on one of two dates. They are mostly done on 17 November 2012 and some on 6 November 2012. And they also appear to be copies of account transactions in respect of Mr Lees' and Mr Pritchard's loan accounts with the plaintiff company. The 29 documents are more fully described in the orders made at the conclusion of these reasons. 9At the time that Ms Heather handed the documents over on Australia Day, Mr Pritchard says that he said to her among other things, "How did you obtain these confidential documents?" To which she said, "You think [you] have many friends but I don't think you know how many enemies you have". He said in reply, "You are blackmailing me." She said, "Call it what you like. It is your practice so you and Rob will no doubt work out what is best for you." 10Mr Pritchard says that he then reported the matter to a police station in the City of Sydney a few days later but the police declined to become involved because it was a domestic matter. Mr Pritchard revealed the contents of this conversation and showed the documents to Mr Lees by the end of June. For reasons that are difficult to understand it took the plaintiff company until 16 May 2013 to send the first letter of demand to Ms Heather for the return of these documents and to seek information about how the documents had got into her possession. No satisfactory response was received and so Pritchard Lees commenced these proceedings. The Relief Sought 11The Amended Summons now before the Court seeks orders against Ms Heather for the return of the remaining Exhibit A documents. Relief may ultimately be sought against Ms Heather for the return of any other confidential documents she has obtained in respect of the plaintiff's practice, but that is not the subject of today's application. 12The plaintiff seeks today prayer for relief 4(b) in its Amended Summons: an order that within seven days the defendant swears and serves on the plaintiff an affidavit setting out the full name and address of the person and/or persons from whom she received the plaintiff's documents. 13First, Pritchard Lees must show that there is evidence from which it could be inferred that there is some person from whom the defendant received the plaintiff's documents. In my view, Pritchard Lees has made out on the evidence that there is likely to be such a person. The way that it does this involves closer examination of the evidence. 14Ms Heather says in an affidavit that any documents in her possession which pre-date 30 June 2011 she had downloaded from Mr Pritchard's personal laptop before 11 July 2011, when she left their joint household. For present purposes that can be accepted. I have no reason to infer otherwise on the evidence before me. But Pritchard Lees says that documents in Ms Heather's possession post-dating 30 June were not accessed in this way. Indeed, Ms Heather admits that. Firstly, on their face, the automatic date labelling system on the MYOB printouts in the remaining Exhibit A documents shows that they were printed out on either 6 or 17 November 2012. And Ms Heather says in her evidence that these documents "were provided to me after December 2012". Her evidence, as to how the material "was provided" to her is vague. But on all the material before the Court, and given that the marital separation had occurred by then, and given the nature of the correspondence that seems to have passed between these parties, it seems highly unlikely that the practice gave her authorised access to this material. 15Ms Heather's statement to Mr Pritchard about having "enemies" is a sufficient basis, in my view, to infer that there was likely to be a third person involved, despite the lack of clarity in her admission as to who gave the documents to her. I infer there is likely to be someone from whom the defendant received the remaining Exhibit A documents and in respect of whom the order sought by the plaintiff could be made. 16Accordingly, I move to the next question of the applicable principles that govern the exercise of the Court's discretion in this case. Exercising the Discretion 17In his helpful written submissions Mr O'Connor has pointed out that the Court is exercising a well-known component of the Court's inherent jurisdiction, preserved by UCPR, r 1.4. There are many examples of such orders being made, both in England and in Australia: see Norwich Pharmacal Co v Customs and Excise Cmrs [1974] AC 133 ("Norwich Pharmacal"); Sega Enterprises Limited v ALCA Electronics [1982] FSR 516; Mercantile Group (Europe) AG v Aiyela [1994] QB 366; [1994] 1 All ER 110 per Lord Justice Hoffman at 376, and Computershare Ltd v Perpetual Registrars Ltd & Ors (2000) 1 VR 626; [2000] VSC 139. 18The principle upon which the Court acts in these cases is that, to order discovery of the names and addresses of a third party, it is necessary to show that the third party has become "mixed up" in the relevant transaction concerning which discovery is required. And the discovery sought must not offend against what is known as the "mere witness rule", a rule that prevents a party from obtaining discovery against a person who, "will in due course be compellable to give that information, either by oral testimony, or as a witness on a subpoena duces tecum". 19The "mere witness rule" assumes that, the testimony will eventually be available in an action already in progress, or an action which will be brought later. But if the information cannot otherwise be made available by discovery, as is often the case in applications for preliminary discovery, no action can ever be begun. For that reason, the "mere witness rule" is not offended. 20The principles stated in the English cases have been reiterated in Australia: cf Computershare Ltd v Perpetual Registrars Ltd & Ors (2000) 1 VR 626; [2000] VSC 139 at [16]-[19]; and see also Young J in McLean v Burns Philip Trustee Co Pty Ltd (1985) 2 NSWLR 623; (1985) 9 ACLR 926. 21This is a case, in my view, where the discretion should be exercised in the plaintiff's favour. Pritchard Lees has stated that, once it gets this information, it intends to sue the person who obtained the information from the practice and gave it to the defendant. In my view, that takes the case out of the "mere witness rule" category. 22It also seems to me to be a case in which this third person has arguably, become "mixed up in the transaction" the subject of the existing proceedings. The existing proceedings seek return of this confidential information from Ms Heather, and it is probable she could only have obtained this information through this person. If she did obtain the information from this third person, then the obligation of confidence owed by the third person to the plaintiff is of a very similar kind to that owed to it by Ms Heather. 23Mr Radojev has argued: (1) that this is a fishing expedition; and (2) that the plaintiffs have not articulated their case as to the cause of action which is sought. But, in my view, Mr O'Connor's submissions make clear that the plaintiff expects that it has a claim against this third person based on his or her possession of the plaintiff's confidential information. 24For those reasons, I am prepared to make the orders sought. 25The proceedings are listed before me on 7 November 2013. The best course, it seems to me, is to make orders for the provision of an affidavit before that date and to make the proceedings returnable on 7 November for any argument that needs to take place about costs. Costs Issues 26Pritchard Lees' submission is that Ms Heather should pay its costs of this application and, if not, that the costs be the parties' costs in the proceedings. 27In answer Mr Radojev seeks that Pritchard Lees pay Ms Heather's costs. Surprising as Mr Radojev's submission may seem, such a costs outcome is not uncommon in this kind of case: Bio Transplant Inc v Bell Potter Securities Ltd [2008] NSWSC 694 ("Bio Transplant"). 28In Bio Transplant Barrett J applied Totalise plc v Motley Fool Ltd [2001] EWCA 1897; [2003] 2 All ER 872; [2002] 1 WLR 1233 ("Totalise") in Australia. His Honour stated the principle as that, in the normal case, where preliminary discovery applications are not adversarial and the person from whom discovery is sought does not resist, it is inappropriate to apply the usual rule that the costs follow the event. 29And cases such as Norwich Pharmacal recognise that a just outcome on costs in such matters will often be that the applicant for discovery should pay the costs of the person against whom discovery is sought. Lord Cross explained in Norwich Pharmacal that this was the apt order in the usual case:- "...in any case in which there was the least doubt as to whether disclosure should be made the person to whom the request was made would be fully justified in saying that he would only make it under an order of the court.". 30And such a person would, ordinarily, have his costs. But the costs discretion has been put more broadly. As Barrett J noted in Bio Transplant at [15], in Totalise the Court of Appeal explained (at [2002] 1 WLR 1233, at 1241 A-C) there can be many reasons why the party against whom a discovery order is sought should have the benefit of a costs order:- "The court when considering its order as to costs, after a successful Norwich Pharmacal application should consider all the circumstances. In a normal case the applicant should be ordered to pay the costs of the party making the disclosure including the costs of making the disclosure. There may be cases where the circumstances require a different order, but we do not believe they include cases where: (a) the party required to make the disclosure had a genuine doubt that the person seeking the disclosure was entitled to it; (b) the party was under an appropriate legal obligation not to reveal the information, or where the legal position was not clear, or the party had a reasonable doubt as to the obligations; or (c) the party could be subject to proceedings if disclosure was voluntary; or (d) the party would or might suffer damage by voluntarily giving the disclosure; or (e) the disclosure would or might infringe a legitimate interest of another." 31The complexity of such considerations means that I should not decide questions of costs now. Some of the possible circumstances referred to in the Totalise may become clearer once Ms Heather provides information in accordance with the Court's orders. So I will reserve questions of costs until then. But if the parties want to put on any further evidence in relation to costs they should do so by 4 November 2013, and I will adjourn the proceedings to 7 November 2013. Orders 32His Honour makes the following orders and directions: - (1)Order that by 4pm on Friday, 1 November 2013 the defendant should swear and serve on the plaintiff an affidavit setting out the full name and address of the person and/or persons from whom the defendant received the documents set out in Schedule A of these orders. (2)Direct the parties to file and serve any further evidence on which they wish to rely to argue any remaining issues of costs by 5pm on 4 November 2013. (3)Direct the parties to file and serve any submissions on costs or any other remaining relief they seek in these proceedings by 4pm on 6 November 2013. (4)Matter stood over for hearing to 7 November 2013 on any remaining issues. (5)Costs reserved. (6)Liberty to apply on 2 days notice. Schedule A List of Plaintiff's Documents Account Transaction Statements in respect of the following accounts: A/c 2-5100 (Loan - Doug Pritchard) 1.7.09 to 30.6.10 A/c 2-5100 (Loan - Doug Pritchard) 1.6.04 to 30.6.11 A/c 2-5200 (Loan - Rob Lees) 1.6.04 to 30.6.11 A/c 2-5200 (Loan - Rob Lees) 1.7.09 to 30.6.10 A/c 1-0150 (NAB 59849 9370) 4.7.08 to 4.8.11 A/c 1-1000 (Loan to Doug Pritchard) 1.7.08 to 4.8.11 A/c 2-1200 (Trade Creditors) 1.6.04 to 30.6.10 A/c 2-1205 (Other Client Creditors) 1.1.04 to 30.6.11 A/c - "Wayne E Costin" - 13.8.07 to 19.11.09 A/c - "Brentnalls Assurance" - 5.12.05 to 30.3.06 A/c - "Burns & Burns P/L" - 5.12.05 to 30.6.09 A/c - "Burns, Richard & Julie" - 5.12.05 to 31.1.10 A/c - "Edge Facilities Management" - 30.3.09 to 21.4.09 A/c - 1-0100 (St George 552467653) - 1.6.04 to 30.6.12 A/c - "Fluid Seals &Packings" - 22.5.07 to 8.4.10 A/c - "Fodder King Limited" - 20.12.05 to 15.3.11 A/c - "Glenn McAloon& Sons Plumb P/L" - 5.12.05 to 30.3.11 A/c - "Hilton, Norm" - 9.5.07 to 8.4.11 A/c - "Peter Hocking" - 9.5.07 to 9.9.09 A/c - "I Technology" - 5.12.05 to 23.11.10 A/c - "Jessica & Andrew Family Trust" - 2.4.07 to 16.3.10 A/c - "Laurence Brwning Pty Ltd" - 3.1.06 to 6.8.07 22. A/c - "Little Green Dragon" - 25.1.06 to 2.5.08 23. A/c - 1-0200 (Trade Debtors) 7.6.07 to 30.6.09 24. A/c - "Changes in QuickBooks ledger account" - 31.3.2011 to 30.4.2011 25. A/c - "P L Fund" - 31.12.05 to 23.2.11 26. A/c - "P L Suspense" 23.8.10 to 23.2.11 27. A/c - "Morlake P/L" 5.12.05 to 3.8.11 28. A/c - "Brentnalls Assurance Trust Account - Internet Distribution - November 2004" 29. A/c - "Brentnalls Assurance GST Hold" - 5.12.05 to 20.4.06 ********** 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. Decision last updated: 17 October 2013