Supreme Court New South Wales Medium Neutral Citation: Wright Medical Australia Pty Limited v Johnston [2017] NSWSC 761 Hearing dates: 16 March 2017 Date of orders: 20 June 2017 Decision date: 20 June 2017 Jurisdiction: Equity Before: Hallen J Decision: The parties are to provide either agreed, or competing, draft orders, to give effect to these reasons within 21 days of the date of this judgment, or such further time as may be directed having regard to the likely need for a confidentiality regime, including as to the terms of the preliminary discovery order and as to costs. Catchwords: PRACTICE & PROCEDURE – Preliminary discovery - Whether applicant/Plaintiff lacks sufficient information to decide whether to institute proceedings - Whether applicant/Plaintiff had made reasonable inquiries – Whether sufficient information available to applicant/Plaintiff prior to application for preliminary discovery - Whether categories of preliminary discovery sought too wide – Order made for limited preliminary discovery – Parties to consider confidentiality regime and return of documents if proceedings not commenced Legislation Cited: Civil Procedure Act 2005 (NSW) Corporations Act 2001 (Cth) Interpretation Act 1987 (NSW) Uniform Civil Procedure Rules 2005 Cases Cited: Aus Steel Pty Ltd v Marco Properties Pty Ltd [2014] NSWSC 550 Bianca Hope Rinehart v Georgina Hope Rinehart [2015] NSWSC 205 BJ Bearings Pty Ltd v Whitehead [2016] VSC 44 Contour Building and Construction Pty Ltd v Kerr [2008] NSWSC 883 Fantid Pty Ltd v Jinyi Xing [2011] NSWSC 401 Glezer v Deals.com.au [2014] VSC 202 Hatfield v TCN Channel Nine Ply Ltd [2010] NSWCA 69 Ian Edward Morton v Nylex Ltd [2007] NSWSC 562 Kevin Young v The Neil Jenman Group Pty Limited [2015] NSWSC 1908 Liu v The Age Company Limited [2016] NSWCA 115 Murray v Wheeler [2013] NSWSC 137 Optiver Australia Pty Ltd v Tibra Trading Pty Ltd [2008] FCAFC 133 Papaconstuntinos v Holmes à Court [2006] NSWSC 945 RinRim Pty Limited v Deutsche Australia Limited [2013] NSWSC 1762 Yes Family Pty Ltd v Sphere Healthcare Pty Ltd [2016] NSWSC 393 Category: Procedural and other rulings Parties: Wright Medical Australia Pty Limited (Plaintiff) Colin Johnston (First Defendant) Bradley James Ryan (Second Defendant) CAB Medical Pty Ltd (Third Defendant) Representation: Counsel: Mr S R Meehan (Plaintiff) Mr T Flaherty (Defendants) Solicitors: Hall & Wilcox (Plaintiff) Michael Flaherty Solicitor (Defendants) File Number(s): 2016/297974 Judgment Introduction 1. HIS HONOUR: The proceedings before the Court concern, primarily, preliminary discovery. Consequential relief if an order is made is also sought. 2. By Summons filed on 6 October 2016, the Plaintiff, Wright Medical Australia Pty Limited, sought an order pursuant to Uniform Civil Procedure Rules 2005 ("UCPR") rule 5.3, that the first Defendant, Colin Johnston ("Johnston"), the second Defendant, Bradley James Ryan ("Ryan"), and the third Defendant, CAB Medical Pty Limited ("CAB"), each provides discovery of "all documents that are, or have been, in their possession in the categories set out in Attachment A to this Summons." The Plaintiff also sought an order in the nature of access for the inspection, and copying, of the discovered documents. 3. On 13 March 2017, that is two days before the hearing of the application, the Plaintiff sought to amend the categories of documents sought by providing an amended Attachment. The amended Attachment identified the following categories of documents being sought: "Documents sought by Wright Medical 1. Categories of documents for Mr Colin Johnston, the First Defendant: (a) Documents recording or evidencing any communications between Mr Johnston and Mr Ryan in the period 30 September 2015 to 15 June 2016, which: (i) refer to CAB Medical; or (ii) refer to business opportunities or potential business opportunities (whether CAB Medical is referred to specifically or otherwise); or (iii) otherwise describe business strategies, processes or initiatives which do not relate to Wright Medical (whether CAB Medical is referred to specifically or otherwise); or (iv) refer to Wright Medical Customers which are not communications sent in the course of Mr Johnston's or Mr Ryan's employment with Wright Medical. (b) Documents recording or evidencing all communications between the Mr Johnston and Wright Medical Customers in the period from 1 January 2016 to 15 June 2016. (c) Documents containing any Confidential Information. (d) Documents recording or evidencing income received by Mr Johnston from Wright Medical Customers in the period 30 September 2015 to 15 June 2016. (e) Documents recording or evidencing income received by CAB Medical from Wright Medical Customers in the period 30 September 2015 to 15 June 2016. 2. Categories of documents for Mr Ryan, the Second Defendant: (a) Documents recording or evidencing any communications between Mr Ryan and Mr Johnston in the period 30 September 2015 to 18 June 2016, which: (i) refer to CAB Medical; or (ii) refer to business opportunities or potential business opportunities (whether CAB Medical is referred to specifically or otherwise); or (iii) otherwise describe business strategies, processes or initiatives which do not relate to Wright Medical (whether CAB Medical is referred to specifically or otherwise); or (iv) refer to Wright Medical Customers which are not communications sent in the course of Mr Ryan's or Mr Johnston's employment with Wright Medical. (b) Documents recording or evidencing all communications between Mr Ryan and Wright Medical Customers in the period from 1 January 2016 to 18 June 2016. (c) Documents containing any Confidential Information. (d) Documents recording or evidencing income received by Mr Ryan from Wright Medical Customers in the period 30 September 2015 to 18 June 2016. (e) Documents recording or evidencing income received by CAB Medical from Wright Medical Customers in the period 30 September 2015 to 18 June 2016. 3. Categories of documents for CAB Medical: (a) Documents recording or evidencing all communications between any officer, employee or agent of CAB Medical on the one hand, and any Wright Medical Customers on the other hand, in the period 30 September 2015 to 18 June 2016. (b) Documents recording or evidencing sales by CAB Medical of Hallux Valgus products, MI products, Hind Foot Fusion products, Forefoot Fusion products and Ortholoc Fracture products to Wright Medical Customers relating to the period 30 September 2015 to 18 June 2016. (c) Documents recording any payments made or due to CAB Medical by or from any Wright Medical Customers in respect of the purchase of Hallux Valgus products, MI products, Hind Foot Fusion products, Forefoot Fusion products and Ortholoc Fracture products in the period 30 September 2015 to 18 June 2016. (d) Documents recording any payments made by CAB Medical, or due to be made by CAB Medical, to either Mr Johnston or Mr Ryan in relation to sales by CAB Medical of Hallux Valgus products, MI products, Hind Foot Fusion products, Forefoot Fusion products and Ortholoc Fracture products in the period 30 September 2015 to 18 June 2016. 4. For the purposes of the orders sought in paragraphs 1, 2 and 3 of this Attachment A: (a) a reference to 'Confidential Information' means confidential information of Wright Medical and includes: (i) customer lists and revenue information, (including Wright Medical's 'Top Ten Surgeon' lists); (ii) sales and marketing strategies for the Australian and global businesses of the Wright Medical Group; (iii) pricing lists, strategies and pricing information for the Australian and global businesses of the Wright Medical Group; (iv) financial information, including information regarding Wright Medical Customer's current and/or historical expenditure with Wright Medical; (v) business plans (including sales and marketing plans) and strategies including information about growth products; (vi) company presentations; (vii) product specifications, manuals and product lists; and (viii) any other information relating to Wright Medical's business which is not in the public domain, whether or not marked as confidential; (b) a reference to a 'document' means any record of information, and includes: (i) anything on which there is writing, or (ii) anything on which there are marks, figures, symbols or perforations having a meaning for persons qualified to interpret them, or (iii) anything from which sounds, images or writings can be reproduced with or without the aid of anything else, or (iv) a map, plan, drawing or photograph; (c) a reference to 'Wright Medical Customers' means Dr Andrew Wines, Dr Peter Lam, Dr Jake Kaplan, Dr David Lunz and Dr Anthony Bradshaw and includes businesses operated by these individuals." 1. Needless to say, each of the Defendants has opposed the orders sought in the Summons and the production of any of the documents identified in the amended Attachment. Each submits that the categories of documents sought are too wide, and that if an order for their production were granted, it would be oppressive. 2. However, during submissions, counsel for the Defendants, without objection, tendered a letter dated 13 March 2017 (Ex. 1), which included the following passages: "However, in the event the Court is minded to order preliminary discovery, my clients would not oppose the provision of: "all correspondence, including orders, invoices and receipts between the Defendants (or any of them) and Dr Andrew Wines, Dr Peter Lam, Dr Jake Kaplan, Dr David Lunz and Dr Anthony Bradshaw ("the Customers") with respect to any good sold or delivered to the Customers by the Third Defendant for the period 11 March 2016 to 11 June 2016 with respect to products of a similar nature and function distributed by the Plaintiff in New South Wales." Please note so there can be no misunderstanding, my clients' comments above as to the width of the categories for discovery does not derogate at all from my clients' firm view and position that your client has no entitlement to preliminary discovery in this matter." The Evidence 1. The Plaintiff relied upon the affidavit, affirmed 5 October 2016, of Ms B C Roberts, the Country Manager for Australia of the Plaintiff (comprising 97 pages, with annexures), only part of one paragraph that was not read; an affidavit, sworn 30 September 2016, of Ms B J Christmas, a senior Product Specialist, employed by the Plaintiff (comprising 6 pages, with no annexures); and an affidavit of Ms Roberts, affirmed 9 December 2016, in reply. Each of the affidavits was read without objection and neither of the deponents were cross-examined. 2. The Defendants relied upon an affidavit of Johnston, affirmed 30 November 2016; an affidavit of Ryan, affirmed 30 November 2016; an affidavit, affirmed 28 November 2016, of Dr Peter Lam, an Orthopaedic Foot and Ankle Surgeon; and an affidavit, affirmed 28 November 2016, of Dr Andrew Wines, who is also an Orthopaedic Foot and Ankle Surgeon. Each of the affidavits was read, without objection, and none of the deponents were cross-examined. Background 1. I have taken some of the following fact outline from the Plaintiff's submissions, as, for the purposes of the application (except where otherwise indicated), there appears to be no dispute regarding the outline: T5.19 – T5.20. Other facts I have taken from the affidavit evidence to which reference has been made. Unless agreed, or regarded as admissions by one, or other, of Johnston and/or Ryan, the facts to which I shall refer should not be taken as factual findings. The Court cannot, at this stage, reach any conclusion as to the likelihood of ultimate success at trial. 2. It is sufficient for the purposes of the application, if the evidence, although falling short of establishing all the ingredients of a prima facie case, might point sufficiently to the existence of a case for relief as to make it proper, in the interests of justice, that preliminary discovery be ordered so that proceedings for that relief could be brought. 3. Another reason for identifying the fact outline is to demonstrate the Plaintiff's knowledge and its understanding of the claims for relief that might be brought, at least by the time of the commencement of these proceedings, and, certainly, by the date of the hearing of the application on 16 March 2017. Which of the facts will be able to be established if the matter proceeds to trial, no doubt, will depend upon admissions made in the pleadings, the evidence, ultimately, relied upon, and the cross-examination of witnesses. 4. The Plaintiff is the Australian arm of the Wright Medical Group, a global medical device company specialising in the design, manufacture and marketing of orthopaedic surgical devices for extremities and biologics. 5. In about September 2015, the Plaintiff acquired part of the business of Surgical Specialties Pty Ltd ("Surgical Specialties") which is an independent distributor of medical devices, and which had been a distributor for Wright Medical products. 6. Immediately prior to the acquisition, Johnston and Ryan were both employed by Surgical Specialties. 7. Johnston had commenced employment with Surgical Specialties in April 2014. His job title was "National Business Development Manager M.I. Technologies - Biologics, Extremities & Critical Care Division". 8. The letter of appointment dated 14 March 2014, pursuant to which Johnston had been appointed, included a clause headed "Non-solicitation/compete clause", which provided: "For a period of three months following termination of employment with Surgical Specialties for any reason, you agree not to directly or indirectly induce, recruit or solicit any of Surgical Specialties clients or customers, whether potential or otherwise, with whom you had dealings with on behalf of Surgical Specialties during your employment. You also agree not to engage in any business similar to or in competition with the business of Surgical Specialties for a period of three (3) months. For the purpose of this agreement, "engaging in any business similar to, or in competition with the business of Surgical Specialties" shall include, without limitation: (i) engaging in such a business as an owner, partner or agent, (ii) taking employment with a third party engaged in such business either as an employee, contractor or consultant; or (iii) soliciting customers for the benefit of a third party engaged in such business." 1. It was a condition of Johnston's employment with Surgical Specialties that he was required to sign a document entitled "Confidential Information Agreement" in the form attached to the letter of appointment. The relevant covenant in the document stated: "2. I will not directly or indirectly during or after the term of my employment disclose to any person not authorized by the Company in writing to receive it, nor use except for the sole benefit of the Company: (a) any secrets or confidential information of the Company or in the Company's possession; (b) any information relating to the management, operations or planning of the Company." 1. On 14 March 2014, Johnston signed the Confidential Information Agreement attached to his letter of appointment. 2. In connection with its acquisition of Surgical Specialties, by letter dated 1 September 2015, the Plaintiff offered employment to Johnston, which he accepted. His job title was "Business Development Manager - F&A (foot and ankle)". 3. The Plaintiff's offer of employment to Johnston included the following: "We are very excited to establish this direct presence in Australia and would like to offer you employment in the position of Business Development Manager – F&A on the same terms and conditions set out in your current employment contract with Surgical Specialties dated 14 March 2014." 1. Johnston accepted the offer of employment and he commenced employment with the Plaintiff on or about 30 September 2015. 2. Notwithstanding that Johnston's letter of appointment with the Plaintiff described his position as "Business Development Manager - F&A", his position title, from the commencement of his employment with the Plaintiff, was "Marketing Manager, Foot & Ankle, Australia and New Zealand'. 3. The duties and responsibilities of the position of 'Marketing Manager' were essentially the same as those that Johnston had performed as 'Business Development Manager' at Surgical Specialties. According to the Plaintiff's evidence, Johnston was responsible for leading the development of product marketing strategies and promotion programs and activities for foot and ankle products in support of the Plaintiff's national sales targets and objectives. 4. A critical component of Johnston's role was to establish and maintain, on behalf of the Plaintiff, a strong working relationship with key customers. The key customer relationships managed by Johnston included the relationship with: 1. Dr Andrew Wines, an orthopaedic surgeon and foot and ankle specialist, and a long-standing customer of the Plaintiff (Dr Wines was based at Royal North Shore Hospital, North Shore Private, The Sydney Adventist Hospital (the San) and Castlecrag Private Hospital); 2. Dr Peter Lam, another Sydney based orthopaedic surgeon. He, too, was a key customer of the Plaintiff; 3. Dr Jake Kaplan, Dr David Lunz and Dr Anthony Bradshaw were other customers of the Plaintiff with whom Johnston (and Ryan) had dealings on behalf of the Plaintiff. Dr Kaplan, Dr Lunz and Dr Bradshaw were all orthopaedic surgeons specialising in foot and ankle surgery. 1. Ryan commenced employment with Surgical Specialties on or about 12 May 2014. His job title was "Product Specialist - Biologics & Extremities". 2. It was a condition of Ryan's employment with Surgical Specialties that he sign a document titled "Confidential Information Agreement" attached to his letter of appointment (which was in the same terms as set out previously in respect of Johnston). 3. Ryan signed the Confidential Information Agreement attached to his letter of appointment on 14 May 2014. 4. In connection with its acquisition of Surgical Specialties, by letter dated 1 September 2015, the Plaintiff offered employment to Ryan in the position of "Product Specialist". The Plaintiff's offer of employment made to Ryan included the following: "We are very excited to establish this direct presence in Australia and would like to offer you employment in the position of Product Specialist – F&A on the same terms and conditions set out in your current employment contract with Surgical Specialties dated 1 May 2014." 1. The Plaintiff's letter of appointment to Ryan included a "Non-solicitation/compete clause" and "Confidential Information Agreement" that was identical to that which was provided to Johnston set out above. 2. Ryan, also, accepted the offer made by the Plaintiff. He commenced employment with the Plaintiff on about 30 September 2015. 3. (At the hearing, the parties appear to have agreed that the relevant difference between the two offers was the position that each of Johnston and Ryan was to hold: T6.30 – T6.35. At the hearing, counsel for the Plaintiff stated that the offer of employment to each of Johnston and Ryan was conditional on the sale of Surgical Specialties to the Plaintiff, and that the employment with the Plaintiff was to commence on the same day as the business sale completed: T6.5 – 6.10. Nothing turns on these differences for the purposes of the application being dealt with.) 4. In the role of Product Specialist, Ryan was a sales representative, responsible for achieving sales revenue and market share targets for a designated territory by promoting, selling and supporting the Plaintiff's products to medical and surgical specialists and other clinical professionals. 5. Like Johnston, Ryan's role included establishing and maintaining, on behalf of the Plaintiff, a strong working relationship with customers. The Plaintiff submitted that Ryan, therefore, had an intimate knowledge of the products and also the product requirements of key clients of the Plaintiff. 6. In the course of his employment with the Plaintiff, Ryan was partly responsible for customer relationships with Dr Wines and Dr Lam. He was also required to provide product support to Dr Kaplan and to Dr Lunz, as well as being directly responsible for Dr Bradshaw. 7. Dr Lam, in the affidavit to which I have referred, deposed that Ryan saw him, occasionally, at St George Private Hospital, during most of 2015. 8. Johnston and Ryan attended the Plaintiff's international medical sales conference, in Barcelona, in early February 2016. The Plaintiff asserts that, at the conference, each would have become aware of detailed confidential information belonging to the Plaintiff. It was put that "they attended there with high level people in the organisation, Wright Medical's Chief Executive, the President and marketing team and they were privy to commercially sensitive and other confidential information including [the Plaintiff's] global sales plans": T6.40 – T6.49. 9. It appears that there is evidence that Johnston and Ryan, in January 2016, prior to travelling to this conference, had confided in each other that they would be resigning from their role with the Plaintiff. This is a matter admitted by Ryan in his affidavit affirmed 30 November 2016 in which he states: "I recall in late January 2016 [Johnston and I] had a conversation in which we both indicated to each other an intention to resign from the Plaintiff and look for other opportunities". 1. In his affidavit, affirmed 30 November 2016, Ryan deposed that over the first two weeks of February 2016, he and Johnston had decided to establish a company, namely CAB, to import medical devices and distribute them in Australia. 2. Johnston gave notice of his resignation the day after returning from the Barcelona conference, a matter not disputed by counsel for the Defendants. Johnston's employment ceased on 15 March 2016 and Ryan's ceased on 18 March 2016. On 22 March 2016, Ryan was observed attending at the operating theatre tea room at St Luke's Hospital where Dr Kaplan, was working. 3. CAB was registered on 18 February 2015, whilst Johnston and Ryan were both employed by Surgical Specialties. 4. The copy of the ASIC company extract relating to CAB, annexed to Ryan's affidavit, reveals that CAB was registered a year earlier than had been deposed to (on 18 February 2015), and that there has been no change in the shareholding since that time. Counsel for the Defendants, at the hearing, accepted that the statement made by Ryan in his affidavit that CAB was established on the 18 February 2016 was a typographical error, as the copy ASIC search annexed to the first Defendant's affidavit does clearly showed that CAB was registered on the 18 February 2015 (with the same error being made in the second Defendant's affidavit as well – T9.11 – T9.29). 5. The Plaintiff submitted that the Court should infer that CAB was registered, on behalf of Johnston and Ryan, in February 2015, notwithstanding that a nominee entity (CABM Nominees Pty Ltd) was then its registered shareholder. 6. Johnston and Ryan became employees of CAB on 21 March 2016 and directors of CAB on 4 April 2016. Two days later, Johnston was observed at North Shore Private Hospital, where Dr Wines was operating, with a trolley of products, including "Novastep plates and screws". 7. There was evidence that CAB had been active prior to February 2016 and that, whilst Johnston and Ryan were still in the employ of the Plaintiff, it had registered a number of medical devices on the Australian Register of Therapeutic Goods (ARTG), that were said to have been entered onto the Register between 2 April 2015 and 9 November 2015. 8. The Plaintiff also directed attention to the details on the ARTG register, showing Johnston's home address as the contact details for CAB. It was submitted that this demonstrated that Johnston, during the course of his employment with the Plaintiff, was assisting CAB to obtain registration of a range of medical devices. 9. Johnston deposed that his role with CAB "was limited to logistics". However, in a copy of Johnston's "LinkedIn Profile" (as at 6 December 2016), he described himself as "Director of Sales CAB Medical". 10. Ryan also deposed that he had the responsibility for CAB's finance and accounts, liaising with hospitals, regulatory affairs and dealing with suppliers, particularly Novastep SAS. 11. In the period between 2 April 2015 and mid-February 2016, by which date each of Johnston and Ryan had resigned from his employment with the Plaintiff, CAB was actively engaging in business. It appears to have registered at least 14 orthopaedic medical devices on the ARTG and Prostheses List Advisory Committee (PLAC) databases as a "sponsor". 12. Whether the medical devices included a set of surgical instruments that appear to be a copy of a set of unique surgical instruments originally designed specifically for 'minimally invasive' surgery for a company that the Plaintiff bought, and whether CAB's product portfolio also included a product called 'IFactor', which it said was a cheaper version of a biologic product called 'Augment', currently sold by the Plaintiff, will be a matter for debate at any trial. 13. Johnston deposed in his affidavit affirmed 30 November 2016, that CAB is the exclusive distributor for Novastep SAS within Australia. Novastep SAS is a subsidiary of Amplitude Surgical, a global orthopaedics company. 14. A press release issued on 23 November 2015, by, or on behalf of, Amplitude Surgical, when both the first and second Defendants were employed by the Plaintiff, stated that Novastep's foot product range would be marketed through "an exclusive Australian distributor". Whether CAB, and Novastep, had been negotiating, prior to 23 November 2015, in relation to the terms of the distributorship, will be a matter for debate at any hearing. 15. In an affidavit affirmed on 28 November 2016, Dr Andrew Wines deposed that in, or about, April 2016, he had contacted CAB "to enquire as to the supply to me of medical devices". He also stated that "since that time, I have continued to purchase medical devices from the third Defendant". 16. There is some evidence that Dr Wines had sent a text message, on 20 March 2016, to advise that he was moving his business from the Plaintiff to "previous Wright reps [who] have served me very well for a long period". If proved, what flows from his statements will be a matter for debate at any hearing. 17. In his affidavit affirmed on 28 November 2016, Dr Lam deposed that Ryan "saw me occasionally at St George Private Hospital" during most of 2015. Dr Lam states that it was also in, or about, mid April 2016, that he contacted Ryan and enquired as to "whether the Third Defendant would be able to assist in designing and developing [a medical device]…..I understood the Third Defendant had an exclusive arrangement with the French manufacturer Novastep SAS". (It is not clear from his affidavit, how Dr Lam came to understand that CAB had such an arrangement.) 18. Dr Lam also stated that it was not from until "about the end of April 2016" that he began purchasing items from CAB. If proved, what flows from these matters will be a matter for debate at any trial. 19. Finally, I should refer to Paragraphs 32 to 35 of Ryan's affidavit (which is in identical terms to Paragraphs 27 to 30 of Johnston's affidavit): "32 I am concerned at the prospect of providing any documents relating to myself or on behalf of the Third Defendant to the Plaintiff. 33 In circumstances where the Third Defendant operates as a "boutique" specialised supplier of exclusive imported French manufactured medical devices, I am concerned that the Plaintiff will become aware of commercially sensitive and confidential information. 34 I am particularly concerned that the Plaintiff may have sought documents for purposes not expressly stated by the Plaintiff, including to create difficulties for the Third Defendant. 35 The reasons for my said concern include: a. The speed at which the Plaintiff retained solicitors to make allegations against me following cessation of employment with the Plaintiff; b. The broadness and generality of the categories of documents sought; and c. The Plaintiff's refusal, despite several requests, to provide any specific detail of the allegation made against me. d. The Plaintiff's apparent disinterest in making enquiries of the customers directly." 1. There was no response to any of the paragraphs referred to above in the Plaintiff's affidavit in reply. 2. As stated, neither of the deponents was cross-examined about any of the matters asserted. However, I am not sure, on this application, whether any of the matters asserted, other than, perhaps, sub-paragraph (b), objectively, gives rise to reasons for concern. Needless to say, however, for the purposes of the application, I have not disregarded the stated concerns. The Statutory Scheme 1. UCPR rule 5.3 provides: "(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." 1. In Optiver Australia Pty Ltd v Tibra Trading Pty Ltd [2008] FCAFC 133, which concerned the [then] relevantly identical Federal Court Rule, the full Federal Court stated at [36]: "… The policy behind the rule is that 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. As Hely J pointed out in St George Bank Ltd v Rabo Australia Ltd (2004) 211 ALR 147 at [26], the question does not concern the right to relief but rather 'whether to commence proceedings'. Inspection of documents in the possession of the proposed defendant may enable a properly informed decision to be made whether to commence a proceeding to obtain the relief. The 'bare pleadable case' approach diverts attention from the true purpose of the rule. A person may have a pleadable case, but still not sufficient information upon which to decide whether to embark upon litigation …" 1. Another object is "….to avoid the commencement of 'speculative suits' and, instead, 'to advance the administration of justice [by enabling] a prospective plaintiff ... to make an informed decision whether to proceed or not upon proper material before issuing his proceeding": BJ Bearings Pty Ltd v Whitehead [2016] VSC 44 at [19]. 2. There was no dispute that the Plaintiff's application was supported by an affidavit stating the facts on which the Plaintiff relied, and that it specified the kinds of documents in respect of which the order is sought, and that the application, together with a copy of the supporting affidavits, had been served personally on the person to whom it is addressed. 3. Thus, it is necessary to consider, before the Court will order preliminary discovery, whether the application satisfies the three threshold requirements of UCPR rule 5.3(1), namely, (a) the applicant may be entitled to make a claim for relief from the court against a person (the prospective defendants) but, having made reasonable inquiries, is unable to obtain sufficient information to decide whether or not to commence proceedings against them; (b) the prospective defendants 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. 4. Each of the prerequisites set out in rule 5.3(1) must be satisfied before the discretion is enlivened. Even then, the scope of preliminary discovery which may be ordered in the exercise of discretion with respect to any of the potential claims cannot exceed those documents that relate to the question whether or not the applicant is entitled to make a claim for relief. 5. Section 3 of the Civil Procedure Act 2005 (NSW) relevantly provides that ""claim for relief" includes…(c) a claim for the recovery of damages or other money … (e) a claim for the determination of any question or matter that may be determined by the court, and (f) any other claim (whether legal, equitable or otherwise) that is justiciable in the court". (By virtue of s 11 of the Interpretation Act 1987 (NSW), that definition applies to UCPR rule 5.3.) 6. In RinRim Pty Limited v Deutsche Australia Limited [2013] NSWSC 1762, I wrote, at [38] – [49]: "The evident purpose of the rule is to enable a prospective litigant (the applicant) to obtain documents, or things, that may assist in making a decision whether to commence proceedings. That purpose would be defeated if the applicant were required to demonstrate, at the time of the application, the existence of a claim for relief as a condition to the exercise of the Court's jurisdiction. The possible existence of a claim, not the probability of the claim being established at trial, is the relevant consideration. Thus, it will be sufficient if there is reasonable cause to believe that the applicant may have a right of action against the respondent resting on some recognised legal ground (Panasonic Australia Pty Ltd v Ngage Pty Ltd [2006] NSWSC 399; (2006) 69 IPR 595, per Young CJ in Eq (as his Honour then was), at 598 [20] and 599 [27]; Morton v Nylex Ltd [2007] NSWSC 562, per White J, at [25]. It is not the intention of the rule that the Court, at the stage of preliminary discovery, should reach any conclusion as to the likelihood of ultimate success at trial. The evidence, although falling short of establishing all the ingredients of a prima facie case, should point sufficiently to the existence of a case for relief as to make it proper, in the interests of justice, that preliminary discovery should be ordered so that proceedings for that relief could be brought. Adams J in Hornsby Shire Council v Valuer General of NSW [2008] NSWSC 1179 put the test in this way: "[33] The gateways specified by the Rule are quite easily opened. It is necessary only that the elements "appear", a much less stringent test than proving or establishing. I respectfully agree with Young CJ in Eq that it is not necessary for a plaintiff to show more than that "the contemplated proceedings are likely to rest on some recognised legal ground and does not necessarily have to show a prima facie or pleadable case, though mere assertion that there is such a case is insufficient": Panasonic Australia Pty Ltd v Ngage Pty Ltd [2006] NSWSC 399 at [20], [27]; [2006] NSWSC 399; 69 IPR 595; and see Morton v Nylex Ltd [2007] NSWSC 562, White J at [26]." However, as was written in Dartberg Pty Ltd v Wealthcare Financial Planning Pty Ltd [2007] FCA 1216; (2007) 164 FCR 450, by Middleton J, at [44], 471: "It is necessary to examine the various elements of the potential cause of action that is sought to be relied upon to determine whether there is reasonable cause to believe that each of the necessary elements exist. That task requires the Court to conclude at least that there is a reasonable cause to believe that each of the elements of the relevant cause of action might be established. The test is an objective one, and it is not necessary to prove that each of the elements do in fact exist. The rule contemplates that there be reasonable cause to believe that the respondents may have a right to obtain relief: see Austrac Operations Pty Ltd v New South Wales [2003] FCA 1013; [2003] ATPR 41-960 at [11] and Leighton Contractors Pty Ltd v Page Kirkland Management Pty Ltd [2006] FCA 288 at [5]. If the cause of action on which an application for preliminary discovery is based could not succeed, is bound to fail, is ill-founded or is doomed to fail, then discovery ought not be ordered: Bradley v Eagle Star Insurance Co Ltd [1989] 1 All ER 961 at 963 to 964; Harris v Newcastle-upon-Tyne Health Authority [1989] 2 All ER 273 at 277. If the potential cause of action would not survive an application for summary judgment pursuant to s 31A of the Federal Court of Australia Act 1976 ('Federal Court Act'), then discovery ought not to be ordered. ... The rule is one which should be construed beneficially. In Paxus Services Ltd v People Bank Pty Ltd [1990] FCA 500; (1990) 99 ALR 728, at 733, Burchett J said: It is no answer to the applicant's application under r 6 to say that the proceeding is in the nature of a fishing expedition: cf Meth v Norbert Steinhardt & Son Ltd (1959) 33 ALJR 78at 81. Rule 6 is designed to enable an applicant, in a situation where his proof can rise no higher than the level the rule describes, to ascertain whether he has a case against the prospective respondent - that is, to "fish" in the old sense ... It would be unfortunate if a rule designed to amplify the court's power to penetrate obscurities and uncertainties in the interests of justice were to be weakened by restrictive and unnecessary glosses. I think the rule is of a beneficial kind within the meaning of the well known principle of interpretation, and should be given the fullest scope its language will reasonably allow. The proper brake on any excesses in its use is the discretion of the court, which is required to be exercised in the particular circumstances of each case." UCPR 5.3(1)(b) and (c) require three elements: (i) that a prospective defendant 'may have, or have had, possession of a document or thing,' that (ii) can assist in determining whether or not the applicant is entitled to make a claim, and (iii) 'inspection of such a document would assist the applicant to make the decision concerned.' On their face, the rules do not require the documents to provide direct proof that the applicant is entitled to make a claim. However, they must assist in that decision-making process: Maser v Edmondson [2009] NSWSC 966, per Macready AsJ at [29]. In Hatfield v TCN Channel Nine Pty Ltd [2010] NSWCA 69; (2010) 77 NSWLR 506, McColl JA wrote, at [46] - [52]: "It is convenient to set out the key principles relevant to an application for preliminary discovery. To a large part these are taken from the primary judge's exposition of the jurisprudence in this area which was accepted by all parties. Some of the principles are drawn from case law developed in relation to Federal Court Rules O 15A r 6. There are textual differences between the two provisions. No party suggested anything turned on those differences for the purposes of this case. First, "[i]n order for it to 'appear' to the Court that the applicant 'may be entitled' to make a claim for relief, it is not necessary for the applicant to show a prima facie or pleadable case": Morton v Nylex (at [25]). Secondly, while "the mere assertion of a case is insufficient...[i]t will be sufficient if there is reasonable cause to believe that the applicant may have a right of action against the respondent resting on some recognised legal ground": Morton v Nylex (at [25]). Thirdly, "belief requires more than mere assertion and more than suspicion or conjecture. [It] is an inclination of the mind towards assenting to, rather than rejecting, a proposition. Thus it is not sufficient to point to a mere possibility. The evidence must incline the mind towards the matter or fact in question. If there is no reasonable cause to believe that one of the necessary elements of a potential cause of action exists, that would dispose of the application insofar as it is based on that cause of action": St George Bank Ltd v Rabo Australia Ltd [2004] FCA 1360; (2004) 211 ALR 147 (at [26](d)) per Hely J, referring in turn to John Holland Services Pty Ltd v Terranora Group Management Pty Ltd [2004] FCA 679 (at [13], [14], [17] and [73]) per Emmett J. The use of the word "may" indicates the court does not have to reach "a firm view that there is a right to relief": Telstra Corp Ltd v Minister for Broadband, Communications and the Digital Economy [2008] FCAFC 7; (2008) 166 FCR 64 (at [58]). Fourthly, the requirement that the matters set out in UCPR 5.3 "appear[s]" to the court to establish an entitlement to an order under the rule may be wider than the requirement in the Federal Court Order 15A r 6 that there "is reasonable cause to believe": see Panasonic Australia Pty Ltd v Ngage Pty Ltd [2006] NSWSC 399; (2006) 69 IPR 595 (at [22]) per Young CJ in Eq; Papaconstuntinos v Holmes à Court [2006] NSWSC 945 (at [17] per Simpson J; Hornsby Shire Council v Valuer General of NSW [2008] NSWSC 1179 (at [33]) per Adams J. Nevertheless Hely J's statement in St George Bank Ltd (at [26](e)) remains apposite, namely that "whilst uncertainty as to only one element of a cause of action might be compatible with the 'reasonable cause to believe' required by subparagraph (a), uncertainty as to a number of such elements may be sufficient to undermine the reasonableness of the cause to believe". Fifthly, "the question posed by [UCPR 5.3(1)(a)] ... is not whether the applicant has sufficient information to decide if a cause of action is available against the prospective respondent [but]... whether the applicant has sufficient information to make a decision whether to commence proceedings in the Court. Accordingly, an applicant for preliminary discovery may be entitled to discovery in order to determine what defences are available to the respondent and the possible strength of those defences": St George Bank Ltd (at [26](f)) (emphasis in original); see also Morton v Nylex (at [33]). Thus application of the rule will not be precluded by the fact that the applicant already has available evidence establishing a prima facie case for the granting of relief, as there might be matters of defence which could defeat a prima facie case: Alphapharm Pty Ltd v Eli Lilly Australia Pty Ltd [1996] FCA 1500 (at [41]) per Lindgren J; referred to with approval by the Full Federal Court (French, Weinberg and Greenwood JJ) in Telstra Corp Ltd (at [60]). Sixthly, as Hely J said in St George Bank Ltd (at [26](a)), "the Rule is to be beneficially construed, given the fullest scope that its language will reasonably allow, with the proper brake on any excesses lying in the discretion of the Court, exercised in the particular circumstances of each case". In Noble Earth Technologies Pty Ltd v Hampic Pty Ltd trading as Cyndan Chemicals [2012] NSWSC 935, after referring to the above passage, I noted, at [44] - [53]: "Importantly, to attract its operation, the rule requires that it must "appear" to the Court that the applicant "may be entitled to make a claim for relief". This does not mean, however, that the rule will apply in any case in which the applicant asserts a possible cause of action against some other person, no matter how speculative or remote. There needs to be an inclination of the mind towards assenting to, rather than rejecting, a proposition. It is not sufficient to point to a mere possibility: Clemett v New South Wales Lotteries Corporation Pty Ltd [2011] NSWSC 121 per Hoeben J (as his Honour then was) at [43]. In Morton v Nylex Ltd [2007] NSWSC 562, at [25], White J referred to this part of the rule saying: "It will be sufficient if there is reasonable cause to believe that the applicant may have a right of action against the respondent resting on some recognised legal ground (Panasonic Australia Pty Ltd v Ngage Pty Ltd [2006] NSWSC 399; (2006) 69 IPR 595 per Young CJ in Eq at 589 [20] and 599 [27])." At [26], his Honour described the test as "undemanding". What constitutes "reasonable inquiries" for the purpose of r 5.3(1)(a) is a question of fact, to be considered in all the circumstances of the particular case, which includes the relationship (if any) between the applicant and the prospective defendant (Steffen v ANZ Banking Group [2009] NSWSC 666, per McDougall J, at [15]). McColl JA added, Hatfield v TCN Channel 9, at [86], that the relationship (if any) between the prospective defendant and any source of information was also relevant. In Central Exchange Ltd v Anaconda Nickel Ltd [2002] WASCA 94; (2002) 26 WAR 33, at [83], Steytler JA, without being exhaustive, set out the factors that the Court would consider in exercising its discretion on an application for preliminary discovery: "[83] A Court, in considering whether or not to exercise the discretion afforded it by the section, or, to put it differently, in considering whether or not the order is reasonably necessary to achieve the proper administration of justice, will ordinarily take into account a range of factors. Without attempting to be exhaustive, these will usually include such things as the likelihood that a cause of action of the kind suggested will be found to exist, the nature and significance of that potential cause of action, the likely effect, on the person against whom discovery is sought, of the making of an order of the kind contended for, whether there is any other adequate means, available to the intending plaintiff, of obtaining the information which it seeks, the nature and confidentiality of the documents proposed to be obtained, the possible significance of the information contained within those documents to the decision whether or not to commence the contemplated proceedings, whether the applicant is able to compensate the potential party for its cost of complying with the order and whether there is any evidence of bad faith on the part of the applicant." Preliminary discovery is a matter of practice and procedure rather than a matter of substance. The distinction was adverted to in the High Court in Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc [1981] HCA 39; (1981) 148 CLR 170, at 176-177, where their Honours (Gibbs CJ; Aickin, Wilson and Brennan JJ) said: "The essence of such a matter is described in terms which are sufficient for present purposes in Salmond on Jurisprudence 10th ed (1947), P 476: Substantive law is concerned with the ends which the administration of justice seeks; procedural law deals with the means and instruments by which those ends are to be attained. The latter regulates the conduct and relations of courts and litigants in respect of the litigation itself; the former determines their conduct and relations in respect of the matters litigated." Also see, Re Dernacourt Investments Pty Ltd (1990) 20 NSWLR 588; and Maser Technology Group Pty Ld v Edmondson [2010] NSWSC 458, per Hamilton AJ, at [15] - [16]. Orders for preliminary discovery should not be made as a matter of course but only when reasonably necessary to achieve the proper administration of justice: McCarthy v Dolpag Pty Ltd [2000] WASCA 106 at [13]. The measure of any preliminary discovery to be ordered is the extent of information that is necessary, but no more than that which is necessary, to overcome the insufficiency of information already possessed by the applicant after the making of all reasonable inquiries, to enable a decision to be made whether to commence a proceeding. The rule does not allow for third party discovery. Preliminary discovery may be ordered only against the "prospective defendant"." The onus is on the applicant to make it appear to the Court that, having made reasonable inquiries, the applicant is unable to obtain sufficient information to decide whether or not to commence proceedings against the respondents. As was written by White J in Morton v Nylex, at [33], this: "requires an objective assessment of the information already possessed by the plaintiffs to determine whether that information is sufficient for such a decision to be made. The question is whether the applicant has insufficient information to be able to decide whether to institute proceedings; not merely to establish a cause of action. Hence, an applicant may be entitled to preliminary discovery of documents relevant to available defences, or the extent of apprehended breaches, or the likely quantum of damages, as well as of documents which may establish whether there is a cause of action. However, unless the applicant is lacking something reasonably necessary to make a decision whether to institute proceedings, he or she is not entitled to preliminary discovery. An applicant must disclose what information he or she already has relevant to making such a decision, and identify what information is lacking. Preliminary discovery cannot be used to build up a case which an applicant has already decided, or could decide, to bring (Alphapharm Pty Ltd v Eli Lilly Australia Pty Ltd (Lindgren J, Federal Court of Australia, 24 May 1996, unreported); St George Bank Ltd v Rabo Australia Ltd [2004] FCA 1360; (2004) 211 ALR 147 at 154 [26]; Glencore International AG v Selwyn Mines Ltd (recs and mgrs apptd) [2005] FCA 801; (2005) 223 ALR 238 at 241 [15]; Matrix Film Investment One Pty Ltd v Alameda Films LLC [2006] FCA 591 at [15]- [19], [25])." In Contour Building and Construction Pty Ltd v Kerr [2008] NSWSC 883, Barrett J (as his Honour then was), at [10] - [14], wrote that a party who had already asserted an entitlement to commence substantive proceedings, could not sustain an application for preliminary discovery under the rule. In other words, preliminary discovery cannot be used to build up a case which an applicant has already decided to bring, or could decide to bring: St George Bank Ltd v Rabo Australia Ltd [2004] FCA 1360; (2004) 211 ALR 147 at [27]; Murray v Wheeler [2013] NSWSC 137; Morton v Nylex Ltd at [33]. In Papaconstuntinos v Holmes A Court [2006] NSWSC 945, Simpson J, at [20], stated, in relation to the considerations: "These questions are also to be considered against the background of the nature of the relief made available by r 5.3. This is, before any substantive proceedings have been commenced, to require a prospective defendant to give discovery of documents that are or have been in the prospective defendant's possession and that relate to the question of whether or not the plaintiff is entitled to make a claim for relief. This is potentially an extremely demanding task and a considerable imposition upon a defendant. Depending upon the specificity with which the documents ordered to be discovered are identified, it may require the prospective defendant to make an assessment of the potential relevance of documents or other things to putative proceedings that have not yet been formulated. It may require a very lengthy and detailed examination of documents and records. It is not a power to be exercised lightly. It is, no doubt, for that reason that the power is not to be exercised unless and until the plaintiff has been shown to have made reasonable enquiries otherwise." 1. In Liu v The Age Company Limited [2016] NSWCA 115, in exercising the court's discretion to grant preliminary discovery, Beazley P, noted, at [3], that: "One discretionary consideration is whether the applicant for preliminary discovery otherwise has an effective remedy. Ultimately, McColl JA concluded, at [199], "…the overriding principle governing the approach of the court to interlocutory applications is that the court should do whatever the interests of justice require in the particular circumstances of the case." Furthermore, as McColl JA went on to note at [220] "the question whether….a putative plaintiff has an effective remedy turns not only on the likely recovery of damages, but, too, upon any difficulty in proof occasioned by the non-disclosure." 1. In Yes Family Pty Ltd v Sphere Healthcare Pty Ltd [2016] NSWSC 393, Slattery J, at [20], stated that an application for preliminary discovery cannot be used to conduct a trial of the merits of the prospective case. 2. Darke J pointed out in Bianca Hope Rinehart v Georgina Hope Rinehart [2015] NSWSC 205 at [31], that the: "applicant for preliminary discovery must place before the Court all of the evidence available to it relevant to the sufficiency of the information it possess to enable a decision to be made whether to commence a proceeding". 1. Finally, because it is relevant to the present case, what was written in BJ Bearings Pty Ltd v Whitehead at [19], should also be remembered: "….In determining whether an applicant has in fact already decided to commence a proceeding, irrespective of the outcome of the application, the Court should not give too much weight to posturing in correspondence prior to the making of the application, particularly correspondence alleging the existence of a strong case but nevertheless seeking preliminary discovery by letter prior to making a formal application to the Court." Submissions 1. Counsel for the Plaintiff submitted that: 1. The evidence reveals that during the course of his employment with the Plaintiff, Johnston was assisting CAB to obtain registration of a range of medical devices. 2. The Plaintiff's claims could provide several possible grounds of relief, which included: 1. breaches of contract, namely the "non-solicitation/compete clause" contained in the letter of offer dated 14 March 2014 to Johnson, and the letter of offer dated 1 May 2014 to Ryan, from Surgical Specialties and/or a breach of the Confidentiality Agreement referred to in the same letter as an enclosure and executed by Johnson on 14 March 2014 and Ryan on 14 May 2014, each of which continued to apply as though references in the covenants to "Surgical Specialties" or the 'Company', were to be construed as references to the Plaintiff; 2. breaches of duties of fidelity and good faith based upon the conduct of Johnston and Ryan during their employment with the Plaintiff, if it can be shown that they were taking steps to advance the business of CAB during their employment, contrary to the interests of the Plaintiff; 3. breaches of fiduciary duty, by engaging in conduct, during his employment involving advancing his own private interests through the business of CAB, as a competitor of the Plaintiff, in conflict with his fiduciary duties to put the business interests of the Plaintiff ahead of his own business interests; or 4. contravention of ss 182 and 183 of the Corporations Act 2001 (Cth), which, relevantly, prohibits an employee of a corporation from using his position to gain an advantage for himself or someone else, or to cause detriment to the corporation and prohibits an employee of a corporation, who obtains information in that capacity, from improperly using the information to gain an advantage for himself or someone else, or to cause detriment to the corporation. 1. There was no information, currently, available to the Plaintiff to determine whether Ryan, over the same period, engaged in similar conduct as Johnston. The Plaintiff did not have sufficient evidence to plead a case against Ryan, in relation to his conduct prior to the termination of his employment with the Plaintiff. (Counsel conceded, however, that there are strong inferential findings that would suggest that Johnston and Ryan, together, were collaborating towards setting up a business in competition, at the latest from January 2016. 2. Ryan only made the admission in his affidavit that they had "Over the first two weeks of February 2016…. [the first Defendant and I] decided to establish a company to import medical devices and distribute in Australia." 3. The other cause of action available was against CAB, being one in tort, namely interference with contractual relations. This cause of action would be available if CAB, knowingly, induced either, or both, of Johnston and Ryan to breach the covenants that they had given to the Plaintiff. By 4 April 2016, when each became a director of the third Plaintiff, the knowledge they had as individuals in relation to their covenants would be imputed to CAB, they "became the guiding minds". The period of the post-employment discovery included April 2016. The fact that CAB provided services to Dr Lam from the end of April 2016, when, at the time, Johnston and Ryan had post-employment contractual obligations to the Plaintiff, gives rise to a potential cause of action for interference by CAB in contractual relations between (i) the Plaintiff and Johnston and (ii) the Plaintiff and Ryan, by way of inducing breach of contract. 4. Currently, the inference available is by reason only of the connection between Johnston's name on the register of goods that were being sponsored by CAB, that he had some connection with CAB. It is not a strong inference in the sense that it is quite a leap to go from that point to know what actual conduct he was engaging to advance the competition, namely, the nature of the activities of CAB, beyond simply registering a device. The Plaintiff, whilst knowing that CAB was preparing, in 2015, to compete with the Plaintiff, does not know whether it was, in fact, doing so. 5. Whilst there may be sufficient information to commence proceedings against Johnston, there was insufficient information to enable the Plaintiff to determine whether to commence against Ryan and CAB. 6. The information currently available to the Plaintiff does not enable the Plaintiff to determine the availability of any defences, the quantum of damages that may be able to be established, or the strength of the material. 7. The Defendants had steadfastly refused to provide any information. 8. There is insufficient information going to whether, and to what extent, confidential information has been retained, used, or disclosed, by both Johnston and Ryan after their employment with the Plaintiff ceased. That would be information that, also, enables a decision by the Plaintiff whether to commence proceedings to vindicate its rights under the express contractual confidential information covenant, or indeed to vindicate the confidentiality of information, in the sense that equitable remedies might lie for conduct which improperly used or disclosed that information. 1. Counsel for the Defendants submitted that: 1. The Plaintiff had not made reasonable enquiries. By way of example, he submitted that the Plaintiff had not attempted to contact any of the five doctors named in the Summons, to enquire whether they had any contact, and, if they had, the nature of the contact, with each of the Defendants. Nor had the Plaintiff made any attempt to correspond with any of its clients, as to contact made by the Defendants, to ascertain any basis of any potential claim. 2. The Plaintiff had already formed the view that there was sufficient information to commence proceedings. A letter dated 13 April 2016, sent by the solicitors for the Plaintiff to each of the first and second Defendants, stated "[the Plaintiff] has formed the view that you have acted, and are continuing to act, in breach of the terms of your Contract, including the Non-Compete Restraint and the Non-Solicitation Restraint". Furthermore, in the same letter dated 13 April 2016, the Plaintiff's solicitors stated that "The [Plaintiff] has recently become aware that you and/or Mr Johnston have been actively targeting and soliciting business from the [Plaintiff's] customers with whom you had direct dealings during your employment, attempting to solicit their business" and that "Such conduct breaches the Non-Solicitation Restraint and we are instructed that the [Plaintiff] has and will, suffer loss and damage (by way of loss of business) as a direct consequence of your conduct". 1. The Plaintiff, having informed the Defendants of their entitlement to commence proceedings, was not in the position of being unable to obtain sufficient information to decide whether or not to commence proceedings. It had already decided to commence proceedings. 2. The scope of the documents sought by the Plaintiff was more in the nature of general, rather than preliminary, discovery. In addition, the scope of documents requested were oppressive, and given the commercially sensitive nature of the documents, the application may constitute an abuse of process, particularly if the Court accepted that the Plaintiff has already formed the view that they are entitled to commence proceedings against the Defendants. 3. In the event that preliminary discovery is ordered, and the Plaintiff does not decide to commence proceedings, the Defendants will be prejudiced by the Plaintiff being aware of, or in possession of, the Defendants' documents. In this regard, the Plaintiff asserts that CAB is a commercial competitor. 4. The documents sought from CAB, proceed upon the basis that it will be a prospective Defendant. However, the Plaintiff is attempting to obtain information pertaining to Johnston and Ryan by seeking preliminary discovery from CAB. 5. The Plaintiff sought production of documents in relation to customers of the Plaintiff. However it has failed to provide a list of those customers. The Defendant argues that it is inappropriate for them to be placed in a position to ascertain who the Plaintiff's customers are. (The last submission obviously may not be correct because the category of documents sought, at Clause 4(c), defines a reference to "customers of the Plaintiff" to mean "Dr Andrew Wines, Dr Peter Lam, Dr Jake Kaplan, Dr David Lunz and Dr Anthony Bradshaw and includes businesses operated by these individuals.") 1. The documents the Plaintiff seeks from CAB are sought upon the basis that CAB would be a prospective Defendant. The Plaintiff is attempting to obtain information pertaining to Johnston and Ryan by seeking preliminary discovery from CAB. The proper approach is for an applicant to seek discovery pursuant to UCPR rule 5.4 from a person that is not a party to the proceedings, once they were commenced. 2. The wording outlined in the Plaintiff's conditional offer of employment to Johnston and Ryan, was vague and imprecise, and had concluded with the words "on the same terms and conditions as set out in your current employment contract with Surgical Specialities", which, if read literally, would "include inconsistent and nonsensical terms such as the first and second Defendants being subject to a probationary period of employment with the Plaintiff". 3. If the relevant non-solicitation/compete clause formed part of Johnston's and Ryan's contract with the Plaintiff (which is disputed), then it would be considered to be void for uncertainty as it related to customers and the business of Surgical Specialties and not to that of the Plaintiff. 4. If the clause was, nonetheless, found to be certain, then it had no effective operation as no customers or business of Surgical Specialties exist. The Defendants' position was that the operation and effect of a clause that provide such restraint should be construed narrowly. Determination 1. The first question to be addressed is whether it "appears" that the Plaintiff "may be entitled to make a claim for relief from the court against a person". I have outlined the broad facts asserted by the Plaintiff. 2. I am satisfied that the Plaintiff may be entitled, in the requisite sense, to make a claim against each of the Defendants. In this regard, there appears enough in the evidence to conclude that the claims that may be made include those referred to in the submissions for the Plaintiff to which reference has been made above. 3. In particular, on the available information before the Court on the application, there appear to be sufficient grounds to bring a claim that there has been a breach of fiduciary duty by Johnston and by Ryan, for example, by advancing the interests of CAB, and that there was a sufficient connection between each of them and CAB. CAB was an entity which appears to have been in competition with the Plaintiff and each of Johnston and, to a lesser extent, Ryan, appear to have participated, as it were, or been involved, in, CAB in 2015, whilst employed by the Plaintiff: T11.25 – T11.33. 4. There is also enough to enable the Plaintiff to analyse the facts overall, to see if there may be available defences, and to attempt to make some assessment of the strength of those defences. These have already been outlined in part. 5. The Plaintiff has conducted investigations that have enabled the Court to identify, in some detail, the facts that the Plaintiff had available at the commencement of the hearing. 6. For the reasons advanced by the Defendants, I am of the opinion that the Plaintiff, some time ago, expressed the view that it had potential claims available to be made against each of the Defendants. In this regard, it stated, in the correspondence sent to the Defendant's solicitors on the 13 April 2016, that: "If you fail to do [what is asked], you are on notice that [the Plaintiff] will take whatever action it considers necessary to properly protect its legitimate business interests…..such action may include an application for preliminary discovery…..or the [Plaintiff] may proceed with a claim for breach of contract and damages". 1. I do not accept that the words "such actions may include" or "the company may proceed" suggest any real doubt about whether the Plaintiff may have been entitled to make a claim for relief. 2. This conclusion is strengthened by the preceding statement in the correspondence: "We are instructed to demand that you and [the third Defendant] immediately cease engaging in any of the above conduct, or any other conduct in breach of the terms of your Contract and Confidentiality Agreement". 1. In another letter dated 22 April 2016, sent by the Plaintiff's solicitors to the Defendant's solicitor, it was noted that as there had not been a response (other to simply deny the allegations made by the Plaintiff) to the substantive issues raised in their earlier letter, that: "Not responding in a genuine manner will cause our client to take steps to enforce the rights it believes it has…In the event we do not receive an appropriate response…we will seek instructions to commence proceedings against [the Defendants], which may include an application ….for injunctive relief or preliminary discovery." 1. In a letter dated 2 May 2016, the Plaintiff's solicitors stated: "The [Plaintiff] has reasonable cause to suspect that your clients have and are continuing to misconduct themselves in breach of: (a) the Non-Solicitation Restraint (b) the Non-Compete Restraint (c) the continuing confidentiality obligations arising under the respective Confidentiality Agreements …If [the Defendants] are not prepared to provide the requested documents by this time, we will immediately seek the [Plaintiff's] instructions to commence proceedings for an order for preliminary discovery" 1. In a letter dated 29 July 2016, the Plaintiff's solicitors repeated much of what had been written earlier in respect of Johnston and Ryan, and added: "Given that Mr Johnston and Mr Ryan are the directors of [the third Defendant] … [the Plaintiff] has reason to suspect that [the third Defendant] may have induced Mr Johnston and Mr Ryan to breach their post-employment obligations." 1. I should also note the acceptance by counsel for the Defendants, at T35.11 – T35.12, that: "There is no doubt that there is a connection between the three defendants. We can't shy away from that. They are both directors." 1. Much in this regard turns on the conclusions that are drawn from the correspondence sent by the Plaintiff's solicitors to the Defendant. 2. As Hidden J noted in Kevin Young v The Neil Jenman Group Pty Limited [2015] NSWSC 1908 at [33]: "….Murray v Wheeler and Contour Building and Construction v Kerr turned on the terms of the correspondence involved and the other circumstances in the case. …..the present case is significantly different. For example, in Contour Building and Construction, the plaintiff's solicitor informed the defendant by letter, "We have advised our client that he is entitled to commence proceedings against you …" Mr Geddes' letter to Mr Jenman said no more than that his "clients" considered the relevant conduct to be in breach of the terms of the Deed, conveyed his clients' demands as to the remedial measures he should undertake, and the action his clients contemplated if he did not do so. " 1. Furthermore, in Glezer v Deals.com.au [2014] VSC 202, in considering the weight to be given to the correspondence sent by the plaintiff's solicitors, that was submitted by the Defendants to point to the conclusion that the plaintiff had already unequivocally decided to commence a proceeding against each of the defendants, Vickery J stated at [44] – [46]: "The letter of 15 November 2013 was written in robust and definitive terms and was carefully framed. It made serious allegations of misrepresentation, fraud, and breaches of fiduciary and directors' duties on behalf of the named prospective defendants. The factual basis in support of the allegations was also summarised. It adopted a posture designed to put Mr Glezer's case in the strongest possible way as it was then known to him and to his legal advisers. However, adopting such a posture does not necessarily point to a decision having already been made to commence such a proceeding. The writing of pre-action letters of this kind in an adversarial process can serve a number of purposes, including bringing the parties together for settlement discussions prior to a decision being made to commence proceedings. Further, and in any event, the relevant date for the purposes of making an assessment under r 32.05(b) is the position as at the date of making the application for preliminary discovery. A person is entitled to change his or her mind in making the important decision as to whether to commence litigation, and particularly in this case where potentially at least multiple defendants may be joined and where allegations of serious impropriety may be made. Further, the proposed plaintiff in this case ought to be in a position to assess potential defences which may be raised against his possible claims before making a decision to issue proceedings." 1. The terms of the correspondence to which I have referred, are robust, in that they convey the Plaintiff's demands as to the remedial measures each of the Defendant's should undertake, and the action the Plaintiff contemplated if they did not do so. 2. Having reached that conclusion, there are a number of matters, however, about which the Plaintiff does not have sufficient information to make the necessary decision on whether to commence proceedings. These matters go to the loss and damage, if any, sustained by the Plaintiff and include: 1. Information revealing the extent of any action taken by each of Johnston and Ryan during his period of employment with the Plaintiff, and during what is said to be the three month post-employment restraint period, to establish and/or advance CAB's business and secure clients away from the Plaintiff; 2. Information about the business activities of CAB, both during the period of Johnston's and Ryan's employment with the Plaintiff and in what is said to be the three month post-employment restraint period, and to establish whether it was conducting a business similar to, or in competition with, the Plaintiff; 3. Information revealing the extent of any possession, use, or disclosure, by Johnston and by Ryan of the Plaintiff's confidential information to advance his own interests, or those of CAB during, or after, the employment with the Plaintiff ceased. 4. Information revealing the extent of the communications between Johnston and/or Ryan on the one hand, and the identified customers of the Plaintiff, on the other hand for the purpose of soliciting business away from the Plaintiff to CAB whilst each was said to be bound by his duties of fidelity or the non-solicitation covenants. 1. Whilst the correspondence asserts "loss and damage (by way of loss of business)" having been suffered, it does not assert that the Plaintiff has been able to quantify the loss and damage attributable to the conduct of any of the Defendants. 2. The next question is whether the Plaintiff has been "unable to obtain sufficient information to decide whether or not to commence proceedings against the prospective defendant". 3. I am satisfied that the Plaintiff has made reasonable enquiries to obtain information. In circumstances where the Plaintiff has established that it made inquiries, of each of the Defendants, putting him and it on notice of the reasons for the inquiries, I consider that, given the liberal construction to be accorded to UCPR rule 5.3, that the second gateway is satisfied. 4. I do not accept the Defendants' submissions relating to enquiries that may have been made by the Plaintiff approaching its former customers. If each is no longer a customer of the Plaintiff, it is unlikely that each would assist the Plaintiff in providing information concerning it ceasing to be its customer. 5. In this regard, I accept the Plaintiff's submission, that "[T]he prospect that you would ask an existing customer, or a former one who has withdrawn their business relationship from you already and sided with the prospective defendants, the prospect that one would need to make inquiries of those, at the very least is commercially unrealistic". T19:10 – 19:46. 6. The word "reasonable" in the rule, prefacing as it does the word "enquiries" is important. 7. It must be remembered, also, that, now, two of the existing customers have given affidavits, read in these proceedings, that contain information as to what each did and did not do. 8. The next question is whether it appears that any of the Defendants may have, or have had, possession of documents or things that can assist in determining whether or not the Plaintiff is entitled to make such a claim for relief, and would assist the Plaintiff in making such a decision: UCPR rule 5.3(1)(b) and (c). 9. Clearly, the Defendants would have the documents going to each of the matters I have identified above, particularly going to what might be established to be the quantum of loss and damage the Plaintiff may have suffered, and the connection between the conduct of one, or more of the Defendants, and the nature of that loss and damage. 10. The next question is whether there are discretionary reasons for refusing the application in respect of all, or some, of the documents sought. Ultimately, the discretion would only be exercised in favour of the Plaintiff when it is in the interests of justice to do so. 11. On the matter of discretion, it is necessary to refer to the following passage during the Defendant's submissions at T35.48 – T36.17: "HIS HONOUR: Just on the issue of discretion, you referred to discretion a moment ago, three things appear to me could be important on the issue of discretion: Firstly, the failure of the first and second defendant to respond to some of the questions asked by the plaintiff; secondly, the address connection, and thirdly, the speed at which things moved after they returned from Barcelona. FLAHERTY: Yes. HIS HONOUR: Do you agree that those are things that are ordinarily relevant on the issue of discretion? FLAHERTY: I think yes, and other matters, your Honour. The effect that it has on a fledgling business in relation to two individuals that have started up a business in its infancy, where the plaintiff being an Australian subsidiary of a multi national and whether or not the information being sought is being sought for the purpose as put forward, the scope of the discovery points to matters way beyond anything to establish the case that is being promulgated by the plaintiff and in light of the fact that the plaintiff has already formed the view that they have the basis for a case." 1. I accept that one of the matters that the Court will also take into account in exercising the discretion in making an order, is whether the application is brought in order to obtain the information that is sought for the purpose of determining whether the applicant is entitled to make a claim, or whether it is brought for a collateral purpose: Aus Steel Pty Ltd v Marco Properties Pty Ltd [2014] NSWSC 550, at [5]. 2. I am not satisfied that the Plaintiff has a collateral purpose. However, in order to avoid any such suggestion, a confidentiality regime would be appropriate, in order to guard against the possibility that the Plaintiff will learn information of a confidential and, perhaps, commercially sensitive kind. 3. Perhaps, initially, any such risk can be avoided by limiting inspection of the any necessary discovered documents to nominated legal representatives of the Plaintiff, on terms that they will not, until further order, show any discovered document or disclose any information derived from a discovered document to the Plaintiff: B J Bearings Pty Ltd v Whitehead at [40]. 4. A further relevant matter on the exercise of discretion is that the Plaintiff did not provide any undertaking to the Court, or otherwise, to pay the reasonable costs of any of the Defendants for the compilation of the documents and the preparation of any list of documents to be discovered: T28.16 – T28.31. On this question, it seems to me, that the scope of the categories of documents is also important. 5. As a condition of the grant of preliminary discovery, the Plaintiff should also give an undertaking to pay the reasonable costs for the compilation of the documents and the preparation of any list of documents to be discovered. 6. The Defendants submitted that the Court should deal with the application based upon the width of documents sought, rather than allowing the parties an opportunity to narrow the categories of documents that should be provided by each of the Defendants. With respect, I disagree, and I propose to allow a short period of 14 days, for the parties to determine the categories of documents, and if they are unable to, then to provide the Court with competing categories. The competing categories will then be dealt with in Chambers and the parties will be informed of those categories. 7. In this regard, the parties, and the legal representatives, should remember s 56 of the Civil Procedure Act 2005 (NSW) and their obligations thereunder. 8. For all these reasons, the Court is satisfied that the Plaintiff does not have sufficient information to make a decision whether to commence proceedings, in that it is unable to determine whether the cost and risk of litigation is worthwhile, and to determine the extent of the likely quantum of any damages award. The discretion given to the Court pursuant to UCPR rule 5.3 should be exercised in favour of the Plaintiff because it is in the interests of justice to do so. 9. Yet, preliminary discovery should only be given by each of the Defendants in respect of the extent of any breach of the type referred to by the Plaintiff. It should also go to the question of the quantum of any damages to which the Plaintiff may be entitled. Any discovery of documents should be limited to these issues, remembering that no more than that which is necessary, to overcome the insufficiency of information already possessed by the Plaintiff to enable a decision to be made whether to commence a proceeding, should be ordered. 10. Perhaps, there would be utility in the Plaintiff revising, with more precision, the categories of documents and producing a list of documents that more closely defines the categories of documents for discovery going to the matters to which I have referred. The list should be pragmatic, manageable and more focused. 11. The parties are to provide either agreed, or competing, draft orders to give effect to these reasons within 21 days of the date of this judgment, or such further time as may be directed having regard to the likely need for a confidentiality regime, including as to the terms of the preliminary discovery order and as to costs. 12. I should say in regard to costs that my tentative view, is that each of the parties has been partially successful – the Plaintiff succeeding in obtaining an order for preliminary discovery in respect of some matters, and the Defendants being successful in limiting the categories of documents to be provided. I do not think that the fact that several days before the hearing the solicitors for the Defendants provided a limited category of documents is relevant to the order for costs, because of the terms of the letter proposing that limited basis. 13. If agreement cannot be reached on costs, I shall decide that issue also in Chambers. 14. Perhaps, also, it may be wise for the parties to get together and see if they can solve their disputes generally without having to spend any more money on legal 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. Decision last updated: 20 June 2017