Maser v Edmondson [2009] NSWSC 966 (17 September 2009)

Last Updated: 18 September 2009

NEW SOUTH WALES SUPREME COURT

CITATION:
Maser v Edmondson [2009] NSWSC 966


JURISDICTION:
Equity Division

FILE NUMBER(S):
1988/2008

HEARING DATE(S):
04/06/09

JUDGMENT DATE:
17 September 2009

PARTIES:
Maser Technology Group Ltd v Keith Edmonson (first defendant), Dingbat Technology Pty Limited (third defendant) and Logitek Australia Pty Ltd (fourth defendant)

JUDGMENT OF:
Macready AsJ

LOWER COURT JURISDICTION:
Not Applicable

LOWER COURT FILE NUMBER(S):
Not Applicable

LOWER COURT JUDICIAL OFFICER:
Not Applicable



COUNSEL:
Mr MS Willmott SC for plaintiff
Mr S Meehan for 1st defendant
Mr L Gor for 3rd and 4th defendants

SOLICITORS:
Dunstan Legal for plaintiff
Harris Friedman Hyde Page for 1st defendant
Dooley & Associates for 3rd and 4th defendants


CATCHWORDS:
Appeal and new trial. Application for review of Registrar's decision on prelimnary discovery. Nature of proceedings and matter of practice and procedure. Application for preliminary discovery. Principles applicable. Difference between UCPR and Federal Court rules.

LEGISLATION CITED:



CASES CITED:


TEXTS CITED:


DECISION:
Paragraphs 81 and 82



JUDGMENT:

- 1 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION



Associate Justice Macready

Thursday 17 September 2009


1988/2008 Maser Technology Group Pty Ltd v Keith Edmonson, Dingbat Technology Pty Ltd and Logitech Australia Pty Ltd.

JUDGMENT

1 His Honour: This is the hearing of a notice of motion filed 23 December 2008 by the plaintiff in which they seek a review of a decision by Registrar Walton given on 8 December 2008. The Registrar dismissed an application for preliminary discovery made by the plaintiff and ordered the plaintiff to pay the first, third and fourth defendants’ costs.

2 In an amended summons of 22 July 2008, the plaintiff, Maser Technology Group Pty Ltd, made an application for preliminary discovery, pursuant to Uniform Civil Procedure Rule (‘UCPR’) r 5.3 against the first defendant, Keith Edmonson, the third defendant, Dingbat Technology Pty Ltd, and the fourth defendant, Logitek Australia Pty Ltd. The plaintiff asserted that he has or might have a right to obtain relief against:

(a) the first defendant for breach of his loyalty and or fiduciary obligations to the plaintiff and or for breach of his statutory obligations under s 182 of the Corporations Act 2001; and

(b) the third defendant and the fourth defendant for having been knowingly involved in those breaches or received benefit from those breaches.

Background facts

3 The parties’ submissions helpfully set out the facts and I will incorporate them with some amendments.

4 The plaintiff’s principal business was that of supplying and servicing electrical equipment. Its most important customer was the Australian Broadcasting Corporation (‘the ABC’) with whom it contracted ‘to supply, configure and commission’ equipment known as Logitek Radio Studio Consoles and accessories. For this purpose the plaintiff acquired the Logitek consoles from Logitek Electronic Systems Inc (‘Logitek USA’) and in about 2005, the plaintiff contracted with the third defendant to provide services ‘involving configuration of the Logitek software and hardware for the consoles.’

5 The plaintiff employed the first defendant on 23 February 2004 as ‘Sales and Marketing Manager, Broadcast Vision.’ During 2006 the first defendant was promoted to the position of ‘Project Manager – Broadcast.’ The first defendant’s primary duty was to manage the plaintiff’s relationship and dealings with the ABC.

6 During the course of his employment with the plaintiff, the defendant was given:

“free and open access to the ABC;

free and open access to the third defendant;

free and open access to Logitek USA;

open access to the plaintiff’s computer system for files relating to the ABC, the third defendant and Logitek USA”

7 That information included, inter alia, technical information about Logitek consoles and associated equipment, costs of products, the third defendant’s service costs, Logitek USA distribution arrangements and ABC contract documents.

8 The plaintiff had no exclusive agency agreement with Logitek USA for the acquisition of its products in Australia (a fact known to the first defendant) so that the plaintiff was vulnerable to competition from other suppliers of Logitek equipment. The plaintiff had a contract with the ABC for the supply and installation of the Logitek consoles and during the course of his employment with the plaintiff, the first defendant had the opportunity to foster and develop a relationship with the ABC. The plaintiff did not have in its employment contract with the first defendant any contractual restraint clause.

9 In 2007 the first defendant applied to the plaintiff for leave to go to a conference at Las Vegas where there were many exhibitions including one by Logitek USA. This application was refused and so on the 28th March 2007, the first defendant took annual leave so that he could go to the conference. On 5 April 2007 the first defendant gave notice of his resignation to the plaintiff to take effect on 4 May 2007.

10 On 7 April 2007 Logitek USA advised the plaintiff that it would no longer supply Logitek equipment to the plaintiff and that it had appointed the third defendant as its new distributor.

11 The fourth defendant was incorporated as the company to acquire the distributorship on 12 April 2007. Also on that day, the first defendant told the plaintiff that the third defendant would employ him when his employment with the plaintiff came to an end.

12 The first defendant was observed at the conference in Las Vegas on 15 April 2007 in the company of Mr Dengate, the principal of the third defendant at the Logitek USA stand.

13 On 23 April the first defendant returned from annual leave.

14 On 25 April 2007 the ABC invited the plaintiff to assign its contract for the supply of Logitek consoles to the third defendant. Subsequently, the contract was novated to the third and fourth defendants.

15 On 4 May the first defendant left the employ of the plaintiff in accordance with his notice.

Preliminary discovery principles

16 There was reference to rule 5.4 in submissions but that is not relevant to the present proceedings. The relevant provisions in the UCPR are as follows:

“5.3 Discovery of documents from prospective defendant

(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.”

17 Justice Simpson’s analysis of these rules in Papaconstuntinos v Holmes A Court [2006] NSWSC 945 at [14], shows the court must be satisfied of five matters before an order is made against a defendant:

“[14] They are:

(i) that the plaintiff may be entitled to make a claim against that defendant;

(ii) that the plaintiff has made reasonable enquiries;

(iii) that, notwithstanding that the plaintiff has made reasonable enquiries, he/she is unable to obtain sufficient information to decide whether or not to commence proceedings against that defendant;

(iv) that that defendant may have, or may have had, possession of a document or thing that could assist in determining whether or not the plaintiff is entitled to make such a claim for relief;

(v) that inspection of that document would assist the plaintiff to make a decision (whether to commence proceedings).”

18 This analysis was guided by her Honour’s comparison of the counterpart Federal Court Rule, Order 15A Rule 6. Simpson J decided, on the basis of Lindgren J’s Federal Court judgment in Alphapharm Pty Ltd v Eli Lilly Australia Pty Ltd (Federal Court of Australia, 24 May 1996, unreported), at [41], that elements (i), (iv) and (v) contained an objective test, with (v) also holding a subjective element. At [18] her Honour states:

“[18] It is also to be noted that, even if the plaintiff takes all of the five hurdles, the power to make an order remains discretionary: see Alphapharm, proposition 5”

19 There is a detailed discussion on the law in respect of the Federal Court rule in St George Bank Ltd v Rabo Australia Ltd [2004] FCA 1360 by Hely J:

[25] Order 15A rule 6 provides:

‘Where:

(a) there is reasonable cause to believe that the applicant has or may have the right to obtain relief in the Court from a person whose description has been ascertained;

(b) after making all reasonable inquiries, the applicant has not sufficient information to enable a decision to be made whether to commence a proceeding in the Court to obtain that relief; and

(c) there is reasonable cause to believe that that person has or is likely to have or has had or is likely to have had possession of any document relating to the question whether the applicant has the right to obtain the relief and that inspection of the document by the applicant would assist in making the decision,

the Court may order that that person shall make discovery to the applicant of any document of the kind described in paragraph (c).’

[26] The following propositions emerge from the authorities in which the proper application of Order 15A r 6 has been considered by judges of this Court:

(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: Paxus Services Ltd v People Bank Pty Ltd [1990] FCA 500; (1990) 99 ALR 728 at 733; Minister for Health & Aged Care v Harrington Associates Ltd [1999] FCA 549 at [27];

(b) each of the elements prescribed in sub-paragraphs (a), (b) and (c) of the rule must be established: Hooper v Kirella Pty Ltd [1999] FCA 1584; (1999) 96 FCR 1 at [38]. Preliminary discovery cannot itself be used to remedy deficiencies in the satisfaction of the conditions themselves: Airservices Australia v Transfield Pty Ltd [1999] FCA 886 at [5];

(c) the test for determining whether the applicant has ‘reasonable cause to believe’, as required by sub-paragraph (a), is an objective one: Hooper at [39]; Malouf v Malouf [1999] FCA 710 at [16]; Quanta Software International Pty Ltd v Computer Management Services Pty Ltd [2000] FCA 969; (2000) 175 ALR 536 at [24]; Alphapharm Pty Ltd v Eli Lilly Australia Pty Ltd [1996] FCA 391; at [23]. Further, the words ‘or may have’ cannot be ignored. The applicant does not have to make out a prima facie case: Quanta Software at [24]; Paxus Services at 733;

(d) belief requires more than mere assertion and more than suspicion or conjecture. Belief 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: John Holland Services Pty Ltd v Terranora Group Management Pty Ltd [2004] FCA 679 at [13], [14], [17] and [73];

(e) 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: Glowatzky v Insultech Group Pty Ltd (1997) 39 IPR 215;

(f) the question posed by sub-paragraph (b) of the rule is not whether the applicant has sufficient information to decide if a cause of action is available against the prospective respondent. The question is whether the applicant has sufficient information to make a decision whether to commence proceedings in the Court: Quanta Software at [33] – [34], Alphapharm at [24]-[26]. 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, or to determine the extent of the respondent’s breach and the likely quantum of any damages award: CGU Insurance Ltd v Malaysia International Shipping Corp Berhad [2001] FCA 1223; (2001) 187 ALR 279 at [21]; Quanta Software at [33] – [34], Alphapharm at 24-26, Airservices Australia at [5];

(g) whether an applicant has ‘sufficient information’ for the purposes of sub-paragraph (b) also requires an objective assessment to be made: Minister for Health at [44]; Alphapharm at 23-24, Hooper at [40]. The sub-paragraph contemplates that the applicant is lacking a piece (or pieces) of information reasonably necessary to decide whether to commence proceedings;

(h) it is no answer to an application under the rule to say that the proceeding is in the nature of a ‘fishing expedition’: Paxus Services at

733. Indeed Order 15A r 6 ‘expressly contemplates’ what once might have been castigated as ‘fishing’: Bailey v Beagle Management Pty Ltd [2001] FCA 60; (2001) 105 FCR 136 at [27]. As Burchett J commented in Paxus Services, the rule is (at 733):

‘... 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 ...’.

20 However, there appear to be some significant differences between the UCPR and the Federal Court Rules and as Young CJ noted in Panasonic Australia Pty Ltd v Ngage Pty Ltd [2006] NSWSC 399 r 5.3 of the UCPR is broader than the equivalent Federal Court Rule on which it was modelled.

21 Since the purpose of this judgment is to review the Registrar’s decision, it is useful to identify these differences and in doing so, work some way towards defining the scope of UCPR 5.3. As Justice Simpson stated in Papaconstuntinos v Holmes A Court [2006] NSWSC 945:

“[12] So far as this court is concerned, r 5.3 confers a power broader in its scope than any it had under the Supreme Court Rules, which

preceded the UCPR. That scope is, so far, untested.”

22 The first difference is the ‘gateway’ to r 5.3 evidenced in r 5.3(1), where the relevant elements must ‘appear’ to the court. This factor is different from the more onerous requirement of providing ‘reasonable cause to believe’ per Order 15A r 6 of the Federal Court Rules. In this regard, Justice Adams in Hornsby Shire Council v Valuer General of NSW [2008] NSWSC 1179 has stated:

“[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].”

23 Young CJ in Panasonic Australia Pty Ltd v Ngage Pty Ltd, states at [22]:

“[22] The current rule is, as the heading to it shows, taken from Federal Court Rules 1979 (Cth) O 15A r 6. The rules are, however, not identical. The Federal Court rule commences with the words “Where: (a) there is reasonable cause to believe that the applicant has or may have the right to obtain relief in the court” whereas, as I have set out, the Supreme Court rule says “If it appears to the court that: (a) the applicant may be entitled to make a claim for relief from the court”. The Supreme Court rule would appear to be in wider terms than the Federal Court rule. It would seem that the rule-making authority has deliberately intended to incorporate into NSW court procedure at the very least the power of the Federal Court and that despite any conservative philosophy a judge might hold about the extent of the law of discovery, courts must proceed on the basis that there has been a deliberate policy decision made to extend the rights of potential plaintiffs against potential defendants and to extend them in the way that the Federal Court set out in cases like Hooper v Kirella Pty Ltd [ 1999] FCA 1584.”

24 To this extent, Justice White in Morton v Nylex Ltd [2007] NSWSC 562 stated that (emphasis added):

“[25] The first of the requirements in r 5.3(1)(a) is that it appear to the Court that the applicant may be entitled to make a claim for relief against the prospective defendant. In 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. On the other hand, the mere assertion of a case is insufficient. 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]).”

25 In contrast to Hornsby Shire Council, Papaconstuntinos, and Panasonic Australia v Ngage, his Honour appears to have somewhat raised the threshold test by incorporating the ‘reasonable cause’ prerequisite from the Federal Court rules as a requirement of 5.3(1)(a).

26 Justice White suggests, at [40], there is a tipping point where the evidentiary onus might shift to a prospective defendant to show that the applicant has sufficient information to decide whether or not to commence proceedings. Thus there may be an evidential burden on the defendant to prove a plaintiff is conducting a ‘rummaging,’ as opposed to ‘fishing’ expedition.

27 As expressed by Simpson J in Papaconstuntinos, a second substantive difference is found in r 5.3 (1)(a) (emphasis added):

“[17]The Federal Court rule makes the power available after “all reasonable enquiries” have been made; the UCP rule merely requires that “reasonable enquiries” be shown to have been made...”

28 Thirdly, there is a different emphasis in the wording of UCPR 5.3(1)(b) and (c) in comparison to the equivalent sections of the Federal Court rules.

29 UCPR 5.3(1)(b) and (c) requires 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 the face of it, the rules do not require the documents provide direct proof that the applicant is entitled to make a claim. They must however assist in that decision-making process.

30 In contrast, FCR 6(c) places a heavier onus on the applicant to show that it is reasonably likely that there is a direct relationship between the documents in question and the right to obtain relief. The rule requires four elements: (i) there is reasonable cause to believe that (ii) it is likely a person had ‘possession of any document,’ (iii) relating to the question whether the applicant has the right to obtain relief,’ and (iv) ‘that inspection of the document by the applicant would assist in making the decision.’

31 Justice White in Morton v Nylex views these differences with restraint, stating at [33]:

“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”

32 Furthermore, r 5.3(4) should be read in the light of White J’s decision in Morton v Nylex. His Honour has held that a party cannot seek discovery from a prospective defendant in order to decide whether the applicant should sue a third party:

“[27] Rule 5.3 does not authorise the making of an order for preliminary discovery to enable a plaintiff to decide whether to sue third parties. The order can only be made against a prospective defendant where it appears that the applicant may be entitled to make a claim against that person.

33 Finally, a word from Justice Simpson in Papaconstuntinos:

[20] 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.”

The nature of the review of a decision of a Registrar

34 What should a court take into consideration when reviewing a Registrar’s decision? A useful starting point is found in the authority of House v The King [1936] HCA 40; (1936) 55 CLR 499. While that case was concerned with an appeal against sentencing under the Bankruptcy Act 1924 (Cth), it provides guidance in terms of the policy considerations that should be exercised when reviewing the process of discretionary decision-making. At page 504, Dixon, Evatt and McTiernan JJ said:

“But the judgment complained of, namely, sentence to a term of imprisonment, depends upon the exercise of a judicial discretion by the Court imposing it. The manner in which an appeal against an exercise of discretion should be determined is governed by established principles. It is not enough that the judges comprising the appellate court consider that, if they had been in the position of the primary judge, they would have taken a different course. It must appear that some error has been made in exercising the discretion. If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution for his if it has the materials for doing so. It may not appear how the primary judge has reached the result embodied in his order, but, if upon the facts it is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to exercise the discretion which the law reposes in the Court of first instance. In such a case, although the nature of the error may not be discoverable, the exercise of the discretion is reviewed on the ground that a substantial wrong has in fact occurred."

35 In Tomko v Palasty (No 2) [2007] NSWCA 369 the Court of Appeal recently dealt with the nature of review with which I am concerned and that case has indicated the Court’s powers of review are wider than would be found when hearing an appeal. Justice Basten, after an extensive examination of the authorities, concluded at [52] in these terms:

“[52] It follows that the proper approach to an application in relation to a decision of the Registrar is as follows:

(1) the application should be treated as a “review”, pursuant to s 121(3) of the Supreme Court Act and UCPR r 49.19;

(2) a review, unlike an appeal, does not require demonstration of error, nor is it restricted to a reconsideration of the material beforethe primary decision maker;

(3) authorities with respect to the conduct of appeals against the exercise of discretionary powers, such as House v The King do not in terms apply to a review;

(4) nevertheless, similar policy considerations may arise in relation to a review, including:

(a) a court may be less inclined to intervene in relation to a decision concerned with the management of an on-going proceeding, as opposed to one which terminates the proceeding or prevents its commencement;

(b) different factors may need to be addressed in relation to breach of time limits in relation to the commencement of proceedings, as compared with breach of time limits for steps to be taken in the course of proceedings properly commenced, and

(c) a court may be more inclined to intervene on a review based on fresh evidence, changed circumstances or where error is demonstrated in the decision under review.”

36 The other members of the court were Hodgson JA and Ipp JA. Ipp JA agreed with what was said by Basten JA, subject to the adoption of the additional remarks of Hodgson JA. Those additional remarks appear in paragraphs 6 to 10 of the decision which is as follows:

“[6] I agree that a review of a decision of a Registrar is not an appeal, subject to s 75A of the Supreme Court Act; and that in such a review a court must exercise its own discretion.

[7] In my opinion, this discretion extends to a discretion as to whether, and if so how, to intervene; and in my opinion, there is an onus on a person seeking to have a court set aside or vary a Registrar’s decision to make out a case that the court, in the interests of justice, should exercise its discretion to do so.

[8] In the case of a decision on practice or procedure, this will normally require at least demonstration of an error of law, or a House v. The King error, or a material change of circumstances, or evidence satisfying the strict requirements for fresh evidence. Even then, a court may not think that the interests of justice require intervention. This could be so, for example, if the error of law is a deficiency of reasons and the result is on its face not an unreasonable one.

[9] In the case of a decision which finally determines a party’s rights, or which (albeit one of practice or procedure) has a decisive impact on those rights, a court may be more willing to intervene. It may permit further evidence to be led which does not satisfy the strict requirements for fresh evidence, if it is satisfied that the interests of justice require this. It may decide to substitute its own discretionary decision for that of the Registrar, even though no House v. The King error is shown, again if it is satisfied that the interests of justice require this. To that extent, the review may be considered a de novo hearing.

[10] In my opinion, this approach is consistent with the position that such reviews are not appeals and involve the exercise of discretion by the reviewing body; and with the policy considerations referred to by Jordan CJ in In Re the Will of Gilbert [1946] NSWStRp 24; (1946) 46 SR(NSW) 318 at 323. It is also consistent with the general principles concerning interlocutory applications: they do not finally decide matters, and successive applications can be brought for the same orders; but generally, a later application for orders that have previously been refused will be summarily dismissed unless a change of circumstances is shown or there is evidence satisfying the strict requirements for fresh evidence.”

37 Hodgson JA recently reaffirmed those views in Dae Boong International Co Pty Ltd v Gray [2009] NSWCA 11. His Honour said the following at paragraphs 16 – 19:

“[16] As I have said, the matter comes before me on an application to review the Registrar’s decision.

[17] As regards the nature of such a review and the grounds on which such decisions can be reviewed, I adhere to what I said in Tomko v Palasty (No 2) [2007] NSWCA 369 at paras [4] to [10].

[18] Thus in my view a review of a decision of a Registrar is not an appeal, and in such a review a court must exercise its own discretion. This discretion extends to a discretion as to whether and if so how to intervene, and there is an onus on a person seeking to have a court set aside or vary a Registrar’s decision to make out a case that the court in the interests of justice should exercise its discretion to do so.

[19] In a case of a decision on practice or procedure, this will normally require at least a demonstration of error of law or an error of the kind referred to in House v The King [1936] HCA 40; (1936) 55 CLR 499, or a material change of circumstances or evidence satisfying the requirements of fresh evidence.”

38 Plainly this is a matter which is concerned with practice and procedure and the limitations referred to by Hodgson JA will apply.

The Registrar’s decision

39 In a careful and detailed judgment of 8 December 2008 the Registrar has set out the background facts and the way in which it was said the plaintiff might have claims against the relevant defendants. In paragraph 14 she sets out the three pieces of evidence that are said to support the plaintiff's case on this application. They were as follows:

“14. The plaintiff says that the following material tends to support some or all of these propositions:

‘1. On the computer provided to Edmondson by Maser a "business case" (plaintiffs description) was located. The plaintiff submits it was apparently prepared by Edmondson in February 2007. The plaintiff submits that the document suggests that Edmondson was making overtures to Logitek USA to abandon Maser in favour of a new arrangement with Edmondson and Paul

Dengate of Dingbat. The plaintiff says that Dengate appears to have assisted Edmondson in making these overtures.

2. From an email sent to Jones on 13 April 2007, the plaintiff says it is reasonably clear that Edmondson and Dengate were working together from this time onwards. The email says "Anyway it is important that you know that I have been approached by Paul to contract for Logitek Australia and have accepted And (sic) that Logitek Electronics has asked me to contract for sales and marketing into Asia which I have accepted".

3. Edmondson used annual leave in April 2007 to attend the Las Vegas NAB Broadcast Exhibition. He and Dengate both appeared to be representing Logitek USA at the Logitek stand in the Exhibition.’ “

40 Commencing at paragraph 18 of her judgment the Registrar addressed the requirement that the applicant must be entitled to make a claim for relief. She noted that the first defendant did not resist the application on this ground and then proceeded to deal with the position of the third and fourth defendants. After addressing the legal principles and the evidence she concluded that the evidence did not point to any accessorial liability on the part of the third and fourth defendants and declined to make an order for preliminary discovery against them.

41 At paragraph 27 and following the Registrar addressed the question of whether the applicant had made reasonable enquiries and at paragraph 31 concluded that they had made such enquiries.

42 The Registrar next addressed the question of whether the plaintiff had been unable to obtain sufficient evidence to decide whether to commence proceedings against the first defendant. At paragraph 40 after reviewing the evidence and the authorities she decided that the plaintiff had enough information to decide whether or not to commence proceedings against the first defendant.

43 Although the decisions that she had made to this point were sufficient to dispose of the matter she helpfully went on to address the categories of documents the plaintiff had requested for the discovery:

“42. The categories are:

All documents (including electronic documents) in the relevant party's possession, custody or control in the following categories:

1. any communication during the period 1 December 2006 to 1 May 2007 between the First Defendant (Edmondson) and Logitek Electronic Systems, Inc (Logitek USA) or the Third Defendant (Dingbat) or the Fourth Defendant (Logitek Australia) or the Australian Broadcasting Corporation (the ABC) or any employees, directors or shareholder of those entities during the year 2007;

2. any business case presented to any of Logitek USA or Dingbat or Logitek Australia or the ABC or any employees, directors or shareholders of those entities during the year 2007;

3. any documents referring to Edmondson's attendance at the Las Vegas NAB Broadcast Exhibition which was held in Las Vegas between 16 April 2007 and 19 April 2007 including but not limited to records of payment for Edmondson's travel and accommodation.”

44 The Registrar concluded that the first category was too broad. She did not regard the second category as broad or onerous and in relation to the third category her view was that there was not sufficient evidence to infer that the documents sought would assist the plaintiff in deciding whether to commence proceedings or not.

The plaintiff’s claims of error on the part of the Registrar

45 The plaintiff suggested that in respect of the case against the first, third and fourth defendants, where the Registrar’s position was that there was sufficient material available to make the relevant decision that she had taken an unduly restrictive view of the jurisdiction of the Court to make an order for preliminary discovery. The plaintiff complains that notwithstanding the inquiries they made, they were unable to obtain sufficient information to make a decision whether or not to commence proceedings, as distinguished from whether or not they may be entitled to make a claim. They argue that a plaintiff when applying for preliminary discovery may be entitled to discovery to determine:

(a) What defences are available to the defendant and the possible strength of those defences; and/or

(b) The extent of the defendants’ breach; and/or

(c) The likely quantum of any damages award or other relief.

46 The third and fourth defendants raised a number of issues in response to the plaintiff's submissions. These include:

(a) The plaintiff is now seeking different categories of documents than it did before the Registrar,

(b) There was no error on the part of the Registrar as it was proper exercise of discretion,

(c) The plaintiff would be able to calculate its damages given that it has knowledge of its contract with the ABC and the questions of loss of chance were not raised before the Registrar, and

(d) The classes of documents sought went beyond fishing, which is permitted, and into the category of rummaging.

47 The first defendant, for its part, also questions whether damages had been raised before the Registrar, suggesting that the case now presented is quite different to that put to the Registrar. The first defendant also suggests the extent of the discovery has widened and is in some cases quite irrelevant.

48 As set out at paragraph 52 in Tomko v Palasty, unlike an appeal, a review is not restricted to a reconsideration of the material before the primary decision-maker. In the absence of any particular circumstances in this case the question of damages is an element that can be taken into consideration. Hely J in St George Bank v Rabo Australia Ltd [2004] FCA 1360 states at [26](f),

“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, or to determine the extent of the respondent’s breach and the likely quantum of any damages award: CGU Insurance Ltd v Malaysia International Shipping Corp Berhad [2001] FCA 1223; (2001) 187 ALR 279 at 285 [21]; Quanta Softwareat ALR 543 [33]–[34]; IPR 32–3, Alphapharm at 24–6, Airservices Australia at FCR 202–3 [5]; ALR 332”

Grounds for review

49 Has there been an error of law, a House v The King type of error, a material change of circumstances, or evidence satisfying the requirements of fresh evidence?

50 The Registrar decided that the case against the third and fourth defendants failed as they did not have a claim for relief and that the plaintiff’s case against the first defendant failed as the plaintiff had enough information.

51 When dealing with the first defendant at paragraph 40 the Registrar stated:

“40. In my view the evidence shows clearly that the plaintiff already has enough information to decide whether or not to commence proceedings against Mr Edmondson. Apart from the reference to seeking discover in due course, there is at least two pages of allegations of facts and circumstances regarding Mr Edmondson's alleged breaches referred to in the letter dated 20 September 2007. In my view this is sufficient information to both decide whether to commence proceedings and also regarding the prospects of success. It might not be all the information that the plaintiff would like and whilst they have identified areas in which information is lacking that, in my view, is not information that is reasonably necessary for them to make the decision whether or not to commence proceedings.”

52 The relevant error which the plaintiff suggests the Registrar made was that she took an unduly restrictive view of the jurisdiction of the Court to make an order for preliminary discover as she did not consider:

(a) What defences would be available to the defendants and the possible strength of their defences?

(b) The extent of the defendants’ breach?

(c) The likely quantum of any damages available or other relief.

53 As appears from paragraph 39 of the Registrar’s decision she was referred to the following matters as being items that the plaintiff still needed.

(a) Whether or not the business case apparently prepared on 5 February 2007 was actually sent or otherwise used in negotiations between the defendants and/or Logitek USA?

(b) The time at which first defendant commenced taking steps for his own prospective enterprise with Logitek USA, Logitek Australia and Dingbat?

(c) The extent to which the first defendant took active steps to further his prospective enterprise before May 2007?

(d) The basis on which the first defendant attended Logitek USA stand in April 2007?

(e) The extent to which the third and fourth defendants assisted or encouraged the first defendant in these activities?

54 The alleged error appears to be the failure by the Registrar to consider the matters set out in paragraph 52 for the purpose of exercising her discretionary decision.

55 The first matter is available defences. The first thing to note about this allegation is that it is in very general terms. The learned Registrar had before her a detailed four-page letter of accusation dated 20 September 2007 which showed the extent of the plaintiff’s knowledge at that point. It ended with a request for a response. There was no immediate response.

56 The matters the plaintiff says it does not now know in respect of this matter are:

(a) What communications took place between the first, third and fourth defendants inter se?

(b) What communications took place between the first, third and fourth defendants severally and Logitek USA?

(c) What steps were taken in his future ventures by the first defendant while he was employed by the plaintiff and the extent to which he used his position while employed by the plaintiff to further his own interests?

57 The first two categories are now more restricted than the categories of documents sought before the Registrar. However, they are in substance comprised in what the Registrar referred to in paragraph 39. The third point is one that was expressly referred by her in item 3 in paragraph 39.

58 The second matter, namely, the extent of the first defendant’s breach is nothing more than a restatement of the fact of breach. For the purpose of this case to fix the first defendant with liability it is only necessary to establish that before he left his employment he took steps to set up a competing business.

59 In her decision at paragraph 40 the Registrar said:

“In my view this is sufficient information to both decide whether to commence proceedings and also regarding the prospects of success.”

60 In my view the Registrar, in coming to this conclusion, has considered the defences available and their extent.

61 In paragraph 40 the Registrar expressly considered the necessity of the requested information. In my view her consideration is not so unreasonable or plainly unjust to indicate that her discretionary decision has miscarried.

62 The next matter is the likely quantum of any damage. The first thing to note is the categories of discovery requested do not on their face disclose a request for any such matters. This point was made in the first defendant’s written submissions to the Registrar. The plaintiff did not raise this matter in its written submissions before the Registrar. The matter does not seem to have been the subject of debate in the oral submissions. Given that the categories did not include such documents the Registrar was correct not to have considered these matters. Given the directive in s 56 of the Civil Procedure Act 2005 it would be quite inappropriate to allow the plaintiff to now change its case to raise these matters.

63 In my view there is nothing which would suggest that the Registrar did not take into account the relevant matters and there is no reason to set aside her decision in respect of the first defendant.

64 With regard to the claim against the third and fourth defendants the Registrar dealt with the material at paragraphs 14 to 25. Her conclusion in paragraph 26 was as follows:

“26. I agree with the third and fourth defendant that the evidence they have taken me to does not show that the plaintiff may be entitled to make a claim against them. The plaintiff's evidence being the business case, the email and the attendance at a trade fair also fails to satisfy me that the plaintiff may have a claim against the third and fourth defendants. None of the evidence I was taken to show that these defendants assisted Edmondson in the alleged endeavours. I am not satisfied that the evidence points to any accessorial liability on the part of the third and fourth defendants. For that reason I would not make an order for preliminary discovery against them.”

65 It is necessary to see how the plaintiff says that there has been error on the part of the Registrar. The plaintiff suggests that the error was that the Registrar overlooked the fact that the plaintiff was unable to determine the strength of its claim against the third and fourth defendants, the extent of any breach and the likely quantum of any damages.

66 I will put the last matter aside for the reasons I have advanced earlier.

67 However, the question the Registrar was deciding was whether it appeared to the Court that the plaintiff might be entitled to make a claim for relief. Given her reference in paragraph 21 to what White J said in Edward Morton & 5 Ors v Nylex Ltd & 1 Or [2007] NSWSC 562 she appears to address the appropriate question.

68 It is necessary to see whether there has been any relevant error by the Registrar in the performance of her task unaided by any specific claim by the plaintiff in this regard.

69 The three pieces of evidence the Registrar cites have not convinced her that they show the plaintiff is entitled to make a claim against the third and fourth defendants. They are the email exchange of 24 September 2007 between Paul Dengate and Brad Woods (annexure L to the affidavit of Gareth Jones); Maser’s lawyer’s letter of 16 January 2008 (Annexure M to the same affidavit); and a “business case” dated 5 February 2007 (Annexure N to the same affidavit).

70 In her decision the Registrar may have considered but chose not to mention specifically three other pieces of evidence which were discussed at the hearing (see pages 29 to 31 of the transcript). These are annexures ‘D’, ‘F’ and ‘G to Gareth Jones’ affidavit. The structure of paragraph 26 of her reasons shows that the three named items were not the only matters she considered.

71 Annexure ‘D’ is the letter of termination of the Maser dealership from Tag Borland, President of Logitek USA, dated April 7, 2007. In that letter Mr Borland states Logitek’s reasons for ending the agreement and indicates that the Logitek trademark will be licensed to Dingbat so they could trade as Logitek Australia.

72 Annexure ‘F’ is an email exchange between the first defendant and the plaintiff dated from 12 to 13 April 2007, titled “your future”. This was after the first defendant gave notice of his resignation. This evidence suggests that the third and fourth defendants were aware of the first defendant’s plans to leave Maser. What is not clear is when that awareness came about.

73 The first email, which appears to be a response to the plaintiff’s question,

“Do you know anything about Logitek making some changes??”

(Annexure ‘E’ to the affidavit of Gareth Jones), was sent by the first defendant at 12 April 2007 at 8.16am and reads,

“Yes I do

And I was approached to consult for them and accepted – Paul was aware that I was looking to leave Maser and was going to start my consultancy business”

At 1.06am on 13 April 2007, the plaintiff states in reply,

“I did raise the issue [with the first defendant] of Paul trying to get the Logitek agency himself due to his close ties with Tag, though you said little point him doing this as ABC has contract with Maser for a number of years and if anything changed here, then the ABC would be forced to go to tender? Were you wrong on this aspect?”

At 9.38am on the same day the first defendant replied in these words,

“Still may be true – Contract with ABC has been running loose as Tony Wrigley did not want to have to go to tender which he may have had to do

Up until recently I still believed it was a reasonable belief

A month or so ago I decided to leave and Paul was aware of this – obviously his ties with Tag are stronger than I believed...”

74 Counsel for the third and fourth defendants argued that this evidence represents mere conjecture that there was some collusion with the first defendant and at best these emails represent some indication of what Mr Edmonson might have done wrong (page 30 of the transcript). This evidence was presented by the plaintiff as part of a sequence of events that occurred during the first defendant’s transition across to the employ of Logitek Australia. The events included the first defendant’s presence at the Logitek USA stand in Las Vegas on 28 March.

75 Counsel for the third and fourth defendants has pointed to Annexure “G” of Gareth Jones’ affidavit, which is an email from Tag Borland to Gareth Jones dated 17 April 2007. It is argued that the email shows that as far back as 2006 Maser had considered not employing the first defendant. The email contains a denial from Mr Borland that Logitek had knowledge of the first defendant’s plans to leave Maser. Mr Borland states (emphasis added),

“I can only see two ways out of the support issue. I can move the agency to another organisation set up to provide the highly technical support Logitek requires or I can turn the current support department into a Logitek dealership...

Keith had not talked about leaving Maser prior to being approached about providing sales to Logitek Australia. However he has talked about being under employed and out-of-the-loop since moving to Melbourne and that he might be released. When you visited Houston last year, you said that Keith’s sales methods didn’t work well outside of Logitek and that David would probably replace him. This would make the fourth salesman you have provided us. In the same amount of time our UK distributor lost one salesman to retirement and our other dealers haven’t lost any. It takes a fair amount of effort to become good at selling Logitek. Having Keith work for Logitek Australia will provide that expertise and having him of his own will allow Logitek to make better use of this knowledge by pushing more work his way.

...

The corporate structure for Logitek Australia has already been created and it will have a place of business shortly. The pieces are all falling into place so there is no way to turn back now. ...

76 The plaintiff has noted that no illegality would arise if the third or fourth defendants had ‘poached’ the first defendant – the cause of action lies with the allegation that it was the first defendant who solicited the support of the third and fourth defendants and took steps to establish the new enterprise while still employed by the plaintiff, without informing the plaintiff. No doubt the business case written by the first defendant is why he did not contest the first question. The business case is dated 5 February 2007 which was two months before the first defendant tendered his resignation. The business case is addressed, inter alia, to Paul Dengate and Tag Borland and there is no evidence of it having been sent to them. The email correspondence contains no admission by the third and fourth defendants and the statement by the first defendant in the emails from him suggest a plan which does not involve any breach of his fiduciary duties.

77 The incorporation of Logitek Australia on 12 April 2007 shows a plan by the third and fourth defendants to position them to take over the position occupied by Maser. However, this is after Logitek USA had terminated the dealership on 7 April 2007 which admittedly was only two days after notice of the first plaintiff’s resignation was tendered on 5 April 2007.

78 However, it is to be remembered that we are here concerned with the third and fourth defendants knowing participation in a breach by the first defendant of his duties of good faith and loyalty.

79 If one asks what is disclosed in the evidence on that aspect, it is plain there is nothing. A businessman may be suspicious but suspicion is not evidence. If the plaintiff was asked to particularise the conduct it could not do so because no such conduct is apparent. A consideration of the evidence leads me to the same conclusion as the Registrar, namely, that it does not appear that the plaintiff may be entitled to make a claim for relief.

80 In my view the Registrar’s decision does not demonstrate that she failed to properly exercise her discretion or that she failed in some other relevant way in her decision making process.

81 I dismiss the motion of 23 December 2008.

82 I order the plaintiff to pay the first, third and fourth defendants’ costs of the motion.

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LAST UPDATED:
17 September 2009