Peter A Clarke

In Beston Parks Management Pty Ltd & Anor v Sexton & Anor Hollingworth J considered, on an appeal from a decision of a Master, an application for preliminary discovery under Rule 32.05.  The fact situation is familiar to commercial lawyers; executives enter into a agreement(s) upon leaving a company, presumably in exchange for a pay out.  The terms of the agreement(s) contain restrictive covenants preventing them from competing against their erstwhile employer or using confidential information they acquired during their tenure. The company suspects their formally loyal employees are about to set up in competition when they receive emails inadvertently addressed to the loyal troupers care of their previous address.  

The decision is a useful analysis of a procedure which is not used as often as it should be.   All to commonly the plaintiff will issue proceedings with insufficient information and find out, upon discovery that it needs to recast its case or that the initial suspicion falls at the early evidentiary hurdle.  It is one thing to amend a statement of claim to refine the allegations it is an entirely more difficult and fraught exercise to recast a pleading to essentially change the cause of action.  

The practical problem for a potential applicant is not the first pre requisite, knowing whether it might have a cause of action, but rather whether it has or doesn’t have sufficient information to decide whether to commence an action without preliminary discovery and whether it has made “all reasonable enquiries” before making the application. 

Principles

In applying the principles the Hollingworth said, at paragraph 52:

 The rule should be construed benevolently, because it is intended to assist an applicant who does not have sufficient, precise information to commence a proceeding, and to prevent the bringing of speculative suits. It must be given the fullest scope its language will reasonably allow.

Hence the court should recognise that while there is something more than a suspicion that the applicant has suffered a loss caused by a wrong by the respondent it is not in a position to depose to that in an affidavit or have counsel make submissions with that degree of finality. 

Her Honour made clear the more relaxed approach the court will take when she said at 53:

It is not necessary to show precisely what cause of action the applicant may have, merely that the facts are such from which it may reasonably be believed that the applicant may have a right to obtain relief. The word “may” indicates that the putative belief does not have to amount to a firm view that there is a right to relief. Although some “fishing” enquiry is permitted, a “flimsy foundation” or “mere hunch” will not be sufficient to constitute reasonable cause. An applicant does not have to prove that there will be, only that there may be, a real benefit from making the order. The benefit may be the drawing of an appropriate pleading with proper particulars and the avoidance of substantial amendment after discovery, or, alternatively, the possible avoidance of unnecessary and fruitless litigation.

There lies the rub for a practitioner.  Where does a hunch end and reasonable suspicion begin when determining thee is “reasonable cause” and at when does “fishing” not permissible. As to reasonable cause her Honour didn’t (nor could she even if she wanted to)  attempt to encapsulate what that entails.  Given the breadth of the Rule that would be self defeating.  But she did state the logical underpinning of what such a belief should be based upon when she said:

The “reasonable cause to believe” requirement is primarily concerned with whether, as an objective fact, an applicant has sufficient information to decide whether to commence proceedings. So, an application cannot succeed if the applicant has sufficient information (assessed objectively), but where the inability to determine whether to commence proceedings arises, for example, due to an overly indecisive or cautious nature.

What will doom an application is evidence that the applicant has, at the time of making the application, decided to commence the proceeding (see par 56).  There is no surprises there.  The application would constitute an abuse. 

In a clearly hard fight the respondents in this case argued that the applicants should reveal any legal advice they received because that would be evidence of the genuineness of their belief as to whether there is sufficient information to commence proceedings.  In detailed analysis of this novel argument (par 58 – 66) Hollingworth J emphatically rejected the argument for a range of reasons but most importantly that such an argument would effectively abrogate legal professional privilege.  As she said, at par 66:

Finally, and most fundamentally, the privilege is a fundamental common law right, which can only be abrogated by clear words or necessary implication.[19] A necessary consequence of the respondents’ argument is that r 32.05 would have the effect of abrogating legal professional privilege in advice concerning the sufficiency of information in the hands of an applicant. There is nothing in the drafting of the rule or the cases to suggest that the rule was intended to have any such effect.

Practical issues

A detailed affidavit attaching as much correspondence as possible evidencing:

•  the possible cause of action (here it was the restrictive covenants in termination agreements;
• the inquiries made by the applicant (here the emails back and forward between the applicants and the respondents); and
• the basis for believing there was a cause of action against the respondent (in this case the respondent’s correspondence partly undid their protestations together with emails to the respondents from the applicants competitors (see paragraph 69 & 72 ). 

In my experience the exchange between applicant’s solicitors and respondent’s lawyers often generates material which assists in the subsequent application. 

It is important for the applicants to have prepared categories of discovery prepared for the court.  Obviously those categories will partly be framed by the prospective cause of action.  But given the nature of the application the applicants should take a more expansive approach.