In the recent decision of Coffey International Pty Ltd v Cullen  FCA 28, the Federal Court provided much needed guidance for employers in relation to when preliminary discovery orders are available. In this decision, the Court refused to compel three former employees to hand over documents to their former employer because the employer had failed to make sufficient inquiries of its own before seeking preliminary discovery orders from the Court.
Preliminary discovery orders are available when a party reasonably believes they may have a right to relief, but does not have sufficient information to decide whether to commence proceedings and the relevant respondent is likely to have documents which would assist in deciding whether to commence proceedings.
The three employees left Coffey International Pty Ltd (Coffey) in November 2012 to take up employment with Qualtest Laboratory (NSW) Pty Ltd (Qualtest), a competitor recently established by another former employee. Coffey suspected that the departing employees had taken some of its confidential information to Qualtest in breach of their contractual and fiduciary duties, as well as sections 182 and 183 of the Corporations Act 2001 (Cth), which deal with the improper use of a position or information to the detriment of the company.
Although Coffey had engaged a forensic IT investigator to examine its hard drives and email activities, the Court held that Coffey’s failure to make further reasonable inquiries fell short of the reasonable inquiries Coffey had to make. In particular, the Court noted Coffey’s unexplained failure to make any inquiries of:
- the former employees or their new employer regarding their possession or use of Coffey’s confidential information or their breach of contractual restrictions on approaching other employees or clients; and
- Coffey’s clients or personnel involved in the departing employees’ handover.
The Court also found that the forensic data investigation of the employees’ computers undertaken by Coffey was inadequate because it failed to produce evidence that the employees had copied the relevant documents. This was despite the fact that the employees acknowledged they had no reason to access the client lists and other documents they accessed prior to the termination of their employment, and that they emailed confidential business cards to their personal email address. However, Coffey had failed to ask the employees to explain their conduct.
Implications for employers
- Employers who suspect departing employees have taken their confidential information or breached other obligations do not need to have all the evidence necessary to prove their claim to take action against the employees, as preliminary discovery orders may be available.
- This case highlights the need for employers to lay the proper groundwork before commencing such proceedings, by making reasonable inquiries of former employees with carefully drafted correspondence and comprehensive IT forensic investigations.