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Donovan Group NZ Limited v Reid [2020] NZHC 3367 (16 December 2020)

Last Updated: 20 January 2021

JUDGMENT OF ASSOCIATE JUDGE R M BELL

This judgment was delivered by me on 16 December 2020 at 4:00pm

pursuant to Rule 11.5 of the High Court Rules

Solicitors:

...............................

Registrar/Deputy Registrar

Thomson Wilson (P J Magee), Whangarei, for the Plaintiff

WRMK Lawyers (S J Davies-Colley), Whangarei, for the Defendants

Copy for:

Anthony Jackson (appointed as independent counsel), Whangarei, for both parties Chris Baird, Southern Cross Chambers, Auckland.

DONOVAN GROUP NZ LIMITED v REID [2020] NZHC 3367

• [1] In this breach of confidence proceeding, the plaintiff obtained an interim injunction and search and seizure order in October 2018. The defendants objected to the plaintiff seeing some of the documents that had been seized, saying that they were not relevant and information in the documents was confidential to them. Since then, while some documents have been disclosed to the plaintiff, others remain in issue. I decide which of them the plaintiff may see.

• [2] The hearing also dealt with case management matters. The parties agreed that there should be standard discovery which is to be completed by the end of February 2021. They also agreed that the case should go to trial on liability only, with quantum to be decided in a later hearing.

• [3] I uphold most of the defendants’ objections. Some documents need to be disclosed but not as many as the plaintiff seeks. That is because the real issues in the case are not as extensive as the plaintiff claims. I also give a ruling on a privilege question and direct how confidentiality is to be protected when documents are inspected.

• [4] The plaintiff, Donovan Group NZ Ltd, designs, manufactures and constructs steel-framed buildings. While it was incorporated in the 1990s, the business has been going much longer. Its products range from sheds and garages to barns and large-scale commercial steel buildings. While it is based in Whangārei, it has 25 franchise regions with 22 franchise-holders. Donovan Group uses the trade-name “Coresteel”.

• [5] Mr Reid, the first defendant, was employed from 3 February 2012 to 25 May 2018. Before that, he worked for a supplier of electrical equipment. He had not had earlier experience designing and building steel buildings. To start with, he was manager of the Barn Company, a Donovan subsidiary, but later became part of the management team of Donovan Group. He is said to have been privy to the company’s confidential and sensitive commercial information, including designs, specifications, manufacturing processes, pricing schedules, costings, margins, client details and

knowledge of current jobs and potential future jobs. Mr Reid had a written employment agreement. There was no restraint of trade clause, but he was required to keep information confidential. “Confidential information” is defined:

“confidential information” shall mean information, data and know-how, whether technical or not, which is disclosed to the employee, and which relates to the research, development or business activity of the employer which is either marked or stated to be confidential or is by its nature reasonably intended to be confidential and includes photographs, prototypes, diagrams and samples.

• [6] Mr Reid admits that during his employment he received information that was confidential to the Donovan Group, but he denies that all the information was confidential, and he denies using Donovan Group’s confidential information after he left.

• [7] Waldron Construction and Roofing Ltd, the fourth defendant, a Whangārei building company, had dealt with Donovan Group for many years. While it does not claim any design expertise, it has erected many steel-framed buildings. Sometimes it was head contractor, other times it sub-contracted to Donovan Group. Mr Waldron, the third defendant, is its director.

• [8] Smartsteel Buildings Ltd, the second defendant, was established after Mr Reid left Donovan Group. It also builds steel-framed buildings and is competing against Donovan Group. Mr Reid and Mr Waldron are its directors. They and family trusts associated with them are its shareholders. Donovan Group says that all the defendants are using its confidential information Mr Reid received while he worked for it.

• [9] At the start of the proceeding in October 2018, Donovan Group applied without notice for an interim injunction. An order of 19 October 2018 restrained all the defendants from using the confidential information pleaded in the statement of claim, restrained all the defendants from directly or indirectly canvassing and soliciting (for any work now undertaken by the Donovan Group) the business of anyone who had been a client or a prospective client of the Donovan Group as at 25 May 2018, and required the defendants to deliver up all copies of Donovan Group’s confidential information in their control. In addition, there was a search and preservation order

permitting the search of defined premises for information on computers and similar devices.

• [10] The defendants applied to rescind or vary the orders. This resulted in the non- solicitation order being amended to read:

An interim injunction restraining all of the defendants from directly canvassing, soliciting or attempting to solicit, in respect of any work of a nature now undertaken or performed by the plaintiff or by any employee or agent of the plaintiff, work on, services for, any of the projects specified in lists attached in schedule 1 to this amended order.

The order listed 665 projects up and down the country.

• [11] While the defendants believed the documents taken under the seizure orders would be dealt with promptly, the process became protracted. The defendants complain of delay and mismanagement by the plaintiff and its consultants. The defendants applied to rescind or vary the seizure order. That resulted in Lang J giving directions in November 2019. He dismissed the application to vary or rescind but gave directions for deciding which of the seized documents the plaintiff should see. Independent counsel was appointed to assist the court, with costs met by Donovan Group. Its IT experts were to provide counsel for the defendants and the independent counsel with lists of documents they considered relevant, together with the lists of documents where they were unsure of their relevance. The experts were to provide independent counsel with a copy of the documents where they were unsure. The experts were also to provide counsel for Donovan Group with copies of both lists, but not the underlying documents. Independent counsel was to liaise with the defendants’ counsel to reach agreement regarding the relevance of the documents where there was uncertainty, as well as any issues raised by the defendants as to relevance or commercial sensitivity of documents in the lists. If there was any remaining dispute regarding relevance or commercial sensitivity, independent counsel was to present argument to the court on behalf of Donovan Group regarding relevance and discoverability of documents.

• [12] There were more delays in giving effect to that. Mr Jackson was appointed independent counsel – but only four months ago. Mr Jackson and Mr Davies-Colley

for the defendants agreed that certain documents should be released to the plaintiff, and that has been done. The remaining document are for me to decide.

• [13] I was provided with electronic copies of the documents in issue but I have not had to examine them individually in detail. Mr Jackson and Mr Davies-Colley presented arguments of principle. They had put the documents into categories. They were confident that if I ruled on the matters of principle they could give effect to my directions.

• [14] The hearing started with only Mr Jackson and Mr Davies-Colley. Later, as I had directed, Mr Baird and Mr Magee appeared. They had been provided with part of Mr Davies-Colley’s written synopsis, the open non-confidential part.

• [15] I deal with the matter as if it were a discovery application under r 8.19 of the High Court Rules 2016.¹ That comes with the qualification that here of course the documents are already known to exist. The usual questions as to relevance, proportionality, privilege and safeguarding confidentiality arise. At the case management phase, the parties agreed to make standard discovery and accordingly I apply the adverse documents test under r 8.7 of the High Court Rules. There was no suggestion that discovery should be made on a “train of enquiry” basis. Under standard discovery, a document is to be discovered if:

1. the party relies on it;

2. the documents are adverse to that party’s case;

3. the documents are adverse to the other side’s case; or

4. the documents support the other side’s case.

• [16] Pleadings decide relevance. A document will be relevant if the document or the information in it has a tendency to prove or disprove anything consequential to deciding the proceeding. In determining relevance, the case of the party in whose

1. See the principles in Assa Abloy New Zealand Ltd v Allegion (NZ) Ltd [2015] NZHC 2760 at [14], and Lighter Quay Residents’ Society Inc v Waterfront Properties (2009) Ltd [2017] NZHC 818 at [8]- [16].

favour discovery is made is assumed to be true. That is subject to the qualification that if the discovery sought is for an aspect of the case which cannot hope to succeed, discovery will not be ordered. There is no point in requiring one side to disclose documents on an issue for which there is no traction. That would be disproportionate.²

Pleading requirements for breach of confidence claims

• [17] In this case it is necessary to look closely at the plaintiff’s pleading to see which parts of its case to take seriously. The point here is that claims by employers against former employees for breach of confidence need to be pleaded precisely. The employer’s confidentiality claims must be stated clearly, so as to leave the employee free to use non-confidential know-how gained while working for the employer. General or over-broad allegations of breach of confidence may be used abusively to stifle competition, something the employer cannot prevent (except in the case of a lawful restraint of trade covenant to protect a legitimate interest).

• [18] In Ocular Sciences Ltd v Aspect Vision Care Ltd (No.2) Laddie J explained:³

The normal approach of the court is that if a plaintiff wishes to seek relief against a defendant for misuse of confidential information it is his duty to ensure that the defendant knows what information is in issue. This is not only for the reasons set out by Edmund Davies J in John Zink,⁴ but for at least two other reasons. First, the plaintiff usually seeks an injunction to restrain the defendant from using its confidential information. Unless the confidential information is properly identified, an injunction in such terms is of uncertain scope and may be difficult to enforce. ... Secondly, the defendant must know what he has to meet. He may wish to show that the items in the information relied on by the plaintiff are matters of public knowledge. His ability to defend himself will be compromised if the plaintiff can rely on matters of which no proper warning was given. It is for all these reasons that failure to give proper particulars may be a particularly damaging abuse of process.

These principles do not apply only to the question of the content of the pleadings. Just as it may be an abuse of process to fail properly to identify the information on which the plaintiff relies, it can be an abuse to give proper particulars but of information which is not, in fact, confidential. A claim based even in part on wide and unsupportable claims of confidentiality can be used as an instrument of oppression or harassment against the defendant. It can be used to destroy an ex-employee’s ability to obtain employment or a

2. Robert Jones Holdings Ltd v McCullagh [2016] NZHC 2529; Oxygen Air Ltd v LG Electronics Australia Pty Ltd [2018] NZHC 945 and Dold v Murphy [2018] NZHC 994.
3. Ocular Sciences Ltd v Aspect Vision Care Ltd (No.2) [1996] EWHC Patents 1; [1997] RPC 289 at 360. See also his judgment in CMI Centers for Medical Innovation GmbH v Phytopharm Plc [1999] FSR 235.

⁴ John Zink & Co Ltd v Wilkinson [1973] RPC 717.

competitor’s ability to compete. The wider the claims, the longer and more expensive the litigation. The defendant is likely to feel that he has no alternative but to challenge the confidentiality of everything, even though he believes that much or most of that technology pleaded cannot reasonably be thought of as secret. Furthermore, a defendant faced with a narrow claim may decide that the commercial realities point towards a tactical withdrawal. He may be able to relinquish use of the contested information yet stay in business. The possibility of doing this reduces as the width of the plaintiff’s claims increases. The defendant is left no alternative but to fight on in heavy litigation, spending money on lawyers which he would much prefer to spend on building up what may be a new business. The attractions of this to a plaintiff bent on harming a competitor’s business are obvious. Furthermore, the more technology put before the court, the easier it may be to obscure the issues. A competitor or ex-employee is entitled to copy non-confidential material, but if the plaintiff mixes a large amount of technology together, some of which has been copied by the defendant, there is a risk that the court will jump to the conclusion that some of what was copied must have been confidential.

• [19] As well as those considerations, stating clearly what is confidential is important for discovery. Discovery involves an intrusion, as a party is required to disclose in litigation documents in its control that it would rather not share with the rest of the world, let alone with a competitor. The intrusion should be limited to disclosing only what is truly relevant. Equally, for discovery, it is hard to establish whether a document is relevant or not if the court cannot tell what information is alleged to be confidential.

• [20] That becomes acute, where an employee not subject to any restraint of trade covenant can resign and set up a business in competition with his former employer but is free to use skills and expertise he has built up during his employment.⁵ While an employee might not be allowed to use any information about their employer’s business during his employment except for their job, it does not follow that the employee is to be restrained from using that information once they no longer work for the company. Laddie J warned against this in Ocular Sciences Ltd v Aspect Vision Care Ltd:⁶

An employee is entitled to deploy his skill and expertise for any employer. It may be a skill and expertise which is held by many others so that, as a practical matter, it is readily available to all competitors in the trade, or he may be one of a select band. When an employee works for his employer he is bound by an implied obligation of good faith. Generally, he is expected to work for his employer not for his employer’s competitors. He is expected not to put his

5. See Ocular Sciences Ltd v Aspect Vision Care Ltd (No.2) [1996] EWHC Patents 1; [1997] RPC 289 at 370-371; Faccenda Chicken Ltd v Fowler [1987] Ch 117 (CA),

⁶ See Ocular Sciences Ltd v Aspect Vision Care Ltd (No.2) [1996] EWHC Patents 1; [1997] RPC 289 at 370-371.

skills at the service of one person or at the salary being paid by another. This has nothing to do with the confidentiality of his skills and expertise. Similarly, when he learns new things during his employment which become part of his skills and expertise, the employer can insist that, while he is employed, he uses those things only for the purpose of his employment. Whether or not those things are confidential, in the Coco v Clark sense⁷, is largely irrelevant to the restraint on his ability to use it to his employer’s detriment while he is still employed by him. The significance of this is that there is risk at slipping into thinking that what an employee can be restrained from using while in employment is likely to be secret when, in truth, that restraint has little to do with secrecy but a lot to do with the employee’s obligation to act in the interests of his employer. Once one slips into thinking that because a piece of information cannot be disclosed to a competitor during employment, therefore it is secret, it is but a little step to say that it is a secret for the purposes of the law of confidence.

• [21] While establishing what information a former employee may not use may be difficult to apply, the cases give some guidance. In Nedax Systems NZ Ltd v Waterford Security Ltd, Goddard CJ said:⁸
  1. To qualify as confidential information, the material in question must be information as opposed to skills, techniques, knacks and know-how generally, learned, assimilated or enhanced during the employment. Once acquired, these become part of the employee who may do with them as he, or she, pleases.

2. Of the material that constitutes information and not know-how coming to the knowledge of an employee during employment, only a small proportion is recognised by the law as confidential and (as will appear) not all of that is protected.

3. For the information to be confidential, it must be information of a kind capable of being confidential. Information that is in the public domain or is readily available from the plaintiff or some other person (including a customer of the plaintiff) does not qualify. To be confidential, the information must be confidential to the employer and not merely confidential to the customer. It must be confidential as against the customer. There may be all sorts of material that a customer or client can prevent an employee, as well as the employer, from disclosing to unauthorised persons but which the employer cannot, at the end of the employment, prevent the employee from disclosing to the customer, or the customer from disclosing to the employee.

4. To be confidential the information must be not only confidential to the employer and of such a character as to be capable as to be confidential, but it must also have been imparted in confidence by the employer to the employee.

5. It is not possible to define in advance the information that is confidential. It depends on the circumstances.

⁷ Coco v AN Clark (Engineers) Ltd [1969] RPC 41.

⁸ Nedax Systems NZ Ltd v Waterford Security Ltd [1994] NZEmpC 65; [1994] 1 ERNZ 491 at 505.

6. Certain kinds of information are readily recognisable as confidential. For example, trade secrets, secret processes, and information of a kindred kind.

7. Many other kinds of information are almost never confidential. Among them, business methods, administrative procedures and information as to price structures.

8. In between trade secrets, on the one hand, and information of routine operations on the other, there is some material that can be confidential.

9. Even if it is, in a given situation, it will not be protected if it cannot be separated from other information that is not confidential, and it may not be protected if the effect of protecting it is to prevent competition and there is no covenant or restraint of trade between the former employer and employee.

10. One category of information that requires careful consideration as to its confidentiality is information that discloses the employer’s vulnerability to attack from the outside. For example, knowledge that a supply relationship is brittle, or under strain in a particular way, as was the case in Medic ...

11. Another category of cases can be described as the springboard cases where it is suggested that a former employee has obtained some commercial advantage, not as a result of any personal attributes, but as the result of being a former employee of the plaintiff. I do not find this line of argument impressive in the absence of solicitation during the employment and in the absence of any fiduciary relationship. This is just an aspect of knowing the industry and understanding the market. There is a risk of preventing a former employee from using information that he, or she, or a third person altogether, could have obtained from the supplier on enquiry. It is perfectly natural for former employees to derive some advantage in marketing themselves from their former employment.⁹

• [22] In Longbeach Holdings Ltd v Chia, William Young J said:¹⁰

And:¹¹

I can see no objection, in principle, to a former employee exploiting a rapport developed with the former employer’s customers during the course of employment.

I think it is extremely important to recognise that people in the position of the defendants are not, without good cause, to be restrained from earning a living in any way they choose. This is all the more important when there is no restraint of trade. The general rule is that former employees are entitled to contact former customers or suppliers of the employer ... Information about key people within those organisations is not confidential once employment

9. Cited with approval in Longbeach Holdings Ltd v Chia HC Christchurch, CP182/98, 25 November 1998.

¹⁰ Longbeach Holdings Ltd v Chia HC Christchurch, CP182/98, 25 November 1998, at p 16.

¹¹ At p 19.

has ceased. ... Where an employer has derived special knowledge about a client from that client, there is nothing to prevent that client from making the same information available to the former employee as Nedax shows. Industry or trade knowledge and experience cannot be regarded as confidential in this context.

Donovan Group’s pleadings

• [23] There are four causes of action:

(a) Against Mr Reid alone, breach of the confidentiality clause in his employment agreement;

(b) Against all defendants, breach of confidence in equity;

(c) Against all defendants, conversion of confidential information;

(d) Against all defendants, conspiracy by unlawful use of confidential information.

• [24] There is a broad overlap. All the causes of action are based on unauthorised disclosure and use of confidential information, all allege that the same information is confidential, and they all rely on the same acts of the defendants making them liable. The second cause of action, for breach of confidence, is Donovan Group’s best cause of action. It offers the widest range of relief – the others do not allow for an account of the defendants’ profits. If Donovan Group does not succeed on that cause of action, it will not succeed on the others, and if it does succeed, it will not need the others. I queried why Donovan Group wanted to run so many causes of action when it would only add to the work for the parties and the court without any matching benefit.

• [25] In ordering the interim injunction in 2018, Toogood J did not rely on the cause of action for breach of the employment agreement as it was within the exclusive jurisdiction of the Employment Relations Authority under the Employment Relations Act 2000.¹² Mr Baird advised that Donovan Group would not rely on that cause of

¹² Donovan Group NZ Ltd v Reid [2018] NZHC 2854 at [35]- [47].

action for the jurisdiction reasons given by Toogood J. However, he insisted that Donovan Group would continue with all the other causes of action.

• [26] The claim for conversion is dubious. Usually it is actionable only by someone entitled to possession of tangible personal property, but Donovan Group has not pleaded any interference with any of its chattels. Some cases have suggested that it may also be available for wrongs against intangible property.¹³ But the claim is available only for wrongs against personal property. The law does not treat confidential information as property. In Thomas v Farr plc the English Court of Appeal said:¹⁴

... it is now well established that that (aside from any obligations undertaken by contract) the law relating to confidential information is an equitable invention and is not founded on the concept of information as property.

The conspiracy cause of action will be harder to prove than establishing that third parties are liable for misusing information disclosed to a confidant. In running so many causes of action, Donovan Group is taking a heavy-handed approach.

• [27] Donovan Group pleads that its commercially sensitive and confidential information and intellectual property includes the following:

(a) Its client base.

(b) Its prospective client and leads database.

(c) Its supplier database.

(d) Its building and building element designs, plans and specifications, standard details, including but not limited to its “bracketless portal system” and its “tapered box beam system”.

(e) Its project management software “Coremanage”.

(f) Its building design software “Constructor”.

(g) Its automated design and manufacture software operated by its design engineering and drafting business “Design Station Limited”.

¹³ See the discussion in Singh v Patel [2020] NZHC 2242 at [31]- [41].

¹⁴ Thomas v Farr plc [2007] EWCA Civ 118 at [39].

(h) All design specific pricing which could not be accurately quoted by Design Station software.

(i) Its pricing methodology.

(j) Its branding, marketing material and methodologies.

• [28] Mr Kyle Donovan’s affidavit in support of the application for an interim injunction says that over the years the company has developed unique designs, it has two unique construction methods (“bracketless portal system” and “tapered box band system”) both of which are patented. He repeats the allegation of confidential information in the statement of claim but does not say exactly what the information is or how it is confidential. That part of his evidence is no more than assertion. The information alleged to be confidential covers a wide range of business activities. A defendant in Mr Reid’s position is caught in the difficulty Laddie J identified in Ocular Sciences Ltd.

• [29] The defendants have requested Donovan Group to give particulars of the information alleged to be confidential and why it is confidential, so as to establish what is truly a trade secret and what information Mr Reid is free to use in his new business. Donovan Group has, however, refused to provide them. It will not do so unless and until the defendants file a particulars application and the court orders it to do so. It says it will not give any particulars until it has first received discovery. I take it that it is relying on those cases where a party will not be required to give particulars of those matters which are within the knowledge or control of the other side.¹⁵ That, however, is misconceived. In a breach of confidence claim the plaintiff must be able to specify which of its information is confidential with precision and why it is confidential. It does not need discovery from the defendant to say what its case is. Donovan Group however would prefer to leave the defendants guessing and make them run up costs on interlocutory skirmishing.

• [30] Now to assess Donovan Group’s confidentiality claims in the light of these considerations. There is one area where its claims may be adequately defined, its maturing business opportunities. It was negotiating for projects when Mr Reid left the

15. Sachs v Speilman [1887] UKLawRpCh 227; (1887) 37 Ch D 295, Hickson v Scales [1900] NZGazLawRp 83; (1900) 19 NZLR 202 (SC), Truck Master Ltd v Mastagard Waste Ltd [2014] NZHC 1676 at [15].

company, the 665 jobs in the amended interim injunction of November 2018. Its case is that information about those jobs was confidential, so that Mr Reid could not use information about them after he left. Inside knowledge of negotiations, terms of contract and prices can for pleading purposes be accepted as a closely-guarded secret which Mr Reid could not use after he left.

• [31] That aside, Donovan Group’s confidentiality allegations are general only. As for the customer database, in the construction industry there is usually no secrecy about the identity of customers. Invariably, signs are erected on building sites, prominently announcing contractors, consultants and sub-contractors involved in the project. On their websites and other promotional materials, construction companies proclaim the jobs they have successfully completed. There is nothing in Donovan Group Ltd’s pleadings or case to show why there is any secret about its customers.

• [32] In the construction industry there is normally no secrecy about the identity of suppliers, materials, consultants or sub-contractors. There is nothing in this case to show why that information was confidential in the hands of Donovan Group.

• [33] There is normally no secrecy in building designs. After all, the design can be seen in the constructed building and in plans deposited with building consent authorities to obtain building consents. Copyright law may guard against unauthorised three-dimensional reproduction of plans, but there is no allegation of copyright infringement here. Building processes may be protected by patents. In fact Donovan Group pleads that it has a patent for its bracketless portal system, and that its tailored box beam system is in the provisional status phase of patent registration. One purpose of patent law is to allow the invention to become public knowledge. When an application is made for a patent, confidentiality is lost.¹⁶ Donovan Group can accordingly not claim confidentiality for the information in its patents. It has not stated what other building designs are a trade secret. There is nothing to show confidentiality in building designs.

• [34] Project management is a skill which an employee may develop during his employment and may continue to use after his employment. There is nothing in

¹⁶ O Mustad & Son v S Allcock & Dosen [1964] 1 WLR 109 (HL).

Donovan Group’s case to show that its project management software is confidential as opposed to industry skills that Mr Reid acquired during his employment.

• [35] Building design software is commonly used in building design. There is nothing in the case to show that Donovan’s “Constructor” software is a trade secret or has any element of confidentiality which would not be found in any other draughting office.

• [36] The storing of information on software for automated design and manufacture does not make it confidential. Again, software is commonly used in design and manufacture in the construction industry. There is nothing in the pleading to identify what is confidential about this software.

• [37] As Goddard CJ pointed out in Nedax Systems NZ Ltd v Waterford Security Ltd pricing methodology is no more than a business method. There is nothing in the pleading to show that how Donovan calculated prices for its contracts was a trade secret or otherwise confidential. That is, of course, subject to the qualification that information about prices for specific jobs while under negotiation may be a tightly- held secret.

• [38] Promotional activity is a business method. Knowledge how a business promotes itself and develops relationships with customers, is information that an employee may take with him when he leaves. There is nothing in Donovan Group’s case to show that any aspect of its promotional activity was closely-guarded confidential information.

• [39] In summary then, only the maturing business opportunity claims, including information about negotiations, pricing and the like, are adequately particularised, and that is only because the actual projects are set out in the schedule to the interim injunction order. That aside, the other confidentiality claims are empty and do not need to be taken seriously at this stage. They are not relevant for this discovery decision.

The documents

• [40] There are 629 documents where Mr Jackson and Mr Davies-Colley have not agreed on relevance or irrelevance. As well, there are a further 147 documents where the defendants seek redactions to protect confidentiality. Mr Davies-Colley put the documents into five categories. Mr Jackson did not take issue with the categorisation. They are:

(a) Pricing schedules;

(b) Projects which Mr Reid was aware of before he left;

(c) Head contractors who had done work with Donovan Group before Mr Reid left;

(d) Customers where confidentiality is not in issue; and

(e) Customers who had no connection with Donovan Group Ltd.

Pricing schedules

• [41] The documents seized included pricing schedules of Waldron Construction and Roofing Ltd. The defendants say that these pricing schedules were for jobs which Waldron Construction and Roofing Ltd was negotiating. In some cases, documents have the word “Coresteel” on them. That is why they were identified as potentially relevant. At this stage, however, there is no arguable claim to confidentiality in Donovan Group’s pricing methodology. The defendants explain that the documents with “Coresteel” on them came from Mr Brett Donovan, one of Donovan Group’s directors, sending a template to Mr Waldron in 2015. The discovery ruling is that as the calculated prices in the pricing schedules were not produced by Donovan Group, they are not discoverable. The word “Coresteel” does not make them discoverable.

Projects in contemplation before Mr Reid left

• [42] The list of projects which Donovan Group says it was negotiating is extensive. The jobs are all over the country and involve not only Donovan Group itself but also

its franchisees. Documents relating to seven of those projects were found under the search and seizure orders:

(a) Northland Milk (Wayne Brown);

(b) J A Russell Ltd’s Marsden Development;

(c) Placemakers Levin;

(d) Greenmount Espies;

(e) Supply to Waldron Construction and Roofing Ltd subcontracting to Dixon Projects for the “Stroeven” project;

(f) Supply to Waldron Construction and Roofing Ltd subcontracting to Dixon Projects for the Griffiths Extension project; and

(g) Placemakers Warkworth.

As none of the documents seized related to any of the other projects in the order, it is not necessary to deal with those projects in this decision.

• [43] The defendants have obtained contracts on some, but not all of the seven projects. They will say in defence that their customers chose them rather than Donovan Group for the jobs and that the reasons they got the work has nothing to do with any confidential information held by Mr Reid. Documents that support those defences must be disclosed, as going to the defendants’ case. There are of course other documents.

• [44] The defendants proposed that not every document should be disclosed to Donovan Group. They say that many of the documents relate to contract administration and the like and it would be tedious to impose them on Donovan Group. They suggested three groups of documents which Donovan Group should see:

(a) Those showing how or why customers chose the defendants over the plaintiff;

(b) Those originating from Donovan Group, such as concept plans;

(c) Those relevant to quantum – to be withheld until liability is first established.

• [45] These are all relevant. The first goes to the defendants’ defence and therefore should be disclosed. For the second, I was advised that it is not unusual for a customer receiving a concept plan from one possible supplier to show it to other suppliers to obtain competing bids. Still, the fact that such documents have come into the defendants’ possession is relevant to Donovan Group’s claim. As to the third, the documents will be relevant only if liability is established. There will be a split hearing, liability first and quantum later. While relevant, documents going to quantum do not need to be disclosed yet. But I am not satisfied that discovery in this category should be limited in the way the defendants propose. They are concerned at losing confidentiality in documents which may be at best peripheral to the case, but that can be addressed by safeguards, a matter I deal with later. Instead I leave Mr Jackson to make the call on disclosure of these documents. If he considers that the documents deal only with incidental matters and are therefore not required for the case, they need not be shown to Donovan Group. As a further step, the defendants may direct that Donovan Group should still see some documents, even if Mr Jackson has excluded them. That is to allow the defendants to disclose documents which they will rely on.

• [46] To explain this, I was shown a document which the defendants suggested need not be disclosed. One of the parties to the communication is a structural engineer. The content relates to the design of a building. While the defendants suggest that the plaintiff does not need to see it, it may be discoverable as showing that the building was designed independently of any confidential information of Donovan Group.

Head contractors who had done work with Donovan Group before Mr Reid left

• [47] This category relates to documents for projects by the defendants. The customers are listed in the order of 8 November 2018 but Donovan Group was not negotiating for those projects before Mr Reid left. These are new jobs. Donovan Group Ltd has no property in its relationship with its clients and customers. At this stage of the case, it is not a trade secret to know who its customers were. Some of the customers are household names, Mainfreight, Placemakers and Griffins. The Waldron

defendants will say in their defence that they already had relationships with businesses Donovan Group dealt with. There is no bar to Mr Reid building on relationships that he had developed with Donovan Group customers during his employment. New jobs that were not pending when he left cannot be the subject of Donovan’s confidentiality claims identified in this judgment. Accordingly, documents relating to new jobs with existing Donovan Group customers are not discoverable.

Customers who had had no contact with Donovan Group

• [48] The defendants say that they had enquiries for new work from people who had not been customers of Donovan Group. The new customers are not in the schedule to the order of 8 November 2018. I accept that these jobs are outside Donovan Group’s “maturing business relationships” and knowledge about them is not confidential to Donovan Group. Documents in this category are not discoverable.

• [49] The point reached now is that documents in the second group, Donovan projects Mr Reid was aware of before he left, are to be disclosed to Donovan Group. Mr Jackson and the defendants’ lawyers are to select the documents, as set out at [45] above. Documents relating only to quantum for a project are to be disclosed only if the defendants are found liable for that project. The documents in the other categories are not relevant to any properly pleaded confidentiality claim or to any other relevant issue. They do not need to be disclosed. They may instead be returned to the defendants.

The privilege question

• [50] There is a group of documents for which privilege has been claimed. It is accepted that the defendants are entitled to claim privilege for confidential communications between the defendants and their lawyers giving professional legal services. The question is whether the defendants can claim privilege for other documents attached to or enclosed with those communications. The defendants accept that the attachments or enclosures are not otherwise privileged. They say that they would have been separately taken under the search and seizure order. Whether those documents are relevant and should be disclosed will have been assessed already. They

do not want the fact that those documents have been given to their lawyers for advice to be disclosed to Donovan Group, because that would give away what they were seeking advice for.

• [51] Because the defendants say that the documents will have been separately seized, I assume that they came from the defendants. I was not told that they came from any other source. Nor was I told whether there had been a careful cross-check with other documents to see if the documents had been disclosed separately. It is therefore possible that some of the attachments and enclosures are the only versions and were not separately taken under the search and seizure order.

• [52] A non-privileged document does not become privileged because it is submitted to a lawyer for advice or for litigation. There is however a narrow exception that where the compilation of documents by a lawyer would show the trend of advice, privilege may be claimed. That comes from Lyell v Kennedy.¹⁷ In Ventouris v Mountain, Bingham LJ said:¹⁸

The ratio of the decision is, I think, that where the selection of documents which a solicitor has copied or assembled betrays the trend of advice which he is giving the client the documents are privileged.

• [53] In Sumitomo Corpn v Credit Lyonnais Rouse Ltd, the English Court of Appeal held that the privilege applied only to third party documents, not to those sourced from the client:¹⁹

A gloss on the principle that a lawyer’s advice is privileged from discovery should not result in the right of a party to refuse discovery of documentary evidence that was in the possession of that party before the selection was made, or copies or translations of such evidence.

• [54] Accordingly, the attachments and enclosures are not privileged. They are relevant if they are the same as or similar to those that Mr Jackson and the defendants have already agreed are relevant or come within those documents that I have ruled should be disclosed. They should be disclosed if they have not been already. That

¹⁷ Lyell v Kennedy (No 3) [1884] UKLawRpCh 102; (1884) 27 Ch D 1 (CA).

¹⁸ Ventouris v Mountain [1991] 1 WLR 607 (CA), 615.

19. Sumitomo Corpn v Credit Lyonnais Rouse Ltd [2001] EWCA Civ 1152, [2002] 1 WLR 479 at [76]- [77].

gives the defendants a choice. They may cross-check to see if the documents are relevant and have already been disclosed. They need not disclose those Donovan Group has already received. Alternatively, they can dispense with the cross-check and allow all the attachments and enclosures to be disclosed.

Safeguarding confidentiality

• [55] Provisions to safeguard confidentiality of discovered documents on both sides are required. The parties are competitors. Fear that Donovan Group will misuse information in its documents has driven the defendants’ opposition to the disclosure sought. It says that Donovan Group has already taken advantage of disclosure of some information to undercut it on another job, something Donovan Group hotly denies. Equally, having sued the defendants for breach of confidence, it says that inspection of its documents should be restricted to the defendants’ professional advisers. Each side is extremely suspicious of the other and does not consider them trustworthy.

• [56] The use of documents produced for inspection is restricted both under the general law and under r 8.30(4) of the High Court Rules 2016:

(4) A party who obtains a document by way of inspection or who makes a copy of a document under this rule—

(a) may use that document or copy only for the purposes of the proceeding; and

(b) except for the purposes of the proceeding, must not make it available to any other person (unless it has been read out in open court).

• [57] Compliance with this rule is important to maintain confidence in the discovery process. The bar on collateral use applies whether documents are confidential or not. Applying restrictions when confidential documents are made available for inspection is directed at ensuring greater protection against collateral use of information and documents where the information would ordinarily not be available to the public.

• [58] Unlike privilege, confidentiality does not provide grounds for resisting disclosure in an affidavit of documents but may provide grounds for restricting inspection of the documents. In cases where confidentiality is claimed, it is necessary to strike a balance between legitimate but competing considerations: the need to allow

one side to have adequate access to documents relevant to the proceeding and the need to protect the other side from improper use of those documents following discovery.

• [59] In Port Nelson Ltd v Commerce Commission, the Court of Appeal said:²⁰

The ability of each party to a proceeding to inspect the documents of the other, except for documents which are privileged, is important in enabling the proceeding to be brought to a just conclusion. It avoids parties being taken by surprise. It enables legal advisers to better assess the likely outcome of trial, and to concentrate on what will ultimately prove to be the real issues. In this way it can save cost. Sometimes, however, relevant documents which are not privileged may be commercially sensitive. Examples would be documents showing the detailed costings of products or services which are provided in a competitive market, the marketing plans for a proposed new product, or a patent specification during the period before the application has been accepted and made available for inspection.

The court went on to note that there are different ways by which the confidentiality may be preserved, while allowing them to be inspected by the other side. It added:²¹

It is a matter of balancing on the one hand the interests of justice in ensuring that the commission is able to prepare and present its case, and on the other the interests of Port Nelson in safeguarding its confidential information in a competitive market.

• [60] In Roussel Uclaf v ICI plc Aldous J said:²²

Each case has to be decided on its own facts and the broad principle must be that the Court has the task of deciding how justice can be achieved taking into account the rights and needs of the parties. The object to be achieved is that the applicant should have as full a degree of disclosure as will be consistent with adequate protection of the secret. In so doing, the Court will be careful not to expose a party to any unnecessary risk of its trade secrets leaking to or being used by competitors. What is necessary or unnecessary will depend upon the nature of the secret, the position of the parties and the extent of the disclosure ordered. However, it would be exceptional to prevent a party from access to information which would play a substantial in the case, as such would mean that the party would be unable to hear a substantial part of the case, and would be unable to understand the reasons for the advice given to him and, in some cases, the reasons for the judgment. Thus what disclosure is necessary entails not only practical matters arising in the conduct of a case but also the general position that a party should know the case he has to meet, should hear matters given in evidence and understand the reasons for the judgment.

²⁰ Port Nelson Ltd v Commerce Commission (1994) 7 PRNZ 344 (CA) at 347.

²¹ At 348.

²² Roussel Uclaf v Imperial Chemical Industries Plc [1990] FSR 25 (Ch) at 29-30.

• [61] The text “Disclosure” shows a variety of approaches to protecting the confidentiality of documents:²³ inspection by an independent solicitor reporting directly to the court, inspection by the plaintiff’s experts but not the plaintiff, inspection by the plaintiff’s lawyers but not the plaintiff. Where a plaintiff has not been allowed to inspect, sometimes an order has been made permitting a report in general terms to him. The text goes on:²⁴

In modern times, however, it is rare that the claimant himself, (or, where the claimant is a corporate body, a named officer) is excluded from knowledge, because decisions whether to continue or abandon the action, for example, should be made by the claimant, and not by his advisers. Sometimes he may only inspect under strict conditions. But exceptional cases do occur from time to time. It is increasingly common to create a “confidentiality club” of specified persons who alone may have access to the documents...As to who should be in the confidentiality club with access to the confidential material, there may be an issue whether it should extend beyond external lawyers.

• [62] The confidentiality issues become manageable, once the true scope of the proceeding is appreciated. The case is really about confidentiality of knowledge of Donovan Group’s maturing business opportunities before Mr Reid left and whether that information has been misused. Donovan Group’s claims to confidentiality in more extensive information do not need to be taken seriously. As it is more than two and a half years since Mr Reid left, it is unlikely (but not impossible) that any of those business opportunities have not matured. The issues are largely historical – whether the defendants did breach confidence, not whether there is an ongoing threat that the defendants have got hold of a trade secret which they could still use. There is no question of theft of technology. The risk of ongoing misuse of information about past business opportunities is not high, when those opportunities will have gone. The safeguards to protect secret information about technology are not required.

• [63] The split trial decision makes it unnecessary at this stage to direct disclosure of financial information by either side. Information about pricing and profits is not required at this stage. Arrangements can be made later to safeguard that information if it becomes necessary.

23. Paul Matthews and Hodge M Malek Disclosure (5th ed, Sweet and Maxwell London, 2017) at 479-480.

²⁴ At 480.

• [64] It is obviously desirable that the parties personally and directors of companies should be able to inspect documents themselves so that their professionals can give them full advice and they can give informed instructions. To make sure that the information is not misused, those inspecting documents, lawyers, other professionals, the parties and their directors, are to sign express undertakings to the other parties and to the court. No-one may inspect documents without first signing an undertaking and giving it to the other side. The companies will give their own undertakings in addition to those given by their directors.

• [65] The undertakings will be along these lines:

I, [name] of [place], [occupation], undertake, subject to any orders of the court or further agreement by the plaintiff/defendants, in relation to the documents required to be disclosed in proceeding CIV-2018-488-113:

1. I will inspect documents disclosed under discovery solely for the purpose of the proceeding CIV-2018-488-113.

2. Any copies I receive of the documents, and any notes which I make and knowledge I gain of the contents of the documents, will be used solely for the purpose of the proceeding.

3. Subject to 4 below, I will safeguard the confidential documents and any copies thereof and will not at any time disclose the documents or copies or the contents thereof, in whole or in part, to any person without first obtaining the consent of the plaintiff/defendants in this proceeding, or an order of the court allowing disclosure, or required by any law, rule, or regulation to do so.

4. I may disclose the content of the confidential documents or of any copies and discuss the contents of the documents with the court or any person who has been permitted to inspect the documents and who has first provided a signed undertaking in this form to the solicitors for the plaintiff/defendants in this proceeding.

5. If any of the documents are scanned or imaged and converted to electronic form for the purpose of the proceeding, these will be held by me in a secure form, and will not be further copied or transmitted and will remain in my possession and subject to my control at all times.

• [66] The lawyers are directed to advise their clients of the requirements of r 8.30 of the High Court Rules 2016 and to point out that the documents and information in them may be used only for the proceeding. That advice should include pointing out that improper use of documents disclosed on discovery is a breach of a rule of the court and also a breach of undertaking. The court may punish a party for breaching

its undertaking. That may include orders available under r 7.48 of the High Court Rules 2016 – that is, breach of the undertaking may result in the claim being struck out or the defendants being barred from defending.

Directions

• [67] I have held that Donovan Group’s confidentiality claims are restricted to information about its maturing business opportunities as at 25 May 2018. If it wants to claim confidentiality for other information, it will need to amend its pleading to specify exactly what it is and why it is confidential. Nothing in this decision is meant to bar appropriate amendments. That may in turn require fresh case management directions.

• [68] For the documents on which I was required to rule on relevance, only documents within the category Projects in contemplation before Mr Reid left need to be disclosed. Some may be omitted according to what I have set out in [45] above. Documents relevant only to quantum are not to be disclosed yet. Documents which I have directed need not be disclosed are to be returned to the defendants. They are reminded of their ongoing obligations under r 8.3 of the High Court Rules 2016 to preserve those documents in case the court makes any further orders for discovery.

• [69] On the privilege question, documents attached to or enclosed with communications between lawyers and clients are not privileged if they already existed and privilege did not attach before they were used in the communications. Relevant attachments and enclosures are to be disclosed unless the defendants can satisfy Mr Jackson that they have already been disclosed.

• [70] All parties are to make standard discovery by the end of February 2021. They are not required to disclose documents which are relevant only to quantum. The defendants do not need to disclose documents taken under the search and seizure orders. The only live confidentiality claim is for the maturing business opportunity matters. Other confidentiality claims can be disregarded for this discovery. The affidavits of documents may require confidentiality to be protected by the undertakings I have required in [64] and [65] above.
• [71] Inspection of all documents, confidential or not, is restricted to the parties, their directors, lawyers and professional advisers who must all give undertakings to the other side and to the court in [64] and [65] above.

• [72] Mr Jackson is kept on in the meantime. I thank him for his assistance.

• [73] The defendants have generally prevailed and are entitled to costs. I invite counsel to confer as to costs. If they cannot agree, memoranda may be filed.

• [74] The registrar is to arrange a case management conference no earlier than the end of February 2021. The parties will be expected to have completed inspection of documents before the conference.

• [75] Leave is reserved to apply for further directions.

...........................................

Associate Judge R M Bell