Pre-commencement discovery
When parties are engaged in civil litigation, generally they may seek documents and evidence held by other parties after the claims have been filed and before the hearing is due to take place. In this case, a former employer applied for discovery at the Employment Court before any proceedings had been filed at the Employment Relations Authority.
P.I.C. Insurance Broking Limited v Pepper, Cooper and Oceania Insurance Brokers Limited [2023] NZEmpC 195
Background
P.I.C Insurance Brokers Ltd (“PIC”) applied for pre-commencement discovery in relation to claims which it intended to commence against two of its prior employees and their new employer.
Ms Pepper and Mr Cooper were longstanding senior employees of PIC. Ms Pepper resigned in March 2023 and Mr Cooper resigned in July 2023. Both began employment at Oceania Insurance Brokers Ltd (“OIB”).
PIC was concerned that Ms Pepper and Mr Cooper had breached their duties of good faith, misused its confidential information, and breached their restraint of trade and non-solicitation obligations. PIC intended to bring proceedings against them in the Employment Relations Authority. PIC also contemplated bringing proceedings against OIB, as it may have incited, instigated, aided, or abetted Ms Pepper and Mr Cooper in their actions.
The law
In summary, the Court may (in accordance with the Employment Relations Act, which refers to the District Court Act) make a pre-commencement discovery order against any person, upon application by an intending plaintiff, if it appears to the Court that:
- the intending plaintiff is or may be entitled to claim relief against an intended defendant;
- it is impossible or impracticable to formulate its claim without reference to one or more documents or a group of documents; and
- there are grounds to believe that the documents may be or have been in the control of a person who may or may not be the intended defendant; and
- the order is necessary at the time when the order is made.
Findings
- Does PIC have a potential claim against the respondents?
First, the Court focused on whether PIC had shown that there was a real probability that it had claim(s) against the respondents.
In relation to the former employees, Ms Pepper and Mr Cooper, it was alleged that they had breached their employment obligations to PIC in the following ways:
- When they resigned, they misled PIC by failing to inform PIC that they were planning to work for a competitor, even though they were directly asked.
- Prior to their resignation, they carried out suspicious and unusual printing of PIC’s confidential information, and they then took the information with them when they left.
- After Ms Pepper joined OIB, she communicated with former clients of PIC. In particular, she attended a client meeting with a former client of PIC, which subsequently transferred its business to OIB.
- At least 23 of PIC’s clients, for which Ms Pepper was responsible, subsequently transferred their business to OIB.
- Mr Cooper transferred contacts of PIC’s clients to his personal phone, and was contacted by a former client while on garden leave. That client subsequently cancelled its policies with PIC.
Apart from the first allegation above, the remaining allegations were all disputed as facts or as breaches by the respondents.
For the respondents, it was submitted that there was insufficient evidence to support a claim against Ms Pepper and Mr Cooper. It was argued that the restraint of trade clauses in their employment agreements were unenforceable, and that there was insufficient evidence to indicate that PIC was entitled to bring a claim against them for breaches of their employment obligations.
The Court considered that such an argument relates to whether the claims may be established against the respondents. However, at this early stage, it was not directly relevant to the question of whether PIC had a claim against the respondents. Having reviewed the affidavits of the parties, the Court concluded that there was a sufficient foundation for the intended claims against the respondents, and that PIC was (or may be) entitled to bring claims against Ms Pepper and Mr Cooper. In particular, PIC’s allegations were capable of giving rise to claims for breach of good faith, misuse of confidential information, and breach of restraint of trade and non-solicitation obligations.
In relation to OIB, PIC submitted that OIB was in discussions with Ms Pepper and Mr Cooper prior to them resigning from PIC, that the employment of Ms Pepper and Mr Cooper gave OIB a competitive edge, and that since Ms Pepper’s departure, at least 23 of PIC’s clients (for which she was responsible) had moved to OIB. Accordingly, PIC believed that it may have a claim against OIB for aiding and abetting Ms Pepper and Mr Cooper in their alleged breaches.
In response, OIB submitted that there was no evidence that it had induced or assisted Ms Pepper or Mr Cooper to breach their employment obligations.
On this aspect, the Court found that the allegations against OIB were still circumstantial, but if Ms Pepper and Mr Cooper had misused PIC’s confidential information and had breached any enforceable restraint of trade and non-solicitation obligations, it was possible that they did so with OIB’s assistance. The Court considered the evidence to be sufficient to support the proposition that there may be a claim which may be brought against OIB, as a party that induced or assisted the alleged breaches by Ms Pepper and Mr Cooper.
- Is it impossible or impracticable to formulate a claim against the intended defendants without pre-commencement discovery?
Secondly, the Court observed that PIC must establish that the documents sought were necessary for it to be able to formulate its pleadings against the respondent(s).
It was submitted for PIC that it was unable to practicably finalise its pleadings against Ms Pepper and Mr Cooper, because it was lacking particulars of their breaches. Further, PIC also submitted that discovery would assist it to find whether there was an appropriate basis to bring proceedings against third parties, and to ascertain the identities of those third parties, if any.
For the respondents, it was submitted that PIC already had sufficient information available to it to draft and file a statement of problem in the Employment Relations Authority. Further, if discovery was required, this could be sought after proceedings had been commenced against the respondents. Additionally, it was submitted that PIC was seeking pre-commencement discovery as a commercial tactic to enable it to gain access to OIB’s commercial information, and that the categories of documents sought were too broad for the anticipated proceedings.
The Court turned to consider each of the six categories of documents that were sought by PIC.
The first and second categories of documents were relevant to PIC’s claim that Ms Pepper and Mr Cooper had solicited its clients. The Court accepted that disclosing these documents was necessary to assist PIC in formulating its pleadings. Without these documents, PIC would not be able to include in its Statement of Problem, the facts that have given rise to the problem in a full and clear manner, as required by Schedule 1, Form 1 of the Employment Relations Authority Regulations 2000.
While the Court noted that it may have been possible for PIC to formulate a Statement of Problem without the discovery, it would likely be formulated poorly or inadequately. Accordingly, the Court considered pre-commencement discovery to be appropriate in the circumstances of this case.
In assessing the third category of documents sought by PIC, the Court found that the class of documents sought was too broad. The Court observed that OIB owed no independent obligation to PIC, and there was nothing to prevent other representatives of OIB from approaching PIC’s clients. However, the Court accepted that PIC had a legitimate interest in a subset of documents, where Ms Pepper or Mr Cooper were a party to the relevant communications with current or former PIC clients, as this would assist PIC in formulating its claim against Ms Pepper and Mr Cooper.
The Court rejected the request for the fourth category of documents, which sought to identify PIC’s clients that other representatives of OIB have approached or serviced. The Court noted that other representatives of OIB owed no independent obligation to PIC, so there were insufficient interests to seek such documentation, and pre-commencement discovery of this category is not appropriate.
In respect of the fifth category (documents relating to services offered to and/or provided by OIB to a specific client), the Court noted that this category was already covered by the other categories of documents, and it was unnecessary.
In respect of the sixth category (documents recording details of PIC clients and/or their contact details and any other confidential information of PIC), the Court accepted that discovery of this category of documents was appropriate. It was alleged that Ms Pepper and Mr Cooper used and removed PIC’s confidential documents, so the discovery of any such documents would assist PIC in formulating its pleadings in a full and clear manner.
- Are there grounds to believe that the documents may be held by the respondents?
It was submitted for the respondents that there were no reasonable grounds to believe that they had any documents in the first category of documents, as Ms Pepper and Mr Cooper had both denied approaching or soliciting PIC’s clients. However, in light of the printing of confidential documents and the alleged removal of those documents by Ms Pepper and Mr Cooper, followed by the defection of various customers from PIC to OIB, the Court found that there were grounds to believe that the applicable documents may be (or may have been) held by the respondents.
The Court also noted that if the respondents did not have any such documents in their possession or control, they would have the opportunity to attest to that effect in their affidavits to the Court.
- Is an order necessary in all the circumstances?
The respondents submitted that the orders were not necessary, as the information sought could be obtained from PIC’s current or former customers. While the Court accepted that PIC could obtain some of the information it had sought from its customers, there was no guarantee that such information would be complete or reliable. The Court considered that a discovery order was necessary in all the circumstances.
Conclusion
The Court considered that pre-commencement discovery was appropriate in relation to the following categories of documents:
- Any materials identifying PIC clients approached by Ms Pepper or Mr Cooper either directly or indirectly;
- Any materials recording communications between Ms Pepper and/or Mr Cooper to PIC clients;
- Any materials recording communications among representatives of Oceania, or individuals acting to further the interests of Oceania, and from them to current or former PIC clients, in which Ms Pepper or Mr Cooper were either referred to or were a party to the communication, and which related to PIC clients;
- Any materials recording details of PIC clients and/or their contact details (such as PIC client lists) and any other confidential information of PIC.
Although pre-commencement discovery is rarely sought in the employment jurisdiction, it is available for a prospective plaintiff that has sufficient information about the legal claims that it intends to make, and that seeks further information to ensure that the scope of the case is appropriately drawn at the start of its proceedings. This can serve as a useful tool when the stakes are high, and the plaintiff has suffered significant losses as a result of the defendant’s breach.
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