FEDERAL COURT OF AUSTRALIA Kockums AB v Commonwealth of Australia [2002] FCAFC 138 PRACTICE AND PROCEDURE – order for separate determination of questions – making of declarations in answer to separate questions – whether answering of the questions would provide, and making of declarations did provide, an "advisory opinion" Federal Court of Australia Act 1976 (Cth) s 21 Federal Court Rules O 29 r 2 Bass v Permanent Trustee Co Ltd (1999) 198 CLR 334 applied Director of Fisheries (Northern Territory) v Arnhem Land Aboriginal Land Trust (2001) 109 FCR 488 followed Harts Australia Ltd v Commissioner of Taxation (2001) 109 FCR 405 followed Copyright Agency Ltd v Charles Sturt University (No 2) (2001) 53 IPR 383 referred to KOCKUMS AB v THE COMMONWEALTH OF AUSTRALIA & ANOR N 1178 of 2001 FRENCH, LINDGREN & STONE JJ 17 MAY 2002 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 1178 OF 2001 ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA BETWEEN: KOCKUMS AB APPELLANT AND: THE COMMONWEALTH OF AUSTRALIA FIRST RESPONDENT AUSTRALIAN SUBMARINE CORPORATION PTY LIMITED SECOND RESPONDENT JUDGES: FRENCH, LINDGREN AND STONE JJ DATE OF ORDER: 17 MAY 2002 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The appeal be allowed. 2. Each of Questions 1(a) and 1(b) referred to in the order for separate determination made on 1 August 2001 in proceeding N 128 of 2001 be answered "Inappropriate to answer". 3. The Declarations in paragraphs 4 and 5 of the orders made on 1 August 2001 in proceeding N 128 of 2001 be set aside. 4. The appellant be discharged from the undertaking it gave in paragraph 6 of the orders made on 1 August 2001 in proceeding N 128 of 2001. 5. The parties provide in writing to each of the Associates to the members of the Court by 24 May 2002 any submissions they may wish to make as to the costs of the appeal. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 1178 OF 2001 ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA BETWEEN: KOCKUMS AB APPELLANT AND: THE COMMONWEALTH OF AUSTRALIA FIRST RESPONDENT AUSTRALIAN SUBMARINE CORPORATION PTY LIMITED SECOND RESPONDENT JUDGES: FRENCH, LINDGREN AND STONE JJ DATE: 17 MAY 2002 PLACE: SYDNEY REASONS FOR JUDGMENT the court introduction 1 This appeal relates to two written contracts in respect of the supply to the first respondent ("the Commonwealth") of six Collins Class submarines. The two contracts are a Head Contract dated 3 June 1987 (No C218269) between the Commonwealth and the second respondent ("ASC") and a Design Sub-Contract dated 11 April 1988 between ASC and the appellant ("Kockums" – at that time called "Kockums Marine AB"). On 11 April 2001 the primary Judge dismissed an application by Kockums for interlocutory relief, and on 1 August 2001, he made declarations as to the proper construction and effect of cll 48.2 and 48.7 of the Design Sub-Contract, from which Kockums now appeals. background facts 2 The Head Contract was for the construction and supply of the submarines and associated support requirements for the Royal Australian Navy. When the Head Contract was entered into, ASC was owned as to 70 per cent by or on behalf of the Commonwealth and as to 30 per cent by Kockums. However, shortly afterwards, Kockums' share increased to about 50 per cent. The Design Sub-Contract was for the preparation, development and completion of the design of the submarines, including their propeller, but excluding the design of the combat system. 3 Problems were experienced with the submarines supplied by ASC to the Commonwealth. Kockums maintains that the problems were not attributable to its design work. 4 The hearing before the primary Judge concerned propeller Z9000, but his Honour referred to problems previously experienced with two other propellers by way of historical background. 5 In August 1998 propeller Z8959, which had been fitted to "HMAS Farncomb", was sent by the Commonwealth to the United States Navy ("the USN") for repair, and the USN proposed modifications to the propeller. These were effected by LIPS Propellers Inc of Virginia ("LIPS Propellers" – that company subsequently changed its name to "John Crane Lips Inc"). The propeller arrived back in Australia in September 1999 and was fitted to "HMAS Collins". 6 In October 1999 a second propeller, Z8960, which had been fitted to the vessel "Dechaineux", was sent by the Commonwealth to the United States for modification, again in accordance with the recommendations of the USN. The work was again undertaken by LIPS Propellers. The propeller was returned to Australia in July 2000. 7 In early 2001 the Commonwealth proposed to have propeller Z9000 removed from HMAS Farncomb for transportation to the USN. It was this proposal which caused Kockums to commence the proceeding below on 13 February 2001. By its application Kockums claimed the following relief: "1. A declaration that the applicant is the owner of Intellectual Property rights [as defined in clause 1.37 of the Design-Subcontract between the second respondent and the applicant dated 11 April 1988] (the 'Contract') residing in or relating to the propellers designed and manufactured for the Collins Class submarines ('the Propellers') the subject of the Contract and Contract C218269 between the first and second respondents dated 3 June 1987 including any drawings in respect of those Propellers and any confidential information comprised in those drawings and the design of those Propellers. 2. A declaration that the applicant is the owner of the copyright in and the confidential information comprised in the drawings, designs, specifications, instruction and operating manuals and other documentation and the information comprised therein in relation to the Propellers (the 'Materials') produced or provided by it under or in relation to the Contract. 3. A declaration that the applicant's disclosure of the Materials to the first and second respondents and their receipt by them was in confidence and constitutes confidential information owned by the applicant. 4. An order that the first and second respondents, whether by themselves, their servants, agents or otherwise howsoever be restrained (without the prior written consent of the applicant) from: (a) providing Propellers forming part of a Collins Class submarine to any third party including, without limitation, the United States Navy; (b) providing any Propellers designed in accordance with the Materials to any third party including, without limitation, the United States Navy; (c) disclosing the contents of the Materials, whereby copying or otherwise, to any third party including, without limitation, the United States Navy; (d) infringing the applicant's copyright in the Materials by reproducing or authorising the reproduction of Materials or a substantial part thereof; (e) using the materials to modify or seek to modify the design of the Propellers of the Collins Class submarines. 5. An order that the respondents pay to the applicant: (a) damages for infringement of copyright pursuant to s 115(2) of the Copyright Act 1968; and (b) additional damages pursuant to s 116 of the Copyright Act 1968. 6. Equitable compensation. 7. Costs. 8. Such further or other order as the Court thinks fit." 8 Kockums included in its application, a claim for the following interlocutory relief: "An order that the first and second respondents, whether by themselves, their servants or agents or otherwise howsoever, be restrained (without the prior written consent of the applicant) from providing Propellers forming part of the Collins Class submarine or any design documentation or information in relation thereto to any third party including, without limitation, the United States Navy." 9 When Kockums' application was filed, it was accompanied by an affidavit, but shortly afterwards, on 23 February 2001, pursuant to directions, it filed points of claim. The points of claim showed that Kockums' concern was with the threatened disclosure of information touching its design of the propeller. The points of claim alleged that: * Kockums owned copyright in the Technical Procurement Specification ("TPS") including drawings for the propeller ("the Drawings"), as the author of a literary work consisting of the TPS and of an artistic work consisting of the Drawings; * Kockums provided the TPS and the Drawings to ASC for the procurement of the propeller and it subsequently provided revisions of the TPS to ASC; * the TPS and the Drawings contained confidential information which Kockums owned and which it imparted to the Commonwealth and ASC in confidence; * the Commonwealth was threatening, without Kockums' licence or approval, to provide propeller Z9000 to the USN and/or its agents or sub-contractors and this would involve: (a) disclosure of Kockums' confidential information; and (b) the creation of drawings of the propeller and/or the reproduction in a material form of the TPS or substantial parts of it and consequential infringement of Kockums' copyright. 10 On 11 April 2001 his Honour published reasons for dismissing Kockums' application for interlocutory relief. In the course of his reasons, he construed cll 48.2 and 48.7 (set out at [13] below) and concluded that there was no serious question to be tried as to Kockums' succeeding in the proceeding because cl 48.2 was fatal to its case. Relevant provisions of the head contract AND OF THE DESIGN SUB-CONTRACT The Head Contract 11 By cl 4 of the Head Contract, headed "SCOPE OF THE CONTRACT", ASC undertook to supply the "six submarines, associated requirements, services, documentation, and all other items listed in Annex BB [to the Head Contract] and in accordance with their respective Specifications at Annex D". 12 Clause 45 was headed "INTELLECTUAL PROPERTY RIGHTS". Sub-clause 45.1 provided, in general terms, that the respective parties and Sub-Contractors should: "... retain ownership of any and all Intellectual Property rights to any and all information in a material form produced or provided by it or them respectively under the Contract or in relation thereto including data, Software, Firmware, designs, plans, schedules, diagrams, drawings and any other documentation." All capitalised words and expressions were defined in cl 1. The expression "Intellectual Property" was defined in cl 1.37 as follows: " 'Intellectual Property' means all copyright, patents, registered and unregistered trademarks, registered designs, trade secrets and know-how, all rights under the United States Semi-Conductor Chip Protection Act of 1984, and the Japanese Act Concerning the Circuit Layout of a Semiconductor Integrated Circuit of 1985 and other similar national laws, and all other intellectual property as defined by Article 2 of the 'Convention Establishing the World Intellectual Property Organisation of July 1967'." 13 Clause 48 was headed "GRANTING OF LICENCE AND REPRODUCTION RIGHTS" and cll 48.2 and 48.7 lay at the heart of the case before his Honour. They were, relevantly, as follows: "48.2 ... the Contractor hereby grants to the Commonwealth and shall ensure its Sub-Contractors listed in Annex J and to the extent practicable, its other Sub-Contractors, shall promptly grant to the Commonwealth, without charge, a royalty-free, irrevocable, non-exclusive, non-transferable right to apply use, reproduce, adapt or otherwise modify for the services of the Commonwealth all information provided under the Contract which is proprietary to the Contactor [sic] and its Sub-Contractors respectively in the sense that the Contractor or its Sub-Contractors have the respective lawful right and capacity to grant such licences. In this Clause 48.2 the words adapt or otherwise modify shall be limited to the purposes of operating, repairing, maintaining and supporting the Supplies and to developing the Supplies for the purposes of modifying, enhancing or improving their operation." … "48.7 For the purposes of the obligations under this Clause 48, the word 'information' means information as defined in Clause 45.1 and the words 'services of the Commonwealth' exclude competitive commercial activities of the Commonwealth and establishing second sources of supply in competition with the Contractor or its Sub-Contractors." (our emphasis) The Design Sub-Contract 14 The Design Sub-Contract was closely modelled on the Head Contract. Where possible, the drafter simply repeated the provisions of the Head Contract, substituting "Contractor" for "Commonwealth", "Design Sub-Contractor" for "Contractor" and "Sub-Sub-Contractor" for "Sub-Contractors". The numbering of provisions in the two contracts is such that clauses bearing the same number deal with the same subject matter. Indeed, where a provision in the Head Contract had no counterpart in the Design Sub-Contract, the drafter stated next to the same clause or sub-clause number, "Not Used". Accordingly, except where noted below, the provisions of the Head Contract which we have set out above also appeared, with necessary adjustments, in the Design Sub-Contract. 15 By cl 4 of the Design Sub-Contract, which was headed "SCOPE OF THE DESIGN SUB-CONTRACT", Kockums undertook to do various things, including: "provide the Services so as to enable the submarines to be constructed by the Contractor in accordance with the Commonwealth Contract." 16 The "Commonwealth Contract" was, of course, the Head Contract. The word "Services" was defined in cl 1.61a of the Design Sub-Contract to mean: "the preparation, development and completion of the design of the submarines but excluding the design of the Combat System in such a manner as to comply with the Submarine Specification including the preparation, development and completion of those services, documents, plans, specifications, drawings, data and activities to be provided by the Design Sub-Contractor listed and scheduled in Annex BB including the integration of the design provided by other sub-contractors of the Contractor with the design of the submarines." One of Kockums' obligations under the Design Sub-Contract was the design of the Collins Class submarine propeller. Kockums did in fact design that propeller and provided to ASC information as to its design. 17 Clauses 48.2 and 48.7 of the Head Contract were set out at [13] above. Clause 48.2 of the Design Sub-Contract provided that Kockums granted to both the Commonwealth and ASC "a royalty-free, irrevocable, non-exclusive, non-transferable licence to apply, use, reproduce, adapt or otherwise modify for the purposes of the Commonwealth and the Contractor under the Commonwealth Contract", proprietary information provided by Kockums under the Design Sub-Contract (our emphasis). It was not suggested that the difference between the expression "services of the Commonwealth" in cl 48.2 of the Head Contract and "purposes of the Commonwealth and the Contractor under the Commonwealth Contract" in cl 48.2 of the Design Sub-Contract was of any significance (cl 48.7 of the Design Sub-Contract retained the expression "services of the Commonwealth" but, as indicated earlier, substituted "Design Sub-Contract" for "Contractor" and "Sub-Sub-Contractors" for "Sub-Contractors"). 18 The first issue of construction which was before his Honour on the interlocutory application was whether cl 48.2 of the Design Sub-Contract authorised the Commonwealth to disclose Kockums' proprietary information to third parties, such as the USN and LIPS Propellers, or whether it was confined to permitting the Commonwealth itself to "apply, use, reproduce, adapt or otherwise modify ..." that information. The second issue of construction which was before his Honour on that occasion was whether the expression "establishing second sources of supply in competition with [Kockums]" in cl 48.7 of the Design Sub-Contract encompassed the provision of propeller Z9000 and Kockums' proprietary information to the USN and LIPS Propellers. reasoning of the primary judge 19 His Honour expressed the view that it was reasonable to accept, for the purpose of the application for interlocutory relief, that Kockums owned copyright in the TPS and the Drawings. But his Honour was not persuaded there was a serious question to be tried as to the proof of either cause of action (infringement of copyright or unauthorised disclosure of confidential information), which, at that time, it will be recalled, related only to propeller Z9000. 20 The primary Judge reached that view, adverse to Kockums, without reference to cl 48.2 of the Head Contract and of the Design Sub-Contract. He observed, however, that to the extent that either cause of action had substance, it seemed to be "destroyed by those sub-clauses" (at [104]). He thought that the "proprietary information" referred to in each cl 48.2 necessarily included the information in suit. At [106]-[110] his Honour stated as follows: "As I see the position, only two questions can arise in relation to the application of cl 48.2 to this case. First, can it be said that the proposed use of the information by the United States Navy or Lips Propellers is a use 'by the Commonwealth', within the meaning of the sub-clauses? Counsel for Kockums submit not. They accept that the Commonwealth, as a body politic, can act only through human agents. So they accept that the right conferred by the sub-clauses extends to use of the information by a Commonwealth employee acting in the course of his or her employment. But they submit it does not extend to use by an independent contractor to the Commonwealth, even for a Commonwealth purpose. I cannot accept this argument. It seems to me an unwarranted step to introduce into the construction of this provision the technical, and often difficult, question whether a particular person is an employee or independent contractor of the Commonwealth. There is no reason to believe the contracting parties intended to make such a distinction. On the contrary, the sub-clause gives every indication of an intention to grant wide rights to the Commonwealth. Given the fact that any major task connected with the maintenance, repair or modification of the submarines, or any component of them, is likely to be one in relation to which it would be natural and usual to use a contractor, rather than Commonwealth employees, it is highly unlikely that the Commonwealth would have intended to exclude use of the information by independent contractors. The point may be illustrated by reference to cl 42.5 of the head contract. As counsel for the Commonwealth pointed out in argument, that subclause provides that, if ASC fails to correct a defect covered by the warranty clause, the Commonwealth has the right, after giving notice of its intention, to have the defect corrected 'by itself or by a third party'. There is at least a possibility that correction of a defect will necessitate reference to design information. The second question about cl 48.2 is the meaning of the phrase 'for the services of the Commonwealth'. Clause 48.7 is relevant to that matter. As previously indicated, that sub-clause excludes from the term 'establishing second sources of supply in competition with the Contractor or its sub-Contractors'. Counsel for Kockums argue that the retention of any supplier, even on an ad hoc basis in connection with a single service, amounts to the establishment of a second source of supply. However, if that argument was correct, the Commonwealth could never engage the services of an independent contractor. For the reasons just stated, that seems unlikely to have been intended. Furthermore, the argument seems to give no weight to the notion of continuity inherent in the word 'establishing'. It seems to me that Mr Harrowell is correct in submitting that the words, 'establishing second sources of supply', take their meaning from the provisions embodied in cl 41. On that basis, the commissioning of the United States Navy to carry out a particular modification to a particular propeller is not the establishment of a second source of supply. As the purpose of the commission is to achieve an improvement in the performance of the propeller, and so in the performance of an RAN vessel, the use of the information for the purposes of that commission is clearly a use 'for the services of the Commonwealth'; in the ordinary meaning of that term. In my opinion cl 48(2) provides an answer to both the causes of action relied on by Kockums." 21 Finally, his Honour said that if he had been of the opinion that there was a serious question to be tried in respect of Kockums' claims, he would nevertheless have refused to grant interlocutory relief on discretionary grounds not presently relevant. the course of events following the interlocutory hearing 22 We think it desirable to give a somewhat detailed account of what transpired when the proceeding was before the primary Judge between the publication of his reasons for refusing interlocutory relief on 11 April 2001 and the making of the Declarations, the subject of the present appeal, on 1 August 2001. 23 The proceeding was before his Honour on 27 April 2001 when Kockums proposed directions for pleadings with a view to a final hearing. His Honour referred to the fact that the interlocutory hearing had occupied four days, that the question of the true construction of cl 48.2 had been extensively debated before him on that occasion and that in the end he had expressed a view "which was more than tentative that [cl 48.2] was a complete answer to [Kockums'] case". His Honour also referred to the fact that the focus of the case was on the shipment of propeller Z9000 and that the circumstances touching the earlier two shipments were recounted "only ... by way of historical information". It was suggested that it was desirable to find a way for his Honour's construction of cll 48.2 and 48.7 to be tested on appeal without the necessity of a full final hearing. Counsel for Kockums said that his client might wish to plead "factual matrix" evidence. His Honour raised the possibility of a short (one day) final hearing on liability at which the evidence would be that already given on the interlocutory hearing supplemented by any further factual matrix evidence which might be led and held admissible. His Honour pointed out that if the supplementary evidence did not change his view as to the proper construction of cl 48.2, at least Kockums would have the benefit of having that further evidence before the Full Court on the appeal. 24 Counsel for Kockums said his client would wish to expand the proceeding to encompass the earlier two propellers. His Honour suggested that this should pose no difficulty since he could see no reason why cl 48.2 would not defeat Kockums' claims in respect of those propellers also. His Honour remarked that Kockums was entitled to a final hearing if it wanted one and that his concern was to try to organise it in the least expensive and most efficient way. Directions were made for the filing of a statement of claim, defences and reply. 25 Pursuant to liberty to apply, Kockums had the matter relisted on 7 June 2001. On that occasion senior counsel for Kockums informed his Honour that his client had decided not to lead factual matrix evidence, but observed that there remained the problem of how to test his Honour's construction on appeal, in view of the fact that the hearing had been only interlocutory. After all, a Full Court might dismiss the appeal on grounds which did not require it to determine the correctness of his Honour's construction of cl 48.2. Senior counsel for Kockums suggested an order for determination of questions of construction as separate questions, on the basis that the reasons already given for his Honour's interlocutory decision would stand as "final reasons" for his answers to the separate questions. 26 There was also discussion of his Honour's construction of the provision in cl 45 for retention of the ownership of Intellectual Property rights as ensuring that Kockums owned those rights. Senior counsel for Kockums proposed forms of three separate questions of construction, one relating to cl 45 and the other two relating to cl 48. Senior counsel for the Commonwealth opposed the making of an order for the determination of separate questions, contending that the preferable course was to proceed to a short final hearing as had been discussed previously. However, he said the Commonwealth's view might be different if Kockums agreed to consent to a dismissal of the proceeding with costs if the Full Court upheld the primary Judge's construction of cl 48. 27 His Honour said that because of the various difficulties associated with the determination of separate questions, he was inclined to accept the Commonwealth's submission and adhere to his earlier proposal for a short final hearing. His Honour referred to Kockums' statement of claim which had by now been filed (on 4 June 2001) and again invited Kockums to put on supplementary evidence, adding: "There are sometimes occasions, I think, when what might seem the longest way around is the shortest way home. I have … a feeling this is one of them." 28 Senior counsel for Kockums then referred to the likely complexity and length of the final hearing and urged that it would be a waste of the Court's resources to conduct a final hearing when, if his Honour's construction of cl 48.2 prevailed, his client must fail. His Honour inquired whether Kockums would agree to discontinue if it failed on the construction of cl 48.2. Senior counsel for Kockums replied: "We would accept that our claim for breach of copyright and confidence [sic] cannot be pursued. We would fail." In response to a question from his Honour, senior counsel for Kockums also said that the proceeding would remain on foot for the purpose of determination of the ownership of the Intellectual Property rights. His Honour suggested Kockums might well consider abandoning this question and remaining satisfied with the existing interlocutory "finding" in its favour on the issue. He also suggested that there would have to be some reference to "the facts as set out in [his] reasons of 11 April" in order to give a "matrix of fact" to the questions for separate determination. Finally, his Honour said that Kockums would have to agree to discontinue if it failed on the appeal, otherwise it could "come back" and run "a sort of fragmented case". 29 There followed discussion of the possibility of eliminating the question of the construction of cl 45 while protecting Kockums' position in relation to that clause. His Honour emphasised the necessity of avoiding hypothetical questions and the matter was left on the basis that Kockums' legal advisers would produce a fresh draft form of orders in the light of the discussion which had occurred. 30 The proceeding was again before his Honour on 1 August 2001. Senior counsel for Kockums handed up a fresh form of orders which in fact were those ultimately made (see below at [31]). Senior counsel for Kockums explained that the Declarations in paragraphs 4 and 5 were intended to be answers to separate Questions 1(a) and (b). Senior counsel for the Commonwealth suggested it might be desirable that answers be actually given, followed by the Declarations, but this suggestion was not adopted. Senior counsel for ASC said that the proceeding, in so far as it related to propeller Z9000, should be dismissed, since a dismissal to that extent necessarily followed from the making of the Declarations and from the conversion of his Honour's "interlocutory view" into a "final view". He also referred to the fact that, under O 22 r 7 of the Federal Court Rules, a discontinuance, as distinct from a dismissal, would not disable Kockums from commencing a fresh proceeding. Senior counsel for Kockums said he opposed any change from discontinuance to dismissal because all discussion down to that time had proceeded on the basis of a discontinuance and the suggestion of a change came too late. 31 His Honour then, with the consent of all parties, made the following orders: "THE COURT ORDERS THAT: 1. Pursuant to Order 29 rule 2 the Court determine the following questions, on the basis of the facts as determined in the Reasons for Judgment dated 11 April 2001, separately from and in advance of the other issues in the proceedings: (a) Whether the right granted to the First Respondent pursuant to clause 48.2 of the Design Sub-Contract permits the First Respondent to disclose (and to reproduce for the purpose of said disclosure) such of the information provided under the Design Sub-Contract that is claimed to be the Applicant's proprietary information, for the purposes of the First Respondent under the Commonwealth Contract, to the United States Navy or John Crane-LIPS Inc. as independent contractors of the first respondent. (b) Whether the provision by the First Respondent of Propeller No. Z9000 and such of the information provided under the Design Sub-Contract that is claimed to be the Applicant's proprietary information, to the United States Navy and to John Crane-LIPS Inc. was not the establishment of a second source of supply in competition with the Applicant within the meaning of clause 48.7 of the Design Sub-Contract. 2. The questions referred to in paragraph 1 above be determined in accordance with such part of the Reasons for Judgment delivered on 11 April 2001 as dealt with those questions and such reasons stand as the Court's reasons for such determination. 3. Insofar as such leave is necessary, the Applicant have leave to appeal from such determination. PURSUANT TO SUCH DETERMINATION, THE COURT DECLARES THAT: 4. The right granted to the First Respondent pursuant to clause 48.2 of the Design Sub-Contract permits the First Respondent to disclose (and to reproduce for the purpose of said disclosure) such of the information provided under the Design Sub-Contract that is claimed to be the Applicant's proprietary information, for the purposes of the First Respondent under the Commonwealth Contract, to the United States Navy or John Crane-LIPS Inc. as independent contractors of the First Respondent. 5. The provision by the First Respondent of Propeller No. Z9000 and such of the information provided under the Design Sub-Contract that is claimed to be the Applicant's proprietary information, to the United States Navy and to John Crane-LIPS Inc. was not the establishment of a second source of supply in competition with the Applicant within the meaning of clause 48.7 of the Design Sub-Contract. THE COURT NOTES: 6. The Applicant undertakes to discontinue the balance of the proceedings in the event that it does not succeed in an Appeal against the making of the Declarations referred to in Orders 4 and 5 hereof." 32 On the hearing of the appeal, at a time when the Court had not read the transcript of the three directions hearings before his Honour, the Court raised with the parties the question of the appropriateness of the order for separate determination. In an attempt to clarify the factual issues, the Court invited the parties to file a joint statement of his Honour's findings and of agreed facts relevant to the making of the Declarations. In the result they filed with the Court a document headed "Statement of Facts Agreed" consisting of twelve paragraphs. 33 The Commonwealth and ASC made a written submission to the effect that the Declarations of 1 August 2001 concerning cl 48.2 did not turn on, or require consideration of, any facts other than the terms of the Head Contract and the Design Sub-Contract. However, according to the submission, in so far as those declarations related to cl 48.7, they turned on, and required a consideration of, the following two additional facts: "1. The provision of Propeller No Z9000 to the US Navy occurred as a result of the retention by the Commonwealth of the US Navy to carry out a particular modification to the propeller (see AB 395 (109)). The work agreed to be performed pursuant to the retainer included work to be performed by John Crane LIPS Inc (AB 379 (57)). 2. The Commonwealth's purpose in commissioning the work was to achieve an improvement in the performance of the propeller, and so, in the performance of an RAN vessel (AB 395(109)." The Commonwealth and ASC submitted that the passages at the pages of the appeal book cited, which were passages in his Honour's reasons for judgment, constituted findings by his Honour of the additional facts propounded, and that, by the process referred to by us earlier, they had been converted into final findings of fact. Accordingly, so they submitted: "... the Full Court is able to, and should, determine the correctness of his Honour's construction of clause 48.7 in the context of those unchallenged facts found by his Honour, the findings not being the subject of any appeal." 34 Kockums responded with a written submission contending, in effect, that the joint Statement of Facts Agreed provided sufficient facts on which both questions of construction could be determined, and that if the Court did not agree that it did, the only course available was for the Declarations to be set aside and the matter to be remitted to the primary Judge. 35 A reading of the transcript of the directions hearings on 27 April 2001, 7 June 2001 and 1 August 2001 referred to earlier makes it clear that his Honour, at the invitation of the parties, and, in particular, at the invitation of Kockums, which submitted the form of orders ultimately made, adopted as his factual findings and reasons underlying the making of the Declarations as answers to the separate questions, all those "findings" and reasons which he had made and given in his reasons for judgment of 11 April 2001, which were relevant for the purpose. Accordingly, we do not accept Kockums' present submission. reasoning on the appeal 36 Order 29 r 2 of the Federal Court Rules provides for the separate decision of questions and s 21 of the Federal Court of Australia Act 1976 (Cth) ("the Act") empowers the Court to make binding declarations of right. However, difficulties often beset both the determination of separate questions and the making of declarations, at least without the granting of consequential relief. This is so, even though s 21 of the Act provides that the Court may make declarations "whether or not any consequential relief is or could be claimed" and that "[a] suit is not open to objection on the ground that a declaratory order only is sought". 37 His Honour the primary Judge referred to the need for caution before embarking on the course proposed on behalf of Kockums. Unfortunately, we have felt constrained to conclude that the course taken was not a proper exercise of discretion. 38 The vice which often infects the separate decision of questions and making of "free-standing" declarations has been variously described. In Bass v Permanent Trustee Co Ltd (1999) 198 CLR 334 ("Bass") the High Court held by majority that certain questions had been inappropriate to answer. The reason given in the joint judgment of the majority (Gleeson CJ, Gaudron, McHugh, Gummow, Hayne and Callinan JJ) was that the answering of the questions did not satisfy the requirement of a judicial determination because it did not represent (at 355): "a conclusive or final decision based on a concrete and established or agreed situation which aims to quell a controversy." Their Honours distinguished between an advisory opinion and a valid declaratory judgment on the basis that the latter is, whereas the former is not, "based on a concrete situation", and the latter does, whereas the former does not, "amount to a binding decision raising a res judicata between the parties" (at 356). 39 Their Honours held that, since certain answers to separate questions given by the Full Court of this Court and a declaration it made, "were not based on facts, found or agreed, they were purely hypothetical." (at 357) 40 Bass was applied by a Full Court of this Court in Director of Fisheries (Northern Territory) v Arnhem Land Aboriginal Land Trust (2001) 185 ALR 649 (separate questions as to the construction and effect of legislation to be answered in a factual vacuum). The Director of Fisheries case was followed by another Full Court of this Court in Harts Australia Ltd v Commissioner of Taxation (2001) 109 FCR 405 (separate questions as to the construction of written agreements in the light of a legislative test, "in the abstract and isolated from the background and factual matrix in which they were set" (at 413). In both cases, as in respect of most of the questions in Bass, it was held that the questions ordered for separate decision should have been answered "Inappropriate to answer". 41 Many other authorities could be referred to: see, for example, those cited in Copyright Agency Ltd v Charles Sturt University (No 2) (2001) 53 IPR 383 at [46]–[54]. 42 By the time of the filing of Kockums' statement of claim on 4 June 2001, the controversy between the parties was, in so far as it related to liability, whether the Commonwealth and ASC were liable to Kockums for infringement of its copyright and disclosing its confidential information to the USN or LIPS Propellers, or both, in respect of the deliveries to the USN of propellers Z8959, Z8960 and Z9000 and documents relating to the design of the propeller. Would the answering of the questions posed and the making of the Declarations have the potential to resolve that dispute? Clearly, they would not do so if the result was favourable to Kockums. Would it do so if the result was adverse to Kockums? 43 We set out below our paraphrase of the found and agreed facts on the basis of which we resolve this question. The numbered paragraphs are based on paragraphs in the Statement of Facts Agreed (below "SFA") and in his Honour's reasons for judgment (below "RFJ") as indicated. We have not paraphrased paragraphs 1, 2, 10, 11 or 12 of the Statement of Facts Agreed because they are of a self-evident procedural nature (the names of the parties to the litigation and certain dates associated with the proceeding at first instance). 1. The Commonwealth and ASC were parties to the Head Contract in evidence relating to the supply to the Commonwealth of six submarines (known as the "Collins Class submarines"), facilities, services and associated support. (SFA 3) 2. ASC and Kockums were parties to the Design Sub-Contract in evidence relating to the supply of certain design and other services in connection with the matters the subject of the Head Contract. (SFA 4) 3. At all material times, Kockums and the Commonwealth had a substantial ownership interest in ASC either directly or indirectly. (SFA 5) 4. Kockums' contractual obligations under the Design Sub-Contract included the design of the Collins Class submarine propeller (SFA 6) and Kockums did in fact design that propeller. (RFJ [16]) 5. Kockums provided to ASC information as to the design of the propeller under the Design Sub-Contract. (SFA 7) 6. ASC delivered propeller Z9000 to the Commonwealth pursuant to the Head Contract (SFA 8). 7. The Commonwealth intended to deliver propeller Z9000 to the USN for modification. (RFJ [37]) 8. When the Commonwealth previously sent to the USN propellers Z8959 and Z8960, it also sent various specifications and drawings depicting aspects of the propeller's design that had been produced by Kockums' employees in connection with the Collins project. (RFJ [30]) 9. The USN still retained some propeller drawings and specifications. [RFJ [51]) 10. It would be possible for those documents to be reproduced, without resort to reverse engineering (of the propeller itself), if this was necessary in connection with the modification of propeller Z9000. (RFJ [51]) 11. Nothing in the Head Contract derogated from any copyright Kockums owned in the specifications and drawings. (RFJ [92]) 12. The commissioning by the Commonwealth of the USN was to carry out a particular modification to propeller Z9000. (RFJ [37], [109]) 13. The Commonwealth's purpose in commissioning the USN was to achieve an improvement in the performance of propeller Z9000 and so, in the performance of a Royal Australian Navy vessel. (RFJ [109]) 14. At the time the proceeding below commenced, it was proposed: (a) by the Commonwealth, to disclose such of the information provided under the Design Sub-Contract that Kockums claimed was its proprietary information, for the purposes of modification of propeller No Z9000 to the USN and/or LIPS Propellers as independent contractors of the Commonwealth; and (b) that the Commonwealth would retain the USN to carry out the modification of propeller Z9000 and that the work agreed to be performed pursuant to the retainer included work to be performed by LIPS Propellers. (SFA 9) 44 We make two observations at the outset in relation to the above facts, found or agreed. First, we have not included above a statement that the information in suit was proprietary to Kockums, even though his Honour "found" that it was. The reason is that the use of the expression "that is claimed to be the Applicant's proprietary information" in Questions 1(a) and (b) and in the two Declarations, as well as the course of the three directions hearings referred to earlier, clearly show that it was intended to keep open, as a matter of final decision, the question whether the information in suit was indeed proprietary to Kockums (the Commonwealth and ASC contended that it was not). It was intended that the separate questions be answered on the assumption that the information in suit was Kockums' proprietary information. 45 The second observation calls for a recounting of certain further background facts. The interlocutory application before his Honour related to propeller Z9000 alone, although Kockums knew that the Commonwealth had previously also delivered propellers Z8959 and Z8960 to the USN. The points of claim alleged that the delivery of propeller Z9000 would, no doubt by a process of reverse engineering, disclose confidential information contained in the TPS and the Drawings and would "involve" acts which would constitute an infringement of Kockums' copyright in the TPS and the Drawings. On the morning of the commencement of the hearing, the Commonwealth served a "correcting affidavit" to the effect that, contrary to an affidavit previously filed, the Commonwealth had also sent propeller drawings and technical specifications to the USN. Accordingly, in the course of his reasons for judgment, his Honour was able to refer to the successive deliveries of propellers Z8959 and Z8960 and the sending to the USN of "various drawings, depicting aspects of the propeller's design", "by way of historical information" (to adopt his Honour's expression at the first directions hearing on 27 April 2001). 46 As noted earlier, when the proceeding came before his Honour following the interlocutory hearing, Kockums indicated that it wished, for the purposes of the final hearing, to expand its claims by alleging infringement of copyright and unauthorised disclosure of confidential information in relation to the delivery of propellers Z8959 and Z8960 as well as the delivery of propeller Z9000, and the delivery of documents as well as the delivery of the propellers themselves. Accordingly, in its statement of claim filed on 4 June 2001, Kockums alleged in respect of each of the three propellers, that without its (Kockums') licence or approval, ASC provided or facilitated provision of the propeller, which "embodied" Kockums' proprietary information, to the Commonwealth for the purpose of its providing it to the USN, and that the Commonwealth provided the propeller, together with documents relating to its design which "embodied or contained" Kockums' proprietary information, to the USN. 47 On 2 July 2001, the Commonwealth filed its defence and on 7 August 2001 (after the making of the orders of 1 August 2001) ASC filed its defence. 48 In the light of the above, the question arises whether his Honour can be regarded as having made any "findings" at all in relation to the delivery of propellers Z8959 and Z8960 and the provision of documents. We think not. Although these matters were referred to in his Honour's reasons for judgment, they became issues between the parties only after the publication of those reasons. Moreover, it is difficult enough, having regard to the manner of expression of reasons on an interlocutory application, to be confident as to the final findings of fact which the process of "conversion" is intended to produce, but the difficulty is increased when findings are supposed (retrospectively) to have been made in relation to earlier events that were not in issue at the time of the hearing. 49 Be this as it may, there is certainly no finding that the circumstances touching propellers Z8959 and Z8960 did not give rise to the establishing of second sources of supply in competition with Kockums. Accordingly, whatever else may be said, the separate determination of the questions could not finally quell the dispute between the parties: it would remain possible in relation to two of the three propellers the subject of the statement of claim that the licence granted pursuant to cl 48.2 would not be effectual in favour of the Commonwealth because the circumstances surrounding the delivery of those propellers constituted the establishing of second sources of supply in competition with Kockums. For this reason alone, in our opinion the order for separate determination of both questions and the Declarations should not have been made. 50 We turn now to the terms of the orders made on 1 August 2001, on which we make the additional observations set out in the following numbered paragraphs. 1. Question 1(a) is expressed in the present tense. The word "permits" has a present and continuing operation. Accordingly, the question it poses is whether cl 48.2 has the effect at all times, past, present or future, of permitting the Commonwealth to disclose (and to reproduce for the purpose of disclosure) any information provided (by Kockums) under the Design Sub-Contract that Kockums claims to be its proprietary information, to the USN or LIPS Propellers for the purposes mentioned. The Court should not pose or answer a question in such terms because it seeks an advisory opinion, applicable not only to the past disclosure in relation to propeller Z9000 with which the interlocutory hearing was concerned, but also to all other past and future disclosures. Indeed, the opinion would have application not only to future disclosures of information which had already been provided (by Kockums) under the Design Sub-Contract and which Kockums had already claimed to be its proprietary information, but also to future disclosures of information so provided which Kockums may in the future claim to be its proprietary information. For this further reason, the order for separate determination of Question 1(a) and the Declaration in paragraph 4 should not have been made. 2. Neither the expression "claimed [by Kockums] to be" nor any expression with a similar meaning occurs in cl 48.2. Clause 48.2 speaks of information which "is proprietary to", relevantly, Kockums. The licence referred to in cl 48.2 is not a licence to disclose any information which Kockums may claim to be proprietary to itself, which is not in fact and in law proprietary to itself. For this further reason the order for separate determination of both questions and both Declarations should not have been made. 3. Question 1(b) uses the past tense "was" and so does not give rise to the difficulty referred to in (1) above, but the difficulty referred to in (2) above remains. It is significant that Question 1(b) (and the "answer" to it found in the Declaration in paragraph 5) refer only to propeller Z9000. They could not refer to propellers Z8959 and Z8960 because, as noted earlier and for the reasons noted earlier, his Honour did not decide the cl 48.7 issue in relation to them. (Consistently with this view, at the directions hearing on 1 August 2001, senior counsel for ASC was able to submit that the proceeding should be dismissed only in so far as it related to propeller Z9000 alone: see [30] above.) 4. Orders 2 and 3 and, perhaps, the prefatory words to the Declarations "PURSUANT TO SUCH DETERMINATION", contemplate that answers will be given to Questions 1(a) and (b). No such answers were, in terms, given to those questions, but we think it clear that the Declarations were intended to represent his Honour's answers to them. 5. Kockums' undertaking "to discontinue the balance of the proceedings in the event that it does not succeed in an appeal against the making of the Declarations referred to in Order 4 and 5" (contained in Order 6 of 1 August 2001) gives rise to difficulty. Order 22 r 7 of the Federal Court Rules is as follows: "A discontinuance under this Order as to any cause of action shall not, subject to the terms of any leave to discontinue, be a defence to a proceeding for the same, or substantially the same, cause of action." A discontinuance differs from a dismissal. Kockums' undertaking might have been expressed as an undertaking to consent to a dismissal of its application on the merits on the basis of the construction of cl 48.2, but it was not expressed in that way. As noted earlier, the suggestion of a dismissal rather than a discontinuance was made before his Honour, but was not taken up. The foreshadowed discontinuance would not itself satisfy the requirement that the answering of separate questions in at least one way or the making of a declaration must have the potential to resolve the parties' dispute finally. For the above reasons, we have proceeded on the basis that Kockums' undertaking to discontinue is to be disregarded on the issue of the appropriateness of the order for separate determination and of the Declarations. We note that there is a question as to what can be achieved, in terms of demonstrating that the separate determination of a question has the potential to resolve a dispute finally, by an undertaking even to submit to a dismissal of the proceeding. Assume that the separate decision of a question would not otherwise resolve a dispute finally. To take an extreme case, assume the separate decision of a question which was clearly irrelevant to the proceeding and which was designed to elicit judicial advice. The vice in such a question could not be overcome, and the posing and answering of it could not be converted into an exercise of judicial power, by nothing more than an agreement for the dismissal of the proceeding in which it happened to be asked and answered. (We do not decide that an undertaking to submit to a dismissal can in no circumstances be appropriately given and accepted as an incident of an order for separate determination, as that is not a question we are required to resolve in this case.) CONCLUSION 51 The orders of 1 August 2001 were inappropriately made. Questions 1(a) and (b) should be answered "Inappropriate to answer"; the Declarations in paragraphs 4 and 5 should be set aside; for clarity, Kockums should be discharged from its undertaking to discontinue; and the matter should be remitted to his Honour. 52 We have reached this conclusion with some regret in view of the efforts which were made at first instance to find an inexpensive and efficient way to resolve the matter. Unfortunately, we have felt constrained to agree with the sentiment expressed by his Honour at one stage that "what might seem the longest way around is the shortest way home". 53 Both parties acquiesced in the course which was finally adopted by the Primary Judge. Predictably, neither party argued on the appeal in favour of the conclusion which we have reached. We are disposed, therefore, to think that there should be no order as to the costs of the appeal. But we will allow the parties to make written submissions in this respect. If they do not take up that opportunity, there will be no order as to the costs of the appeal. I certify that the preceding fifty-three (53) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Court. Associate: Dated: 17 May 2002 Counsel for the Appellant: Mr AJL Bannon SC and Mr DB Studdy Solicitor for the Appellant: Abbott Tout Counsel for the First Respondent: Mr WH Nicholas QC and Mr RPL Lancaster Solicitor for the First Respondent: Clayton Utz Counsel for the Second Respondent: Mr RBS Macfarlan QC and Ms AH Bowne Solicitor for the Second Respondent: Mallesons Stephen Jaques Date of Hearing: 26 February 2002 Date last submission received: 1 March 2002 Date of Judgment: 17 May 2002