FEDERAL COURT OF AUSTRALIA Kerridale Pty Limited v Western Exporters Pty Limited [2003] FCA 1335 INJUNCTION – interlocutory relief - where claim for breach of confidentiality agreement – whether confidential information in the public domain – whether there is a serious question to be tried – balance of convenience Castlemaine Tooheys Ltd v South Australia (1986) 161 CLR 148 followed Bullock & Ors v The Federated Furnishing Trades Society of Australasia & Ors (1985) 5 FCR 464 followed KERRIDALE PTY LIMITED ACN 079 291 777 v WESTERN EXPORTERS PTY LIMITED ACN 069 328 543 and NEIL DUNCAN No Q 3003 of 2003 SPENDER J BRISBANE 20 NOVEMBER 2003 IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY Q 3003 OF 2003 BETWEEN: KERRIDALE PTY LIMITED ACN 079 291 777 APPLICANT AND: WESTERN EXPORTERS PTY LIMITED ACN 069 328 543 FIRST RESPONDENT NEIL DUNCAN SECOND RESPONDENT JUDGE: SPENDER J DATE OF ORDER: 20 NOVEMBER 2003 WHERE MADE: BRISBANE THE COURT ORDERS THAT: 1. The application for interlocutory relief is refused. 2. The costs of the interlocutory application are reserved. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY Q 3003 OF 2003 BETWEEN: KERRIDALE PTY LIMITED ACN 079 291 777 APPLICANT AND: WESTERN EXPORTERS PTY LIMITED ACN 069 328 543 FIRST RESPONDENT NEIL DUNCAN SECOND RESPONDENT JUDGE: SPENDER J DATE: 20 NOVEMBER 2003 PLACE: BRISBANE REASONS FOR JUDGMENT 1 This is a claim for interlocutory relief. It concerns a claim by Kerridale Pty Limited ("Kerridale") that Western Exporters Pty Limited ("Western") are in breach of contractual obligation, fiduciary duties and obligations pursuant to a claimed constructive trust in respect of what is said to be intellectual property rights of Kerridale in relation to what are called "brown skin" goats. 2 On 1 August 2003, Kerridale filed an application which claimed as follows: 'A. DETAILS OF CLAIM … 1. A Declaration of constructive trust in favour of the Applicant. 2. A Declaration that the Directors and officers of the first Respondent and the second Respondent owed fiduciary duties to the Applicant, and at the relevant time breached those duties. 3. An Order for specific performance of an Agreement relating to the acquisition and usage of confidential information. 4. Equitable compensation and an Account of Profits lost by the Applicant as a result of breaches of an Agreement. 5. Such Orders for restitution and redistribution as are considered necessary to compensate the Applicant for consequential economic losses. 6. Such other consequential and ancillary Orders as the Court thinks fit. B. CLAIM FOR INTERLOCUTORY RELIEF 1. Orders for injunctive relief directed at the Respondents. 2. Such ancillary Orders as the Court thinks fit relating to the entry, inspection and delivery up of documents including any relevant information held in electronic format by the Respondents. 3. Such other consequential and ancillary Orders as the Court thinks fit.' 3 By notice of motion filed 27 August 2003, Kerridale sought orders as follows: '1. That the Respondents be restrained from producing, distributing, wholesaling, retailing or otherwise dealing in brown skin goats, whether for the export market to the United States of America or otherwise. 2. That the Respondents be restrained from advertising, marketing, promoting or otherwise releasing brown skin goats to any market, whether within Australia or overseas. 3. Any ancillary, consequential or other Orders as the Court thinks fit.' Notwithstanding the terms of that motion, Kerridale is seeking interlocutory injunctions of the kind described in the notice of motion. 4 The basis of Kerridale's claim for interlocutory relief appears from the affidavit of Mark Gothard, the managing director and a shareholder of Kerridale, filed on 4 August 2003. Mr Gothard says that he had had discussions with Neil Duncan of Western in which he had asked Mr Duncan if Western would be interested in producing a new product for Kerridale in respect of which: '… the process for this product will be covered by a Non-Disclosure and Confidentiality Agreement'. 5 Mr Gothard faxed to Mr Duncan a copy of a "Confidentiality Agreement" and an agreement between Kerridale and Western was signed on 31 October 2001. It will be necessary to refer to the terms of that agreement shortly, but Mr Gothard says that on 8 November 2001 he demonstrated 'the process for preparing brown goat meat for the export market' to Mr Duncan at the premises of Western's premises at Charleville. Mr Gothard says that he showed Mr Duncan how to prepare the brown-skin goat meat, and that for the demonstration he used Kerridale's equipment which consisted of a gas flame torch that, according to Mr Gothard 'was selected after trials as the best item to produce the required amount of heat to make the production time viable.' 6 Mr Gothard says that the process he demonstrated was 'the same process as that described in the Schedule to the Confidentiality Agreement.' The process, he says, was one developed by Kerridale over a period of four to five months. He says that: 'This was a new export item for Australia and Kerridale was the only producer and authorized exporter of this product.' 7 The process, according to Mr Gothard, is regarded by Kerridale as being unique to the industry. The process he describes as: · 'Product: Bone in Skin Brown Assorted Goat Cuts iwp. (Individually wrapped in polythene) · Weight Range: This product is to be produced from Skin on goats over 16 kg cold carcase weight · Method: After normal dehairing process the skin on carcase is burned with a gas torch to achieve an even dark brown appearance some blackening is acceptable. Care should be taken to ensure the flame does not unduly enter the body cavity or cook the meat around any incisions. The carcase is then cooled in the normal fashion and then cut into the standard 6 way cut format and individually wrapped and packed. · Quality: Goats to be of good average quality, no emaciated stock to be used.' 8 Mr Gothard says that because Kerridale regarded the process of preparation of brown-skin goat meat as its own unique process, Kerridale required all meat sold, both for the domestic and international markets to be labelled as follows: 'The product is to be packed into Kerridale brand cartons and the end panel label is to show "Packed for Kerridale Pty Ltd, 42 Bryants Road, Loganholme Qld. 4129 by Est 101".' 9 Mr Gothard says he received information from the United States, as a consequence of which Mr Gothard was concerned that Western was 'selling brown-skin goat meat into parts of the market in the US that I was also selling into. These were markets that Kerridale and I had previously established.' Mr Gothard complains that sales by Western to the United States 'did not accord with the requirements we had set out in the Confidentiality Agreement of 31 October 2001.' Mr Gothard says that he had conversations with Mr Duncan, to the effect that Mr Duncan had told Mr Gothard that two more containers of brown-skin goat meat had been sold by Western to the United States through Mathias Meats, a Melbourne based trader, and that none of those boxes identified the product as "Kerridale brand". Mr Gothard says that on 17 February 2003 he sent a facsimile to Western: '… requesting that Neil should direct all enquiries in relation to the sale of brown-skin goat meat to Kerridale, as the Confidentiality Agreement required Western to sell all brown-skin goat product through Kerridale and also to acknowledge the usage of the process by clearly identifying Kerridale in the packaging of the product.' In response to the facsimile of 17 February 2003, Mr Duncan replied by facsimile of 19 February 2003 denying any breach of the Confidentiality Agreement . On 21 February 2003 Mr Gothard faxed Mr Duncan denying that Kerridale's brown-skin goat process could, in any respect, be described as being "in the public domain". 10 Mr Gothard says that he: '… sought to express the view that Kerridale regards its process of preparation and sale of goat meat as being unique to Kerridale and legally protected by the Confidentiality Agreement due to the unique process and commercially sensitive and highly confidential information involved.' Kerridale claims that it has suffered considerable loss in the United States marketplace 'as a direct result of Western ignoring the requirements of the Confidentiality Agreement.' 11 That agreement dated 31 October 2001 was signed by Mr Gothard on behalf of Kerridale and Mr Duncan on behalf of Western, with recitals 1 and 2 as follows: '1. Kerridale will be disclosing certain commercially valuable, proprietary and confidential business information and trade secrets in relation to the product or products listed in "Schedule 1". 2. Western agrees to hold such proprietary and confidential information which they receive from Kerridale in the strictest confidence upon the terms and conditions hereinafter appearing.' 12 Clause 1 of the Agreement provided: 'For the purpose of this Agreement "Confidential Information" is defined as any and all written, oral or other tangible or intangible form of information, discoveries, ideas, concepts, know-how (whether patentable or copyrightable or not), research, development, designs, specifications, drawings, blueprints, tracings, diagrams, models, samples, flow charts, data computer programs, disks, diskettes, tapes, algorithms, software programs, marketing plans or techniques, customer names, technical, financial or business information whether or not labelled as "Confidential", trade secret which include but is not restricted to any portion or phase of scientific or technical information, design, process, procedure, formula or improvement which is not generally available to the public and that gives the one who uses it an advantage over competitors who do not know of or use the trade secret.' Clause 2 of the Agreement provided: 'Each party hereto (the "Receiving Party") agrees and undertakes to hold the Confidential Information received from the other party (the "Disclosing Party") as absolutely secret and in the strictest confidence and shall not at any time disclose or use or permit to be disclosed any of the Confidential Information for any purpose other than specified in this Agreement.' Clauses 3, 4 and 5 deal with obligations to prevent disclosure of the "Confidential Information". Clause 6 provided: 'The foregoing obligations shall not apply, however, to any part of the Confidential Information which: a) was already in the public domain or which becomes so through no fault of the Receiving Party; b) was already know to the Receiving Party prior to receipt thereof; c) was disclosed to the Receiving Party by a third party owing no duty of confidentiality towards the Disclosing Party in respect thereof; d) is explicitly approved for release by written authorization of the Disclosing Party; or e) is required to be disclosed by law or pursuant to a judicial order.' Clause 10 of the Agreement provided: 'The Receiving Party agrees to indemnify the Disclosing Party against any loss, damage, cost or expense which the Disclosing Party may suffer or incur by reason of any breach by the Receiving Party and/or its Employees of the undertakings and obligations contained or referred to in this Agreement.' Clause 13 provided: 'This Agreement embodies the entire understanding between the parties in relation to the subject matter hereof and there are no promises, terms, conditions or obligations, oral or written expressed or implied other than those contained herein. No amendment or variation of this Agreement shall be effective unless it is in writing and signed by the parties hereto.' 13 Schedule 1 of the Agreement, which is referred to in the first recital to it, is in the following terms: 'Below is the list of items covered by the Non-Disclosure and Confidentiality Agreement between Kerridale Pty Ltd and Western Exporters Pty Ltd as signed on the 31st October 2001. Item 1. · Product: Bone in Skin Brown Assorted Goat Cuts iwp. · Weight Range: This product is to [be] produced from Skin on goats over 16 kg cold carcase weight · Method: After normal dehairing process the skin on the carcase is burned with a gas torch to achieve an even dark brown appearance some blackening is acceptable. Care should be taken to ensure the flame does not unduly enter the body cavity or cook the meat around any incisions. The carcase is then cooled in the normal fashion and then cut into the standard 6 way cut format and individually wrapped and packed. · Quality: Goats to be of good average quality, no emaciated stock to be used. · Labelling: The product is to be packed into Kerridale brand cartons and the end panel label is to show "Packed for Kerridale Pty Ltd, 42 Bryants Road, Loganholme Qld. 4129 by Est 101.' 14 Mr Duncan, in an affidavit filed on 5 September 2003, deposed that Western carries on a business in Charleville Queensland for the processing of goats for sale by export. He says that the facility at Charleville, which is a 'specialist multi-million dollar facility' produces goat and sheep meat products for all export markets including the United States, European Union and the Middle East. The facility has been in operation since August 1997. All of Western's products are exported. The facility is such as to enable Western to meet stringent health standards demanded by its overseas clients. Western has obtained a United States export licence, AUSMEAT A+ accreditation, a European Union export licence and meat safety quality assurance. Mr Duncan says that Western won the Southern Queensland Agribusiness Export Award in 2001 and 2003. He says that Western conducts various programs including programs in procedures for slaughtering of animals in accordance with Muslim requirements. Goats are halal slaughtered in accordance with the requirements of the Islamic Council which renders such goat products eligible for export into the Middle East, USA and Europe. 15 Mr Duncan says that goats are processed in a variety of ways, and that one of Western's products is "six way skin on brown goat". Mr Duncan says: ' "Brown goat" or "burnt goat" is a term well known in the industry to describe the product of a process by which a whole, hairless, unskinned goat carcass is "browned" or "burnt" with a blowtorch to brown or blacken the skin. There is a market for this product particularly amongst certain communities of West African descent which regard this product as a delicacy. This process is legal in Australia although it is illegal in the United Kingdom. In the United Kingdom, goats (and sheep) produced by this process are known as "smokies". From time to time the newspapers in the United Kingdom report prosecutions of farmers for unlawfully treating goats by this process for products to sell into United Kingdom based West African communities.' 16 Mr Duncan says that the export of brown skin goats into the United Kingdom is currently unlawful, but Western is lobbying the United Kingdom authorities for permission to export meat processed in accordance with strict health requirements into the United Kingdom. Its principal market for this product is communities of West African descent in the United States. 17 Mr Duncan, specifically in relation to Mr Gothard's allegations, says that prior to the signing of the Confidentiality Agreement, the process to which it would apply was not described. The process demonstrated on 8 November 2001 was the application of a blow torch to a goat carcass to brown or blacken the carcass. Mr Duncan says: 'I was surprised that Mark regarded this as a confidential process as I was already well aware of it. At that time I understood that some of the company's competitors, such as processing plants at Cherbourg in Queensland and Broken Hill in New South Wales offered the burnt goat product to the market.' 18 With regard to the two gas flame torches from Kerridale, Mr Duncan says there has never been a request to return them, and the torches are commonly available "off the shelf" products which contain no special features. He denies that Western had ever made any agreement with Kerridale to 'produce the brown skin goats for Kerridale' as claimed by Mr Gothard. Mr Duncan disputes that brown skin goats produced by this process are 'a new export item for Australia', alleging that other goat processors use this process to produce brown skin goats. Mr Duncan says that Western has had correspondence with Paul Samson, the United States marketing person for Kerridale, but the correspondence was directed to the marketing of burnt goat in the United States market through Mr Samson. None of that correspondence expressed any concern about the use by Western of allegedly confidential information. Mr Duncan says: 'Western Exporters did not and does not consider that it was under any obligation to keep "confidential" a process which being well known in the industry is within the public domain. Further, the company has never been under any obligation to sell brown goat meat which it produces to or through Kerridale' as Mr Gothard alleges. Mr Duncan asserts that Kerridale is a trader in product, not a producer, and that a typical commission for a broker such as the applicant on the sale of a container of goat meat is of the order of AU$0.05 per kilo. Mr Duncan says that: 'If the company is restrained from selling brown or burnt goat, it will in effect be kept from competing with other producers of this product, such as Broken Hill Exports. Whilst the product does not comprise a large part of our sales, we receive enquiries from customers from time to time and wish to be in a position to meet any orders which are received.' 19 Kerridale has filed further affidavit material by Mr Gothard, which joins issue with many of the matters deposed to by Mr Duncan. 20 The principles governing the grant of interlocutory relief are not the subject of dispute by the parties. In Castlemaine Tooheys Ltd v South Australia (1986) 161 CLR 148, Mason ACJ summarised the principles governing the grant or refusal of interlocutory injunctions as follows: 'In order to secure such an injunction the plaintiff must show (1) that there is a serious question to be tried or that the plaintiff has made out a prima facie case, in the sense that if the evidence remains as it is there is a probability that at the trial of the action the plaintiff will be held entitled to relief; (2) that he will suffer irreparable injury for which damages will not be an adequate compensation unless an injunction is granted; and (3) that the balance of convenience favours the granting of an injunction.' 21 The interlocutory injunctions sought by Kerridale seek to restrain the respondents from producing, distributing, wholesaling, retailing or otherwise dealing in "brown-skin goats"; or advertising, marketing, promoting, or otherwise releasing "brown-skin goats" to any market. It is necessary for the Court to consider whether there is a serious question to be tried, and if so, where the balance of convenience lies. Crucially relevant to a consideration of the balance of convenience is whether damages would be an adequate remedy. The usual undertaking as to damages is offered in this case. 22 The consideration of whether there is a serious question to be tried, and the balance of convenience, are not necessarily independent: see the judgment of Woodward J (with whom Sweeney J agreed) in Bullock & Ors v The Federated Furnishing Trades Society of Australasia & Ors (1985) 5 FCR 464 at 472, where his Honour expressed the view that: 'the two legs of the test need not be considered in isolation from each other. Thus an apparently strong claim may lead a court more readily to grant an injunction when the balance of convenience is fairly even. A more doubtful claim (which nevertheless raises "a serious question to be tried") may still attract interlocutory relief if there is a marked balance of convenience in favour of it.' 23 It was submitted by Mr Paul Freeburn, counsel for the respondents, that there is no serious question, or even an arguable case, which would justify the Court in enjoining the respondents' sale or marketing of "brown-skin goats". 24 What Kerridale wishes to protect is the process or method that is specified in Schedule 1 of the Confidentiality Agreement. That process or method is described as: 'After normal dehairing process the skin on the carcase is burned with a gas torch to achieve an even dark brown appearance some blackening is acceptable. Care should be taken to ensure the flame does not unduly enter the body cavity or cook the meat around any incisions. The carcase is then cooled in the normal fashion and then cut into the standard 6 way cut format and individually wrapped and packed.' 25 Mr Gothard claims that this is a 'unique process and commercially sensitive and highly confidential information'. Clause 6 of the Agreement excludes from the obligation of confidentiality any information which was already in the public domain or which was already known to the respondents. Mr Duncan claims that he already knew of the "brown goat" process, a process which was well known in the industry and in respect of which a competitor, Broken Hill Exports, produces the same product. He claims that the information concerning the method is in the public domain; in particular, a good deal of information is available on the Internet. 26 Having regard to what Kerridale says is the subject of its claim, and noting the generality of it, that is, the lack of specific content, I have very real doubts as to whether there is even a serious question to be tried. 27 I have difficulty in seeing that a process or method of dealing with goat carcasses, which is simply 'after normal dehairing process the skin on the carcase is burned with a gas torch to achieve an even dark brown appearance, some blackening is acceptable' involves 'commercially valuable, proprietary and confidential business information and trade secrets in relation to the skin-on brown goats', as Mr John McGrath, counsel for Kerridale asserts. 28 However, even accepting that there is a serious question to be tried, in my judgment the balance of convenience strongly is against the grant of interlocutory relief. There is simply nothing to suggest that any interference with whatever intellectual property rights that Kerridale might have are not adequately able to be compensated by an award of damages. 29 Kerridale says that damages would not be an adequate remedy: '… because of complications involved in measuring the losses which have occurred to the applicant's business reputation and the quantification of the market for brown skin goats in the United States in the period from September 2002 to September 2003.' The fact that the assessment of damages might be complicated is not a basis for saying that damages would not be an adequate remedy. 30 I decline to make any order by way of interlocutory relief. I reserve the costs of the interlocutory application. I certify that the preceding thirty (30) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Spender . Associate: Dated: 20 November 2003 Counsel for the Applicant: Mr John T. McGrath Solicitor for the Applicant: Frontier Law Group Counsel for the Respondent: Mr Paul Freeburn Solicitor for the Respondent: Gadens Lawyers Date of Hearing: 10 September 2003 Date of Judgment: 20 November 2003