Bluescope Steel Limited (ACN 000 011 058) v Kelly No 3

[2007] FCA 1467

FEDERAL COURT OF AUSTRALIA

Bluescope Steel Limited (ACN 000 011 058) v Kelly No 3 [2007] FCA 1467

BLUESCOPE STEEL LIMITED (ACN 000 011 058) (FORMERLY BHP STEEL (JLA) PTY LIMITED AND BHP STEEL LIMITED) AND CASTRIP LLC v BRIAN FRANCIS KELLY AND K.CON PTY LIMITED (ACN 092 106 940)

NSD82 OF 2002

EMMETT J
20 JULY 2007
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD82 OF 2002

BETWEEN:

BLUESCOPE STEEL LIMITED (ACN 000 011 058) (FORMERLY BHP STEEL (JLA) PTY LIMITED AND BHP STEEL LIMITED)
First Applicant

CASTRIP LLC
Second Applicant

AND:

BRIAN FRANCIS KELLY
First Respondent

K.CON PTY LIMITED (ACN 092 106 940)
Second Respondent

JUDGE:	EMMETT J
DATE OF ORDER:	20 JULY 2007
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1.Each of the First and Second Respondents, whether by himself or itself, his or its servants, employees, agents or otherwise, be restrained from disclosing to any person, or otherwise using, any technical, engineering, operational, commercial or other information relating to Project M communicated to, or received directly or indirectly by, the First Respondent from:

(a)the First Applicant;

(b)Ishikawajima-Harima Heavy Industries Co Ltd; or

(c)the Second Applicant,

unless:

(a)at the time of disclosure to the First Respondent, that information was in the public domain, as evidenced by printed publication or otherwise;

(b)after the time of disclosure to the First Respondent, that information has become or becomes part of the public domain by printed publication or otherwise, through no fault of the First or Second Respondent.

2.Each of the First and Second Respondents, whether by himself or itself, his or its servants, employees, agents or otherwise, be restrained from infringing the Applicants' copyright in:

(a)the document entitled “The Strip Casting Commercialisation Challenge Process Technology Review December 1996 Status” authored by Dr Joe Herbertson and Dr Yvonne Durandet in or about February 1997;

(b)the document entitled “Helical” Study and Solution” authored by Nik Nikolovoski on or about 17 May 1996; and

(c)the document entitled “The Strip Casting Commercialisation Challenge Process Technology Review December 1996 Status” authored by Dr Joe Herbertson and Dr Yvonne Durandet in or about February 1997,

copies of which appear in Confidential Exhibit 13 tendered in this proceeding.

3.There be judgment for the Applicants against the First and Second Respondent, other than interest under section 51A of the Federal Court of Australia Act 1976, in the sum of $445,805 by way of an account of the profits which they obtained through their unlawful conduct as described in the reasons for judgment of His Honour Justice Emmett dated 12 April 2007.

4.The Respondents pay the Applicants interest on the sum of $445,805 in the sum of $176,892.

5.The First and Second Respondents' cross-claim be dismissed.

6.The First and Second Respondents pay the Applicants' costs of the proceeding, including the cross-claim, incurred after 26 September 2002, being the date on which the Second Applicant was joined as a party to the proceeding, except to the extent that such costs have been covered by orders previously made in the proceeding.

7.Paragraph 11 of the Orders made by His Honour Justice Emmett on 12 November 2003 be varied so as to release each of the Applicants' Legal Representatives who have given an undertaking in connection with these proceedings in terms of Schedule 1 to those Orders from the obligations contained in paragraphs 5 and 6 of that undertaking in relation to Documents and copies of Documents which were exhibited to an affidavit filed in the proceedings or otherwise admitted into evidence in the proceedings.

Note:   Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

SCHEDULE 1

APPLICANTS' REVISED CALCULATIONS ON ACCOUNT OF

PROFITS AND INTEREST

20 JULY 2007

B.Calculation of account of profits

1.Gross income for which K.Con is required to account

AU$1,152,887

2.Allowable deductions

Payments to the other consultants	$277,570
Other overheads	$18,000
Total deductions	$295,570

3.Income less deductions = $1152,887 - $295,570 = $875,317

4.Net income for which Respondents are required to account

Two-thirds of $875,317 = $571,544

C.Account of profits after tax – 22% tax rate

(Applying tax rate of 22%) = $445,805 profit after tax

D.Interest Calculation – 7% interest rate

Interest period	Interest calculation
21/11/2001 to 20/7/2007 (2,069 days)	$445,805 x 7% x 2,069 / 365 = $176,892

Total interest payable = $176,892

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD82 OF 2002

BETWEEN:

BLUESCOPE STEEL LIMITED (ACN 000 011 058) (FORMERLY BHP STEEL (JLA) PTY LIMITED AND BHP STEEL LIMITED)
First Applicant

CASTRIP LLC
Second Applicant

AND:

BRIAN FRANCIS KELLY
First Respondent

K.CON PTY LIMITED (ACN 092 106 940)
Second Respondent

JUDGE:

EMMETT J

DATE:

20 JULY 2007

PLACE:

SYDNEY

REASONS FOR JUDGMENT

1. On 12 April 2007 I published my reasons for concluding, inter alia, that Bluescope Steel Limited (Bluescope) and Castrip LLC (Castrip) were entitled to a sum by way of account of profits from Mr Kelly and K.Con.  I indicated in my reasons at [174] the basis upon which the account should be taken and directed the parties to bring in short minutes to give effect to my reasons.  However, the parties asked that I clarify several aspects of the basis upon which I have directed that the account should be taken.

2. In my reasons at [55] I described the remuneration to be paid to K.Con by Danieli & Co (Danieli) under four heads as follows:

   ·incentive and performance payments;

   ·key consultant retainer fees;

   ·key consultant bonuses;

   ·consultant and technical usage rates. 

3. The consultant and technical usage rates differ according to the experience of the consultant involved.  The consultant and technical usage rates (see [58]) were to be:

   ·$US1,000 per day for consultants with greater than 15 years experience;

   ·$US850 per day for consultants with less than 15 years experience;

   ·$US700 per day for technicians or equipment operators.

   Those rates were to apply to all time spent providing the consultancy services including travelling.  In addition, Danieli agreed to reimburse K.Con the amount of all expenses reasonably and properly incurred by it in the performance of its duties, including travel expenses, accommodation and subsistence expenses.

4. Bluescope and Castrip accept that an allowance should be made for payments made by K.Con to the other consultants but do not accept the submission made by K.Con and Mr Kelly that the total amount paid to the consultants should be deducted.  The total sum that was paid included the sum of some $56,000 which was paid by K.Con to the other consultants in respect of travelling time.  Allowances to be made in respect of payments to consultants would amount to $277,570. 

5. I found that Mr Kelly and K.Con would not have been able to derive more than one third of the incentive and performance payments for the consultant retainer fees and bonuses attributed to Mr Kelly without the use of confidential information.  Accordingly, I concluded at [174] that K.Con and Mr Kelly should account for two thirds of that part of the fees that represented incentive and performance payments and consultant retainer fees and consultant bonuses paid in respect of Mr Kelly’s services.  I also concluded they were required to account for two thirds of the daily consultant fees, but not for travelling.  K.Con was paid for 402 consulting days.  However, 229 and a half of those days related to consulting days spent by consultants other than Mr Kelly.  On the other days, K.Con paid the consultants at a rate less than the rate at which Danieli paid K.Con for their services.  No part of the incentive and performance payments made to K.Con by Danieli was passed on to other consultants.

6. While Messrs Sorenson, Minter, Russel and Zancolich were originally parties to the proceeding, they were subsequently removed.  There is no issue in the proceeding as to whether or not they have acted in breach of their respective agreements with Bluescope or have acted in breach of duties or of confidence owed to Bluescope.  Mr Kelly and K.Con therefore contend that any part of the profit attributed to their involvement should not be brought into account. 

7. However, the claim by Bluescope and Castrip was against K.Con and Mr Kelly.  Danieli made payments to K.Con.  There is no evidence that Danieli had any separate agreement with any of the other consultants.  K.Con received payment in respect of the provision of information, the greater part of which I have held is confidential.  It was not suggested by Mr Kelly or K.Con that the information provided by K.Con throughout to the other consultants should be treated as being in any different category from the information provided directly by K.Con and Mr Kelly.

8. K.Con and Mr Kelly also contended that K.Con’s total operating expenses should be taken into account.  That is a question that I invited Mr Kelly to adduce evidence or make submissions about, prior to publishing my reasons.  In response, Mr Kelly and K.Con provided written submissions, one of the schedules to which included a summary of some profit and loss figures apparently taken from K.Con’s income tax returns.  However, no reference was originally made in the submission as to how those figures provided a basis for further allowance.

9. Mr Kelly was therefore given further opportunities to adduce evidence as to operating costs of K.Con that he says should be taken into account.  Some further evidence was subsequently adduced on behalf of K.Con and Mr Kelly concerning the following categories:

   ·operating expenses;

   ·cost and formation of K.Con;

   ·accountancy fees;

   ·bank charges;

   ·insurance expenses;

   ·legal expenses;

   ·petty cash;

   ·printing;

   ·sundry expenses;

   ·superannuation; and

   ·wages.

10. While Mr Kelly said that Danieli was the major customer of K.Con from March 2000 to February 2002, the evidence adduced to establish that any of the expenses were expenses that assist in generating income in respect of which K.Con had been ordered to account was unsatisfactory.  K.Con has an existence beyond the performance of its obligations under the consultancy agreement and no satisfactory evidence was adduced to show that any particular parts of the expenses in the category set out above were attributable to the performance by K.Con of its obligations under the Consultancy Agreement.

11. After some discussion during the course of the further hearing today, the parties accepted a compromise that, of the total claim made for these additional expenses of $106,143, an allowance in the sum of $18,000 would be made.  That amount included some part of the expenses that was accepted by Bluescope and Castrip as being attributable to the Danieli contract.

12. In addition, two further questions have been raised, somewhat late in the conduct of the proceeding.  One concerns the question of income tax borne by K.Con in respect of the assessable income derived from the Consultancy Agreement.  Questions may arise as to whether, if K.Con is required to account, it would be entitled to obtain some relief from the Commissioner of Taxation by way of re-assessment of income for the years in question.  I would have thought, without hearing full argument on the matter, that K.Con may be entitled to claim as a deduction in the future, any amount that it pays during the current year, although the material presently before the Court suggests that K.Con will not have any substantial income in the future against which that deduction would be allowed.  Nevertheless, it is a possible benefit that is available to K.Con.

13. K.Con claimed that the average rate of tax borne by it in respect of the income it received from Danieli was 34%.  That averaging is not essentially in dispute, although it does represent an attempt to arrive at a figure without precision.  In the interests of achieving some finality, the parties agreed that it would be appropriate to allow for tax for the years in question at a rate of 22%.  That figure was taken as approximately two-thirds of the figure of 34%.  There is no great science involved in the calculation.  It just represents a compromise that the parties have agreed upon in order to reach finality today.

14. The final matter that has been raised somewhat at the heel of the hunt, so to speak, is the question of interest on the amount for which K.Con is required to account. When it commenced the proceeding, Bluescope claimed interest under s 51A of the Federal Court of Australia Act1976 (Cth). Section 51A authorises the Court to make an order for interest to be included in the judgment in any proceeding for the recovery of any money, including any debt or damages, or the value of any goods.

15. A question that would arise in relation to interest under s 51A is whether an order for an account involves a proceeding for the recovery of any money within the meaning of s 51A.  However, whether or not s 51A is applicable, and on one view it is not because its object is to compensate an applicant for the loss it suffers, an account would require K.Con to disgorge any benefit that it has received by reason of its wrongful use of Bluescope’s and Castrip’s confidential information.

16. It is clear that K.Con received the funds in question. There is no evidence that K.Con and ultimately Mr Kelly, as the shareholder of K.Con, did not receive the benefit derived from the use of the funds that Danieli paid to it. Bluescope and Castrip initially said that, consistent with decisions of this Court in the past concerning the operation of s 51A, the appropriate rate for interest would be that allowed by the Supreme Court in relation to similar provisions in the Supreme Court Act 1970 (NSW). However, I am mindful of the fact that interest is not to compensate Bluescope and Castrip. Rather, it is to deprive K.Con of the benefit that it has derived from its wrongful use of confidential information.

17. In ordinary circumstances, therefore, it may be necessary for there to be an inquiry as to precisely what benefit K.Con derived from the use of the money that it received from Danieli and for which it is required to account.  Again, in the interests of compromise and the desire to achieve finality today, the parties have agreed that an appropriate rate of interest is 7%, on the basis that that is the sort of rate that K.Con may have had to pay in order to obtain from a bank or other lender the funds that it in fact derived from Danieli.  It was not suggested on behalf of K.Con that it had funds of its own available that would have been supplemented by the income.  Rather, the income from Danieli was additional to anything that was available. In those circumstances, as I said, the parties have agreed that the calculation is to be made at the rate of 7%.

18. The parties are to be commended for the approach that they have taken in endeavouring to achieve finality in what has been a difficult proceeding, particularly for Mr Kelly, who for the most part has been appearing without the assistance of legal representation. 

19. It follows that there should be orders along the lines that I foreshadowed in my earlier reasons.  I will give the parties the opportunity to calculate during the course of the morning the amount for which account should be ordered, including the amount of interest. 

I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.

Associate:

Dated:       21 September 2007

Counsel for the Applicant:	Mr D B Studdy
Solicitor for the Applicant:	Allens Arthur Robinson
The Respondent appeared in person.
Date of Hearing:	19, 20, 24, 25, 26 July and 26 October 2006; 12 April, 20 July 2007
Date of Judgment:	20 July 2007