Coulter v Nunan
[2001] VSC 112
•26 April 2001
| SUPREME COURT OF VICTORIA | |
| PRACTICE COURT | |
| Not Restricted | |
No. 4902 of 2001
| FREDERICK GEORGE COULTER and ALTRNATIVE SOLID FUEL TECHNOLOGIES AUSTRALIA PTY LTD (ACN 075 904 200) | Plaintiffs |
| v | |
| BRUCE FRANCIS NUNAN and CASHDEED PTY LTD (ACN 051 931 769) | Defendants |
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JUDGE: | Balmford, J. | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 19 and 20 April, 2001 | |
DATE OF JUDGMENT: | 26 April 2001 | |
CASE MAY BE CITED AS: | Coulter v Nunan | |
MEDIA NEUTRAL CITATION: | [2001] VSC 112 | |
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Breach of confidence – Whether information relating to a specified process of the manufacture of briquettes from waste waxed cardboard is of a confidential nature.
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APPEARANCES: | Counsel | Solicitors |
For the Plaintiffs | Mr P Collinson | Armstrong Collins & DeLacy |
| For the Defendants | Mr S E Marantelli | Pearsons & Novoselac |
HER HONOUR:
Introduction
This proceeding was commenced by writ with general indorsement on 15 March 2001. By summons issued on that date the plaintiffs seek an order that the defendants be restrained until the trial of the proceeding or further order from using or disclosing information relating to a specified process of manufacturing briquettes from waste waxed cardboard (“the Coulter process”).
On the hearing of that summons the plaintiffs sought in addition that the defendants be restrained from using or disclosing information as to the state of discussions relating to the Coulter process between the plaintiffs and certain United States and Canadian companies and as to arrangements for the provision of waste waxed cardboard between the secondnamed plaintiff and the Melbourne Market Authority. I did not understand counsel for the defendants to object to the inclusion of those additional matters. Counsel for the plaintiffs indicated that he had instructions to give the usual undertaking as to damages.
The matter came before me in the Practice Court, and I reserved my decision on the firstnamed defendant’s undertaking, pending the delivery of the judgment, not to use the briquetting press referred to below for any commercial purpose or to use or disclose information as to the additional matters. It is thus desirable that the delivery of the judgment not be delayed and accordingly these reasons are briefer than they might otherwise be.
The secondnamed plaintiff (“ASFT”) is a company effectively controlled by the firstnamed plaintiff (“Mr Coulter”) and the secondnamed defendant (“Cashdeed”) is a company effectively controlled by the firstnamed defendant (“Mr Nunan”). For present purposes the distinction between the two plaintiffs, and likewise the distinction between the two defendants, is not significant and may be disregarded save where indicated.
The plaintiffs developed the Coulter process in discussion with Mr James Knight, who was involved with the business of the plaintiffs for a period during 2000. In June 2000 the plaintiffs entered into an arrangement with MG Hydraulic Sales & Service Pty Ltd (“MGH”), a company controlled by Mr Marc Chapman, for the manufacture by MGH of a briquetting press for use in the Coulter process for a price of $125,441.91. MGH proceeded with the manufacture and by November 2000 was pressing hard for payment and threatening legal proceedings. A letter of 25 November 2000 from Mr Chapman of MGH to Mr Coulter lists a number of occasions where promises of payment had been made on behalf of the plaintiffs and not kept.
In January 2001, in an effort to raise the money required to purchase the briquetting press, Mr Coulter had discussions with Mr Nunan about investing in the business. It was at that time and in that context that the information the subject of this proceeding was disclosed to the defendants. Mr Coulter’s evidence is that he produced a pro forma confidentiality agreement which Mr Nunan did not offer to sign, and which Mr Coulter did not insist on his signing. Mr Nunan denies that this took place.
In a letter of 22 January 2001 the solicitors for MGH told the solicitors for ASFT that if payment of the amount of $75,441.91 still owing for the briquetting press was not made by 31 January their client would “re-sell the machinery for whatever price it can obtain”.
In reply on 31 January the solicitors for ASFT indicated that any attempt to sell the briquetting press would result in an application to this Court for an injunction. In reply, also on 31 January, the solicitors for MGH asked that if the plaintiffs believed that the machine was subject to confidential proprietary information they provide specific details by 1 February. They continued “Otherwise, we will have to conclude your client has no basis for its allegations and that as the contract has been rescinded, our client will need to mitigate its losses.”
On 29 January 2001 Mr Nunan informed Mr Coulter that he was no longer interested in the investment but proposed to proceed with the project himself.
On 1 February the solicitors for ASFT informed the solicitors for MGH that their client had received a financing proposal which was expected to enable funds to be available by 9 February for the purchase of the briquetting press and asked that MGH take no action before that date. No reply to that letter is in evidence.
On 12 February 2001 Mr Nunan purchased the briquetting press from MGH. He offered to purchase from Mr Coulter ASFT and all of its assets including proprietary information and intellectual property, for $62,500. This offer was refused.
Mr Collinson, for the plaintiffs, if I understood him correctly, submitted that the inclusion in the offer of a specific reference to the intellectual property imported a recognition by the defendant of the existence of relevant confidential information. While that may be the case, that unilateral recognition cannot alter the nature of the information in question so as to render it confidential for the purposes of this proceeding.
The defendants have now taken steps to operate the Coulter process, albeit with one change in the method of operation from that adopted by the plaintiffs, in that it is proposed to convert the feedstock to chips, whereas the Coulter process involves pulverising the feedstock. On 20 February Cashdeed entered into a management services agreement with a company controlled by Mr Knight for services in connection with that project, and on 26 February Mr Nunan signed a tenancy offer for certain premises in Tullamarine where the project was to be carried on.
Triable Issue
A plaintiff relying on breach of confidence must establish three elements, namely:
1.that the information in question was of a confidential nature;
2.that the information was communicated in circumstances importing an obligation of confidence; and
3.that there has been unauthorised use of the information to the detriment of the person communicating it, that is, the plaintiff.
See the judgment of Harris J in Talbot v General Television Corporation Pty Ltd [1980] VR 224 at 230.
I am satisfied, on the basis of the evidence summarised above, that elements two and three are established.
As to the first element, there is evidence that two other entities, Eco-Log in Australia and Futura in the United States, are manufacturing briquettes from waste waxed cardboard, by processes which are similar, although not identical, to the Coulter process. The evidence of Mr Knight is that he is familiar with the processes adopted by Eco-Log and by the plaintiffs and the process to be adopted by the defendants. The essential process in each case is compaction, by extrusion in the case of the Eco-Log, and by compression in the case of the Coulter process and that to be adopted by the defendants. Each process involves the use of a shredder, a compaction unit (in these reasons referred to as the “briquette press”) and a collater.
The evidence of Mr Nunan is that the processes of shredding and compressing are commonplace in a number of applications in the market place, including briquetting. The distinction between extrusion and non-extrusion is, on his evidence, a distinction without a difference. The difference is that one process involves compression by an augur and the other process involves compression by a ram.
On the basis of that material, while not intending to pre-empt any finding which may be made on the ultimate trial of the proceeding, I would have some doubt that the information communicated to the defendants was of a confidential nature so as to establish a triable issue as between the parties. It is clear that much relevant material is in the public domain. Further, I am not satisfied that the Coulter process has any sufficient quality of novelty to support a claim of confidentiality. In saying that, I am not suggesting that an action based on breach of confidence can only succeed where the information in question would qualify for protection under the Patents Act 1990 (Cth).
Discretionary considerations
Mr Marantelli, for the defendants, submitted that there were a number of matters which should be taken into account by the court, which militated against the exercise of its discretion to grant the remedy sought by the plaintiff, and which I now turn to consider.
The Provisional Specification
Mr Coulter deposed in paragraph 19 of his affidavit of 15 March 2001 that:
In August 2000, I filed with the Patents [sic] Office a provisional specification (No. PQ2342) for the process of making the bricks from waxed cardboard.
No exhibit was produced in support of that statement. However, in his affidavit in opposition of 2 April, Mr Chapman deposes that a letter from the Patent Office dated 25 August 1999, exhibited to that affidavit as MAC-3, was handed to him by Mr Coulter. That letter states that a provisional specification relating to alternative solid fire fuel was filed by Mr Coulter on 19 August 1999 and allocated provisional application number PQ2342; and further that “in order to claim association with this application a complete application must be filed on or before 19/08/2000”.
In response, Mr Coulter exhibited to his affidavit of 3 April as FGC-21what he describes as “a copy of a letter from the Commissioner of Patents dated 25 August 2000, confirming that application No. PQ2342 was filed at the Patent Office on 19 August 2000”. That document is in almost identical terms to MAC-3, save for the dates, all of which are one year later than the dates in MAC-3, and the last two words which read “this office” rather than “the office”. Further, FGC-21 is typed in a different font from MAC-3, and shows signs of having been prepared by an inexperienced typist, in that two words (“Way” in the address of Mr Coulter, and “Brochures” at the beginning of a sentence) which should have been commenced in upper case are commenced in lower case. When FGC-21 is compared with the material referred to below which was received from the Patent Office on subpoena, it is apparent from the pale tone of parts of the letterhead that FGC-21 is a photocopy and not an original. Mr Marantelli submitted that the reason for this was that it is more difficult to determine the validity of a photocopy.
It was put to Mr Coulter’s solicitors that FGC-21 was not genuine. In his affidavit of 18 April he deposes:
If the Defendants’ assertion is correct, I deny that the letter [FGC-21] was produced by me or that I caused it to be produced or that I gave any instructions to anyone to produce the letter. . . I have no knowledge of how the letter came into existence. I was overseas in Canada and the United States of America between 5 July 2000 and 27 October 2000. . . So far as I can recall, it must have been among the papers awaiting me when I returned from overseas. . . .The letter was among a bundle of papers which I gave to my Solicitor. . . .I now realise that the statement in paragraph 19 of my first affidavit is incorrect.
The effect of certain confidential material produced by the Patent Office on subpoena confirms the validity of MAC-3 and the invalidity of FGC-21. There is no suggestion from any source that paragraph 19 of the affidavit of Mr Coulter sworn on 15 March contained merely a typographical error.
It would appear that the purpose of paragraph 19 was to reinforce the claim of confidentiality of the information by implying that the Coulter process was perceived by Mr Coulter as sufficiently novel to be patentable, with the further implication that a complete application would be filed by August 2001. However, the actual position is that the last date for filing a complete application (19 August 2000) had passed before the swearing of the affidavit, and accordingly the provisional specification was no longer effective. This might seem to indicate that Mr Coulter had decided or been advised that there was not sufficient novelty in the Coulter process to justify proceeding with the application.
In the present context, Mr Marantelli submitted that Mr Coulter had misled the Court on a material matter, in that he had based his case on a pending patent application being still on foot when he spoke to Mr Nunan in January 2001, while knowing that this was not the case.
In reply, Mr Collinson submitted that this proceeding is not about patent law, but about confidentiality. The letter was not exhibited to Mr Coulter’s first affidavit because it was irrelevant. There would be no reference to patents in the statement of claim to be filed.
Nevertheless, it is to be presumed that paragraph 19 was perceived as relevant when the affidavit was prepared. The admittedly false statement in paragraph 19 of the affidavit was made to the Court, carrying the implication to which I have referred, and the invalid document was produced to the Court. These matters cannot be overlooked.
Delay
Mr Marantelli submitted further that there had been gross delay by the plaintiffs in bringing this proceeding. After the correspondence described in paragraphs 7, 8 and 10 above, having indicated on 31 January their intention to apply for an injunction, the plaintiffs did not issue the writ until 15 March. By that time, the defendants had entered into the commitments described in paragraph 13 above.
Damages
Mr Marantelli also submitted that real doubt existed as to the ability of the plaintiffs to comply with the usual undertaking as to damages, which their counsel indicated that he had been instructed to give. That submission is supported by the inability of the plaintiffs to pay the balance owing on the briquetting press which had been ordered (see paragraphs 5, 7, 8 and 10 above), thus enabling its purchase by the defendant which has led to this proceeding.
The evidence of Mr Coulter is that ASFT has few liquid assets, but ”the commercial value of its intellectual property is substantial”, that ASFT is owed $50,000 by MGH as a result of the termination of the agreement for the manufacture and sale of the briquetting press, and that he and his family have assets worth more than $400,000. While his son is a director of ASFT, and his daughter is also involved in its business, what assets they, or any other member of his family, may have are irrelevant to an undertaking proposed to be given by the two plaintiffs. It has not been proposed that any member of Mr Coulter’s family other than himself should join in any such undertaking, and there is no evidence as to the extent of his personal assets. Nor is there any evidence to support the claim of the commercial value of the intellectual property of ASFT.
Balance of Convenience
As to the balance of convenience, the defendants have acquired the briquetting press, and have entered into the arrangements described in paragraph 13 above. The evidence of Mr Nunan is that the briquetting press is being commissioned, this having been delayed by an injury to Mr Chapman whilst trialling it; and that 90% of the cost of that unit has been paid, the balance to be paid on commissioning. It is thus to be expected that the defendants will be in a position to proceed to manufacture briquettes in the not too distant future. At present, the plaintiffs have no press, and as they were unable to pay for the unit which they had ordered from MGH, there will be some doubt as to their ability to proceed with manufacture. Thus to grant this application would not enable the plaintiffs to operate the Coulter process; whereas to refuse this application will inhibit the defendants from proceeding with a project for which they are largely prepared. Further, assuming that the plaintiffs are in a position to acquire a press and operate the Coulter process, the grant of the application will not inhibit them from doing so.
Conclusion
While none of the factors to which I have referred is by itself sufficient to enable me to reach a conclusion on this matter, I am satisfied that the combined effect of the matters set out in paragraphs 18, 27, 30 and 31 is that it is not appropriate, in all the circumstances, that the discretionary relief sought by the plaintiffs should be granted. Accordingly, the application is dismissed. Counsel may wish to make submissions as to costs.
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