Fonterra Brands Australia Pty Ltd v Bega Cheese Ltd (No 3)
[2019] VSC 391
•17 June 2019
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
INTELLECTUAL PROPERTY LIST
S ECI 2017 00283
| FONTERRA BRANDS AUSTRALIA PTY LTD (ACN 095 181 669) AND ANOTHER (according to the attached schedule) | Plaintiffs |
| v | |
| BEGA CHEESE LIMITED (ACN 008 358 503) | Defendant |
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JUDGE: | Daly AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 30 May 2019 |
DATE OF RULING: | 17 June 2019 |
CASE MAY BE CITED AS: | Fonterra Brands Australia Pty Ltd and anor v Bega Cheese Ltd (No 3) |
MEDIUM NEUTRAL CITATION: | [2019] VSC 391 |
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PRACTICE AND PROCEDURE – Confidentiality – Whether nature of information concerned and competitive relationship between the parties warrants documents being subject to a confidentiality regime over and above the usual Harman undertaking – Balance between the commercial sensitivity of the document, the relevance of the document to the issues in the proceeding, the potential harm of disclosure, and the risk of prejudice to the party bearing the burden of the confidentiality regime – Terms of confidentiality regime – IOOF Holding v Maurice Blackburn (No 2) [2016] VSC 594, applied – Cargill Australia Pty Ltd v Viterra Malt Pty Ltd [2018] VSCA 260 referred to.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr G D Dalton QC with Ms J D Williams | Arnold Bloch Leibler |
| For the Defendant | Dr C G Button QC with Ms J Whiting and Mr K Loxley | Gilbert + Tobin |
HER HONOUR:
Introduction and background
This ruling concerns an application by the plaintiffs (‘Fonterra’) that the defendant (‘Bega’) produce for inspection, without restriction, certain documents for which Bega has claimed confidentiality (‘Bega confidential documents’). In a decision published in this proceeding on 24 August 2018,[1] with respect to a confidentiality regime for documents discovered by Fonterra (‘Fonterra confidentiality regime’), I summarised the background to the proceeding as follows:
The plaintiffs and defendants by counterclaim (together, ‘Fonterra’) are members of the group of companies owned by Fonterra Co-operative Group Ltd, a substantial global force in the dairy products industry. The defendant and plaintiff by counterclaim (‘Bega’) is a long established force within the Australian dairy industry, perhaps best known for the product ‘Bega Tasty Cheese’, a natural cheese product sold widely within Australian supermarkets.
Bega Tasty Cheese (and variants thereof) is manufactured by Bega, but marketed by Fonterra. This arrangement has been in place since 2001, when Fonterra and Bega entered into a Product Supply Agreement and a Trade Mark Licensing Agreement, which were renewed and updated in 2012.
This proceeding was issued by Fonterra on 11 December 2017. In its amended statement of claim, Fonterra seeks to restrain the use by Bega of the Bega trademark on packaging for peanut butter and other nut spreads manufactured by Bega, and the alleged threatened use of Bega of the Bega trademark on a range of cheese products. While the amended statement of claim and prayer for relief refers to Fonterra suffering loss and damage by reason of Bega’s conduct no particulars of loss and damage have been provided, except in the broadest possible terms.
On 23 March 2018, Bega filed and served an amended defence, and, for the first time, a counterclaim. Only the counterclaim is relevant for present purposes. In the counterclaim Bega refers to certain express and implied terms of the Trade Mark Licence Agreement which require Fonterra to promote and develop the sales of Bega branded products, ensure that the good name and image of the trademarks is maintained, to promote Bega branded products in accordance with agreed marketing principles, and to not give undue preference to Fonterra owned branded products such as Mainland Cheese and Perfect Italiano. Bega alleges that Fonterra has breached the Trade Mark Licensing Agreement by failing to, among other things, adequately invest in and promote Bega branded products, and had failed to develop new Bega branded cheese products in the retail and food service markets. The allegations in the counterclaim have substantially expanded the ambit of the dispute between the parties in the proceeding.[2]
[1][2018] VSC 471.
[2]Ibid [1]-[4].
Since that time, the range of food products marketed by Bega under the Bega brand (‘non-Fonterra Bega products’) has expanded, and Fonterra has issued a further proceeding seeking to restrain Bega from terminating the TMLA, the agreement underlying the commercial relationship between the parties, which has now been consolidated with this proceeding. Bega has amended its counterclaim to add allegations that Fonterra has breached quality standards it is required to meet with respect to cheese sold by it under the Bega brand. On 30 May 2019, the date of the hearing of this application, orders were made by consent giving Fonterra leave to amend its statement of claim to bring a claim for rectification of the TMLA. In my decision of 4 April 2019[3] concerning an application by Bega to vary the Fonterra confidentiality regime, I observed that the parties were engaged in a ‘commercial war’. There are no indications of peace breaking out soon.
[3][2019] VSC 209.
Bega seeks that inspection of the Bega confidential documents be limited to Fonterra’s external lawyers and independent experts engaged by Fonterra for the purposes of this proceeding. The Bega confidential documents fall within the following categories, as enumerated in the affidavit of Bega’s solicitor, Ms Janet Whiting, of 27 May 2019:
(a) information relating to current or future marketing or promotional strategies or plans for its non‑Fonterra Bega products (‘marketing plans’);
(b) ‘Above the line’ spend and trade spend in relation to the non‑Fonterra Bega products (‘promotional expenditure’);[4]
[4]‘Above the line’ spend is expenditure on public advertising, for example, television advertising. ‘ Trade spend’ is money paid to retailers for promotional purposes, including in store promotions.
(c) contract prices contained in contracts or agreements with retailers or suppliers for non-Fonterra Bega Products (‘contractual information’);
(d) information pertaining to current and future pricing strategies for non‑Fonterra Bega products (‘pricing strategy information’);
(e) information which relates to Bega’s brands or products which are said by Bega to not be relevant to the issues in this proceeding, such as:
(i) Vegemite, Picky Picky, Zoosh; and
(ii) products which have not yet been manufactured, sold or marketed, including information about any new product development (‘new product development information’); and
(f) Bega’s financial information, including profit, contribution margin, gross margin, adjusted gross margin, earnings before interest and taxes, and contribution to earnings before interest and taxes (‘financial information’).
Fonterra also seeks orders that Bega make discovery, to the extent that it has not already done so, of all documents relating to marketing plans for non-Fonterra Bega products, including products which have not yet been manufactured, sold or marketed. This order is sought for the avoidance of doubt, as Fonterra’s primary contention is that this category of documents is caught by my orders of 30 November 2018 (’30 November orders’).
Fonterra’s primary position is that, while the Bega confidential documents are commercially confidential, the evidence and circumstances do not justify the imposition of a restrictive confidentiality regime of the kind sought by Bega. As a fall‑back position however, Fonterra would be prepared to accept a confidentiality regime whereby access would be limited to two specified Fonterra executives, being Mr Karl Simonovski (Director, Sales and Marketing – Consumer) and Mr Jeff Dhu (Director, Foodservice), who have provided outlines of evidence in this proceeding, along with Fonterra’s in‑house counsel, Ms Jorja Cleeland. Fonterra also contends that the words ‘Bega’s financial information including’ should be removed from the category in paragraph 3(f) above. In turn, Bega’s fall‑back position is that access to the Bega confidential documents be restricted to two Fonterra executives holding positions equivalent to those Bega executives able to access documents under the Fonterra confidentiality regime, being the Chief Executive Officer, and the Chief Financial Officer. Further, Bega had no difficulty with Fonterra’s in‑house counsel having access to the Bega confidential documents, provided that Bega’s in‑house counsel was given equivalent access under the Fonterra confidentiality regime.
Relevant legal principles
The parties agree that the application is governed by the principles set out by Elliott J in IOOF Holdings Ltd v Maurice Blackburn (No 2) (citations omitted):[5]
[5][2016] VSC 594.
Discovery is an intrusion on the right that a private citizen would otherwise have to keep the existence and contents of its documents private. Accordingly, although a party to litigation is required to comply with the rules or orders of the court concerning discovery by proper identification of discoverable documents, in appropriate circumstances a party required to discover documents may seek orders imposing restrictions or conditions on any order for production. In addition to the implied undertaking that generally applies to discovered documents, and the court’s power to impose restrictions or conditions, it may also be ordered that no production of a discovered document is required.
In most cases, the fact that documents are confidential does not provide a proper basis to restrict disclosure of a relevant document to an opposing party and its legal representatives. However, the question of whether production ought to be compelled may arise if there is a real risk that significant harm may be caused to a party beyond what is justified in the circumstances of the case.
In determining whether or not production should be required, the court must engage in a balancing exercise between the interests of the party seeking production and the interests of the party who has been compelled to discover a document or documents. The ultimate question is what is necessary for the attainment of justice in a particular case.
In considering this question, relevant factors include the following:
(1) The degree of relevance of the document or documents.
(2)The extent to which the document or documents are confidential, including whether the information has already been disclosed in the proceeding.
(3)The use to which the information might be put once it is known, such as by an opposing party who is a trade rival or is also an opposing party in another proceeding (or an anticipated or pending proceeding).
(4)The utility or procedural fairness, or otherwise, of imposing restrictions or conditions, including limiting production to certain persons upon the provision of confidentiality undertakings.
(5)Any other matters relevant to the due administration of justice, including ensuring compliance with the overarching purpose in the Civil Procedure Act 2010 (Vic).
Whatever form of restrictions or conditions might be ordered, such orders would, ordinarily, be subject to review as the proceeding progresses to, or is the subject of, a trial. This ensures that the orders made are in the interests of justice based on the particular circumstances extant from time to time.[6]
[6]Ibid [7]-[11].
In Cargill Australia Ltd v Viterra Malt Pty Ltd,[7] (‘Cargill’) the majority of the Court of Appeal adopted an abridged version of the principles set out above (‘IOOF framework’).[8] The majority also made the following observations, which are relevant to the current application:
The above discussion indicates that a key factual issue in the exercise of a court’s discretion to determine who should have access to confidential discovered documents is whether the parties are trade rivals. The parties’ status as trade rivals is significant because it informs the magnitude of the risk of loss of confidentiality, and the potential prejudice resulting from such loss, if access to such documents is not restricted to the opposing party’s external lawyers and independent experts who give confidentiality undertakings.
Accordingly, the parties’ status as trade rivals is a material consideration to a court’s determination of who should be given access to confidential discovered documents. The subject matter of the litigation and the identity, role, expertise and experience of every person whom a party nominates to be a recipient of confidential documents discovered by the opposing party subject to the giving of a confidentiality undertaking are important to that determination. The scope of confidentiality undertakings to be given by those persons and the nature and efficacy of any sanctions that may be available against them for breaches of such undertakings are also important.[9]
[7][2018] VSCA 260.
[8][2016] VSC 594 [7]-[11].
[9][2018] VSCA 260 [139]-[140].
A key issue in this application is whether Fonterra and Bega are truly trade rivals. Subject to the resolution of that issue, which I will discuss later in these reasons, I propose to consider each category of Bega confidential documents within the IOOF framework, including:
(a) the degree of confidentiality and commercial sensitivity of the Bega confidential documents;
(b) the degree of relevance of the Bega confidential documents to the issues in the proceeding;
(c) the risk of material harm being caused to Bega through the disclosure or other misuse of Bega’s confidential information, whether inadvertent or otherwise; and
(d) the risk that Fonterra will be prejudiced if its personnel do not have access to the Bega confidential documents in order to provide instructions to Fonterra’s lawyers and experts for the purposes of this proceeding.
The Evidence
Fonterra relied upon an affidavit sworn by its solicitor, Mr Matthew Lees, on 14 May 2019, which, among other things, exhibited the correspondence between the parties, along with a sample set of Bega confidential documents which were said by Bega to include information that was both ‘relevant and confidential’ and ‘irrelevant and confidential’ (‘confidential exhibit’). The thrust of the correspondence between the parties was that Fonterra did not consider that Bega had explained why particular categories of Bega confidential documents should not be inspected by Fonterra, that Fonterra did not compete with Bega in selling peanut butter, cream cheese, and macaroni and cheese (all products sold by Bega under the Bega brand), and that Fonterra did not accept that certain information classified by Bega as irrelevant to the issues in the proceeding was in fact irrelevant.
A substantive explanation of Bega’s claim for confidentiality over the Bega confidential documents was provided in Ms Whiting’s affidavit of 27 May 2019. In relation to marketing plans, Ms Whiting deposed, in summary, as follows:
(a) the marketing plans do not concern cheese products;
(b) Bega has spent millions of dollars on purchasing the Mondelez grocery business and the Australian Peanut Company, and does not want to share its confidential marketing and promotional ideas with a major player in the fast moving consumer goods (‘FMCG’) sector;
(c) the FMCG industry experiences high levels of staff turnover, such that it is possible that employees currently at Fonterra could move to a business which is in direct competition with Bega;
(d) the major retailers, such as Coles and Woolworths, are customers of both Bega and Fonterra;
(e) Bega’s products and Fonterra’s products compete generally in the FMCG sector;
(f) Bega’s future plans with respect to the use of the Bega brand on non‑cheese products is not relevant to the question of whether Bega’s conduct to date has damaged the Bega brand; and
(g) it is not necessary for a Fonterra employee to inspect Bega’s marketing plans for the purpose of this proceeding, as these documents are readily comprehensible to marketing experts.
In relation to promotional expenditure, Ms Whiting deposed that Bega’s promotional expenditure, unlike Fonterra’s promotional expenditure with respect to Bega branded cheese products, is not relevant to the issues in the proceeding. The cost of the promotional activity undertaken by Bega is not relevant to the question of whether that activity has damaged the Bega brand.
In relation to contractual information, Ms Whiting deposed as follows:
In respect of the agreements with retailers, I am instructed by Mr Griffin and Mr MacNamara, Executive General Manager of Bega Foods, that these are extremely confidential in their entirety both to Bega and the retailers in question. If Fonterra were to see Bega’s trading terms with the same retailers that Fonterra sells to, it could use this information in relation to its own dealings with the retailers. If the retailers became aware that Fonterra had seen Bega’s trading terms, this would likely damage Bega’s relationship with the retailers.
In relation to pricing strategy information, Ms Whiting deposed that in her view this information was not relevant to the issues in the proceeding, as they are not relevant to the question of whether Bega’s conduct has damaged the Bega brand. She deposed as follows:
I am instructed by Mr Griffin that the same concerns arise in respect of Fonterra accessing current and future pricing strategies as for current and future marketing and promotional plans … .
In particular, if a Fonterra employee with this information were to move to a competitor of Bega’s, this information could be used by the competitor to undercut Bega’s pricing, or to compete with Bega’s products with the unfair advantage of knowing the rationale and strategy behind Bega’s pricing. Fonterra sells products to the same retailers as Bega. If those retailers became aware that Fonterra knew of Bega’s pricing strategies being discussed or negotiated with the retailers, this would be likely to damage the relationship between Bega and the retailer as they might suspect Bega had provided the information to Fonterra.
Further, Bega might create a clever strategy on pricing that Fonterra decides it could apply to one of its products. Fonterra should not be entitled to any strategy material regarding pricing.
In relation to new product development information, Ms Whiting observed that information in Fonterra’s documents of that nature has been afforded the highest level of protection under the Fonterra confidentiality regime. She deposed as follows:
… I am instructed by Mr Griffin and Mr MacNamara that:
(a) Bega’s NPD information is highly sensitive and confidential;
(b)If such information were to be provided to Fonterra, it is possible that individuals within Fonterra might be influenced by it in respect of Fonterra’s own NPD or strategy as to what sectors it might wish to enter; and
(c)If an individual at Fonterra leaves to go to a direct competitor of Bega’s (for example, another manufacturer of peanut butter), that individual would not be able to ‘un-know’ what he/she has seen in relation to Bega’s NPD. If a competitor of Bega’s had such information it would put them at a significant commercial advantage over Bega.
Information about products which have not yet been manufactured, sold, or marketed (for example, ideas for future products and NPD information) has been produced only where it appears in documents which are otherwise discoverable pursuant to the 30 November Orders.
Such information is not relevant to this proceeding. As set out in Gilbert + Tobin’s letter to ABL dated 13 May 2019, the 30 November Orders were made on the basis that the discovery order could be relevant to any damage to the Bega brand that Bega’s conduct has caused. References to the relevance of these documents have consistently been in the past tense – that is, what damage has been caused. …
Products which have not yet been manufactured, sold or marketed cannot have caused any damage to the Bega brand. It may be that products in Bega’s NPD pipeline will never be manufactured, sold or marketed, or if they are, it could be in a substantially different form or under a different brand to that presently proposed.
Nor are Products which do not yet exist relevant to potential future harm to the Bega brand (if any). Only if such products are actually launched by Bega under the Bega brand will they become relevant to potential future harm to the Bega brand.
Mr Lees swore an affidavit in response to Ms Whiting’s affidavit of 27 May 2019. He deposed as follows:
I am instructed by Jorja Cleeland, the Plaintiffs’ General Counsel Australia and a member of the Plaintiffs’ top-level management group in Australia (known as the “Australian Leadership Team”), that, in their business in Australia, the Plaintiffs:
(a)sell dairy products such as cheese (including “cheese and crackers” and similar snack products), butter, milk, cream and nutritional powders;
(b)sell a relatively small volume of ambient parmesan under the “Perfect Italiano” brand through some independent retailers;
(c)do not sell, and have no plans to sell, any other non-dairy products in Australia (other than, potentially, lactose free versions of dairy products); and
(d)in particular, do not sell, and have no plans to sell, any peanut butter, other non‑dairy spreads, macaroni and cheese, ambient cream cheese, ambient parmesan cheese, nuts, salad dressing, mayonnaise or non‑dairy flavoured dips of the same kind or similar to those sold by the Defendant.
Mr Lees disagreed with Ms Whiting’s contention that it would not be necessary for anyone within Fonterra to inspect Bega’s marketing and promotional plans. He deposed as follows:
The Defendant’s marketing and promotional plans relating to the Bega brand are at the heart of the Plaintiffs’ claim against the Defendant in this proceeding. The Plaintiffs seek an injunction to restrain the Defendant’s use of the Bega brand contrary to the Trade Mark Licence Agreements. In my view, it is essential that the Plaintiffs are informed of the Defendant’s marketing and promotional plans relating to the Bega brand so that they are able to understand what it is at stake in this litigation – that is, what are the consequences or potential consequences if the Defendant is not restrained from using the Bega brand.
Mr Lees deposed that Fonterra will be significantly prejudiced if Mr Simonovski, Mr Dhu, and Ms Cleeland are unable to inspect the Bega confidential documents. He deposed that each of these personnel have informed him that they are not involved in the ‘day to day planning and execution of marketing activities, or the day to day dealings with retailers or food service customers with respect to promotional or financial arrangements’.
On 29 May 2019, Ms Whiting swore an affidavit in response to Mr Lees’ affidavit of 28 May 2019. Ms Whiting deposed, in summary, as follows:
(a) she does not agree that Bega’s financial information is relevant to the issues in dispute in this proceeding, and no explanation has been provided by Fonterra as to why that information is relevant;
(b) she does not agree that new product development information is relevant to the issues in the proceeding, as new product development ideas may never come to fruition, or may do so in a different form or under a different brand;
(c) she does not consider that Mr Simonovski and Mr Dhu are appropriate people to have access to Bega’s confidential documents, by reason of their roles within Fonterra, their experience in the FMCG industry, and the evidence they have given in their witness outlines in this proceeding;
(d) she proposed that, if contrary to Bega’s position, some Fonterra personnel were to have access to Bega’s confidential documents, such access should be limited to the Chief Executive Officer and Chief Financial Officer of Fonterra; and
(e) Ms Whiting deposed as follows:
I am instructed by David McKinnon, Executive General Manager, Human Resources of Bega that there has been a number of examples where there has been movement of employees or executives have occurred from Bega to Fonterra or other competitors. As such, it is clear that the risk of movement of employees or executives from Fonterra to a competitor, supplier or manufacturer of Bega is substantial.
I am instructed by Mr McKinnon that in the time available for the preparation of this affidavit, he was unable to exhaustively identify all instances of personnel leaving or joining Bega from competitors. However, in the time available he has identified that, in the last 2 years:
(a)At least 2 demand planners have left Bega in the last 3 months to work at Fonterra;
(b)Numerous individuals have left Bega in the last 2 years to go to competitors in the dairy industry including Norco, Saputo, Burra Foods, Bestons and Freedom Foods;
(c)Numerous senior employees have been hired by Bega from competitors in the dairy industry including Murray Goulburn and Lion;
(d)Bega has hired numerous employees from fast moving consumer goods companies including Campbells Arnotts;
(e)Employees have left Bega to join fast moving consumer goods companies including Twinings, Treasury Wine Estates, and Mondelez; and
(f)At least one account executive joined Bega having previously worked at Coles.
Are Fonterra and Bega trade rivals?
As observed by the Court of Appeal in Cargill[10], the existence of a trade rivalry between the parties is a key factual issue in the determination of applications of the current kind. The existence of a trade rivalry was also central to the decision of the Court of Appeal in the leading Victorian authority in this field, Mobil Oil v Guina Developments (‘Mobil Oil’).[11] In the current application, the Bega confidential documents all concern products which are not produced by Fonterra. Fonterra’s primary focus is the dairy industry, and the evidence is that Fonterra has no plans to produce or sell any peanut butter, other non-dairy spreads, macaroni and cheese, ambient cream cheese, nuts, salad dressing, mayonnaise or non-dairy flavoured dips.
[10]Ibid.
[11][1996] 2 VR 34.
Accordingly, taking a narrow, or literal view of the concept of ‘trade rivalry’, Fonterra and Bega are not trade rivals with respect to the subject matter of the Bega confidential information. According to Fonterra, that should be the end of the matter. However, Bega contends that Fonterra and Bega are competitors in the FMCG industry, and observes that their major customers in the retail industry are the same, being the major supermarket chains. Furthermore, (and this seems to me to be the nub of Bega’s submissions) the evidence is that there is a high degree of turnover in the FMCG industry, so that Fonterra personnel who become privy to Bega’s confidential information may well move to positions with businesses that compete directly with Bega.
There is some force in these submissions. While these submissions do not address the fact that Bega’s own employees who have access to Bega’s confidential information may move to work with competitors, at least in those circumstances Bega has the protection of the obligations of confidence imposed upon employees, and, in respect of senior personnel, the obligations imposed by the Corporations Law. Further, while Fonterra and Bega’s product offerings are in different segments of the FMCG industry (put simplistically, Fonterra’s products are sold from refrigerators, while Bega’s products are sold in the centre aisles), I doubt that the boundary between those two sectors impedes the flow of personnel within the FMCG industry, such that the greater the number of non-Bega personnel have access to Bega’s confidential information, the greater the risk of disclosure of the Bega confidential information to Bega’s direct competitors. Further, I accept that, to the extent that Bega and Fonterra have the same, or overlapping customers in the retail sector and the food services channel, there is a competitive relationship between them in some respects beyond the retail cheese market, such that disclosure of certain types of information may harm Bega.
Further, while I accept that the existence of a trade rivalry is a key factual matter for consideration in determining whether to impose a confidentiality regime, I do not read the decisions in Mobil Oil[12] and Cargill[13] as imposing a precondition that there must be a direct trade rivalry in order for the Court to exercise its discretion to impose a confidentiality regime. Rather, one must step back and consider the problem that this jurisprudence is aimed at preventing or redressing: that is, the risk of harm to litigants of being compelled by the process of the Court to disclose confidential information. Further, I note that in IOOF[14], the dispute regarding a confidentiality regime was not between trade rivals as such: rather, it was between a potential defendant to litigation which might be funded by the party seeking the protection of confidentiality.
[12][1996] 2 VR 34.
[13][2018] VSCA 260.
[14][2016] VSC 594.
Accordingly, while I will address the parties’ submissions and apply the IOOF framework with respect to the individual categories of Bega confidential documents below, I make the overarching observation that the absence of a direct trade rivalry with respect to the non-Fonterra Bega products does not prohibit the Court from making orders establishing a confidentiality regime should the circumstances justify providing the Bega confidential documents with greater protection than that provided by the Harman undertaking.[15] Rather, while the existence of a trade rivalry between the parties concerned is generally a highly relevant consideration when determining whether to grant such protection, or the terms of such protection, the absence of a direct trade rivalry is not fatal.
[15]See Harman v Secretary of State for the Home Department [1983] 1 AC 280.
Finally, while I accept that the activities of Bega in the food service channel are not the primary focus of the parties’ claims at this proceeding, there is evidence in both this application and in the earlier applications in this proceeding concerning the Fonterra confidentiality regime that Bega and Fonterra are direct competitors in the food services sector (see, for example, document number BEG.009.003.0793).
Marketing plans
Fonterra submitted that the marketing plans are highly relevant to the issues in the proceeding, and in particular, Fonterra’s claim for permanent injunctions seeking to restrain Bega from using the Bega trademark to market the non-Fonterra Bega products. In that regard, how Bega intends to utilise the Bega brand is just as important as how Bega has utilised the Bega brand to date. The marketing plans are also relevant to Bega’s allegation that Fonterra has damaged the Bega brand by its alleged failure to position Bega as a premium product.
Further, Fonterra submitted that while it accepts that future marketing and promotional strategies are confidential, those which are currently being implemented are not, as, by their very nature, they are implemented in public.
Fonterra submitted that Bega’s evidence concerning the potential for misuse of the information is very vague: marketing ideas and strategies are well known to marketing professionals. Just because Bega does not wish to share its information does not mean that Fonterra should not be entitled to inspect the documents. Bega has not established that the marketing plans are information that once learnt cannot be forgotten, and that the recipients of the information cannot help using it for the benefit of Fonterra and to the detriment of Bega. The personnel nominated by Fonterra are at a sufficiently high level within the organisation to reduce the risk of inadvertent disclosure.
Finally, Fonterra submitted that it will suffer very significant prejudice should the marketing plans not be able to be shown to Fonterra’s witnesses. Both Mr Simonovski and Mr Dhu would be expected to give evidence regarding the health of the Bega brand. Neither of the Fonterra personnel nominated by Bega as possible recipients of the Bega confidential information have any significant role to play in this litigation.
Bega submitted that while Bega accepts that marketing and promotional campaigns which are underway are not confidential, in that they are carried out in the public domain, but they are often carried out as a part of a broader, longer term plan, which is confidential. Further, it is open for me to infer that there will be personnel movements and ownership changes in the food industry, which increases the risk of Bega’s confidential information falling into the hands of more direct competitors than Fonterra.
Bega submitted that the marketing plans are only moderately relevant to the issues in the proceeding, but if the marketing plans became known to others in the industry, another party could undermine Bega’s marketing campaigns by developing and launching competitive products, and launching competitive campaigns in supermarkets. Further, Fonterra makes no allegations about Bega’s future plans in the food services industry. Finally, future marketing plans are not only very sensitive, but they may come to nothing.
Bega accepts that restricting client access to discovered documents can be inconvenient and practically difficult, which is why it has suggested that Fonterra representatives of sufficient seniority and distance from operational matters be permitted to inspect the Bega confidential documents.
I agree that the information in the marketing plans are highly confidential to Bega, save that as time passes this information tends to become stale. Further, there is no evidence as to how this information is protected within Bega, noting that in Mr Lees’ confidential exhibit, there is an email chain regarding products to be supplied to Costco which has seventeen Bega personnel as reciepients [see BEG.010.002.0950], which suggests that pricing strategy information at least is not closely protected within Bega. However, I agree that the information in the marketing plans is, subject to my observations below regarding the Vegemite and Zoosh brands (‘non-Bega brands’), relevant to the issues in the proceeding. In particular, the manner in which Bega proposes to deploy the Bega trademark in the future is relevant to the question of whether, if Bega is found to be in breach of the TMLA, the Court ought to exercise its discretion to grant the permanent injunction sought by Fonterra.
Further, I consider that the risk of misuse of the marketing plans is moderate. First, as noted above, the information tends to become stale as marketing plans are executed. Secondly, while I am not a marketing expert myself, it is probably safe to assume that marketing principles and projects do not vary enormously across the FMCG sector. Thirdly, the purpose of a confidentiality regime of the kind sought by Bega is directed at preventing, as much as is practicable, actual damage to a party to litigation, not merely to protect its work product.
Finally, I consider that Fonterra will be unduly prejudiced if at least its nominated personnel do not have access to the marketing plans. It is apparent from the evidence, including the outlines of evidence filed on behalf of Mr Simonovski and Mr Dhu, that they have a particular expertise regarding these issues. They are, for all intents and purposes, Fonterra’s internal experts regarding the health of the Bega brand, and should be able to provide informed instructions to Fonterra’s experts and lawyers regarding the potential risk of damage to the Bega brand as a consequence of Bega’s planned use of the Bega brand on non‑cheese products.
However, having reviewed the confidential exhibit, I do not consider that Fonterra should be entitled to inspect the marketing plans concerning the non-Bega brands, save where that information is directly linked to the overall strategy for the Bega brand (see, for example, document numbered BEG.012.001.8525). It seems to me that there is a material difference in the Bega branded products such as Bega branded peanut butter and macaroni and cheese and the non-Bega brands. It is difficult to see how marketing and promotional activities concerning the non-Bega brands, in isolation, have the potential to affect the health of the Bega brand, given that the Bega trademark does not feature on the packaging of these products. It is Bega’s use of the Bega brand which is central to the issues in the proceeding, not Bega’s marketing of products under different brands such as Vegemite. Of course, if Fonterra identifies that it needs to seek instructions regarding particular documents, or if circumstances change, there will be liberty to apply.
Accordingly, I consider that, while the confidentiality of the marketing plans warrants protection over and above what is afforded by the Harman undertaking, Mr Simonovski and Mr Dhu (along with Ms Cleeland) should have access to the marketing plans insofar as it concerns their roles within the Fonterra business. In relation to the latter point, it is not clear to me why Mr Dhu needs to have access to marketing plans concerning retail products, or why Mr Simonovski needs to have access to marketing plans concerning the food services channel, although I am open to submissions on that question.
Promotional expenditure information
Fonterra submitted that the approach of Bega to ‘above the line’ spend and trade spend for its own products is relevant to its criticisms of Bega with respect to Fonterra’s management of the Bega brand.
Bega submitted that promotional expenditure information is not particularly relevant to the issues in the proceeding. Fonterra has not put in issue how much Bega has spent in respect of non-Fonterra Bega products. Further, third parties such as the major retailers have an interest in protecting the confidentiality of this information.
I accept that information showing actual and planned promotional expenditure is highly confidential to Bega. I also consider that this information is only moderately relevant to the issues in the proceeding, perhaps only being of forensic value for the purpose of cross-examining Bega’s witnesses. I consider that the risk of disclosure or other misuse of the information is moderate, given that the promotional expenditure information may be difficult to retain. Finally, given that the information is not as relevant as other categories of information, the prejudice to Fonterra of their personnel not being able to see the information is moderate. On that basis, I shall order that only Mr Simonovski should have access to the promotional information. However, unlike marketing plans and new product development information regarding the non-Bega brands, I see no reason to differentiate between promotional expenditure information concerning Bega branded products and the non-Bega brands, given that the promotional expenditure information is rendered relevant by reason of Bega’s allegation that Fonterra has failed to adequately promote the Bega branded products. Evidence of Bega’s own promotional expenditure on products sold by it, regardless of the brand under which the products are sold, has the capacity to bolster or undermine that allegation.
Contractual information
Fonterra submitted that not all of the terms of Bega’s contracts with major retailers are confidential. Further, Fonterra does not compete with Bega with respect to products such as peanut butter.
Bega submitted that the terms of its contracts with major retailers in respect of non-Fonterra Bega products are highly confidential, and that the retailers would also want to protect the confidentiality of the contractual information.
Having regard to the significance of the relationships with major retailers to the business of Bega, I agree that the contractual information is extremely sensitive, not only to Bega, but also potentially to the other parties to the contracts concerned. Indeed, I note that the contract contained in the confidential exhibit contains an express confidentiality clause. However, I also accept that the contractual information is of at least moderate relevance to the issues in the proceeding. It may be that the contractual information is difficult to forget, such that the risk of inadvertent use of the information is relatively high. Finally, at this stage it is difficult to assess the likely prejudice to Fonterra if it is not entitled to inspect the contractual information.
At this stage, I propose to adjourn Fonterra’s application to inspect the contractual information to enable the following to occur:
(a) Fonterra’s lawyers and experts to review the contractual information, and consider whether they need to take instructions from Mr Simonovski (or any other relevant Fonterra personnel) concerning the contents of the contractual information or any particular document within this category;
(b) in the event that Fonterra determines that it does need to seek instructions from any Fonterra personnel, Fonterra notify both Bega and the other party to the relevant contract of its wish to have Fonterra’s personnel inspect the contractual information, and upon what terms; and
(c) a further hearing be held in the fortnight commencing 22 July 2019 to determine Fonterra’s application with respect to the contractual information, with any affected third party to have a right to be heard on the matter.
Pricing Strategy Information
Fonterra submitted that pricing strategy information in relation to non-Fonterra Bega products is confidential, but there is no risk of harm to Bega in disclosing that information, as Fonterra does not compete with Bega in relation to the non-Fonterra Bega products.
Bega submitted that similar considerations apply to this category as those that apply to the marketing plans. Further, there is a risk of damage to Bega’s relationships with retailers if this information is disclosed. There is no reason why the pricing strategy information could not be reviewed by an independent expert without recourse to Fonterra personnel.
I accept that information concerning Bega’s pricing strategies is highly confidential to Bega. However, given that issues such as brand positioning and discounting are relevant to the health of the Bega brand, pricing strategy information, insofar as it concerns Bega branded products, is relevant to both Fonterra’s claims and Bega’s counterclaim. I accept that there is a risk of inadvertent disclosure and misuse of this information, as it may be difficult to forget. However, I accept that, as for the marketing plans, Fonterra may well be prejudiced if Mr Simonovski and/or Mr Dhu cannot inspect the information relevant to their respective spheres of operation. Further, unlike the contractual information, it appears that the pricing strategy information is contained in Bega’s internal documents, and as such, there is no need for any third parties to be concerned with Fonterra’s application to inspect the pricing strategy information.
New product development information
Fonterra submitted that new product development information is highly relevant to the issues in the proceeding, as Bega’s proposed use of the Bega trademark on products other than cheese is relevant to the question of the conduct that Fonterra is seeking to restrain. It is relevant to the question of the harm that Fonterra may suffer should an injunction not be granted.
Further, that new product development plans may not come to fruition is no answer to Fonterra’s application: Bega’s communications with retailers concerning possible new products may damage the Bega brand in the eyes of retailers even if those new products are not launched.
Bega submitted that, in the application concerning the Fonterra confidentiality regime, I accepted that information concerning new product development was extremely confidential, and deserving of the highest levels of protection.
In my view, similar considerations apply to this category of documents to those which apply to the marketing plans. That is, the new product development information is highly commercially sensitive to Bega, but insofar as the new product development information concerns Bega branded products (that is, not Vegemite or Zoosh branded products), Mr Simonovski and/or Mr Dhu should be permitted to inspect the new product development information.
The reason why I have adopted a different approach in this application than I did when formulating the Fonterra confidentiality regime is the centrality of the Bega brand to the issues in the proceeding. The Fonterra confidentiality regime protects information concerning new product development regarding non-Bega branded Fonterra products. While that information is relevant, it is not critically relevant, given that Bega’s counterclaim focuses upon Fonterra’s past conduct in allegedly focussing its marketing efforts and resources on its non-Bega branded cheese products. However, Fonterra’s claims with respect to the use of the Bega brand on non-cheese products concern Bega’s current and future use of the Bega brand, given the relief sought be Fonterra in this proceeding.
Financial information
The parties are not far apart on this issue. By removing the catch all term ‘financial information’ from this category, Fonterra seeks to ensure that otherwise relevant information which fits the description of financial information is not excluded from inspection by Fonterra. Bega is concerned to provide blanket protection for all financial information.
Fonterra accepts that information regarding Bega’s profit, contribution margin, gross margin, adjusted gross margin, earnings before interest and taxes, and contribution to earnings and taxes, is highly confidential to Bega, and is not particularly relevant to the issues in the proceeding. It does not press for Fonterra to inspect this information, but rather, it is concerned that if the term ‘financial information’ is construed too broadly, it could catch information which is relevant to the issues in the proceeding, such as ‘above the line’ and trade spend.
It seems to me that the best way to deal with this issue is to amend the definition of financial information to add the words ‘save for financial information directly relevant to, or closely connected with, Bega’s marketing plans, “above the line” and trade spend, pricing strategies and new product development.’ Further, inspection of the financial information referred to in this paragraph should be limited to Mr Simonovski and/or Mr Dhu, as appropriate. To the extent that the extended definition lacks clarity, that can be addressed by granting liberty to apply.
Discovery
As noted above, Fonterra submitted that, strictly speaking, it was not necessary for me to make orders that Bega discover all marketing plans for non-Fonterra Bega products, including products which have not been manufactured, sold or marketed, because this category of documents is caught by the 30 November orders. The orders are only sought because Bega has indicated that it has only discovered marketing plans for non-Fonterra Bega products where the information is contained in otherwise relevant and discoverable documents.
Paragraph 6(h) of the 30 November orders direct that Bega discover ‘marketing plans for the Impugned Products from 1 July 2017 to date’. ‘Impugned Products’ are defined in paragraph 6(a)(ii) of the 30 November orders as ‘Bega branded products other than [Fonterra’s] cheese products’. The issue is whether ‘to date’ should be read as confining the period for which documents must be discovered to the period between 1 July 2017 and 30 November 2018.
In my view, having reviewed paragraph 6(h) of the 30 November orders in the context of the definition of ‘Impugned Products’, the issues in this proceeding, including the relief claimed by Fonterra, and in the context of the parties’ ongoing obligations of discovery means that Bega is required to discover documents which meet this description as they come into existence, not simply those which were current as at 30 November 2018. For the avoidance of doubt, I note that the definition of ‘Impugned Products’ does not include the non-Bega brands.
I would be grateful if the parties could confer as to the appropriate form of order to give effect to these reasons, and the question of costs.
SCHEDULE OF PARTIES
FONTERRA BRANDS AUSTRALIA PTY LTD (ACN 095 181 669) First Plaintiff BONLAND CHEESE TRADING PTY LTD (ACN 001 148 992) Second Plaintiff - and - BEGA CHEESE LIMITED (ACN 008 358 503) Defendant BEGA CHEESE LIMITED (ACN 008 358 503) Plaintiff by 1st Counterclaim FONTERRA BRANDS AUSTRALIA PTY LTD (ACN 095 181 669) First Defendant by 1st Counterclaim BONLAND CHEESE TRADING PTY LTD (ACN 001 148 992) Second Defendant by 1st Counterclaim
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