Gebauer Nominees Pty Ltd v Cole
[2008] WASCA 38
•15 NOVEMBER 2007
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
TITLE OF COURT : THE COURT OF APPEAL (WA)
CITATION: GEBAUER NOMINEES PTY LTD -v- COLE [2008] WASCA 38
CORAM: STEYTLER P
McLURE JA
NEWNES AJA
HEARD: 15 NOVEMBER 2007
DELIVERED : 15 NOVEMBER 2007
PUBLISHED : 13 MARCH 2008
FILE NO/S: CACV 110 of 2006
BETWEEN: GEBAUER NOMINEES PTY LTD
Appellant
AND
GERHARD JOSEPH COLE as trustee for the HOTROX CHARCOAL UNIT TRUST t/as HOTROX CHARCOAL COMPANY
Respondent
ON APPEAL FROM:
Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA
Coram :SIMMONDS J
Citation :GEBAUER NOMINEES PTY LTD -v- HOTROX CHARCOAL CO [2006] WASC 155
File No :ARB 26 of 2001
Catchwords:
Appeal - Application for leave to appeal from order of primary judge refusing to allow inspection of party's confidential material by expert for other party - Whether genuine and reasonable concern that confidentiality be lost - Availability of alternative expert - Whether primary judge erred in exercise of discretion - Whether substantial injustice - Turns on own facts
Legislation:
Nil
Result:
Application for leave to appeal dismissed
Category: B
Representation:
Counsel:
Appellant: Mr J G Staude
Respondent: Mr D Vilensky
Solicitors:
Appellant: Williams Handcock Lawyers
Respondent: Bowen Buchbinder Vilensky
Case(s) referred to in judgment(s):
Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc (1981) 148 CLR 170
Australian Coal and Shale Employees' Federation v The Commonwealth (1953) 94 CLR 621
Gebauer Nominees Pty Ltd v Hotrox Charcoal Co [2006] WASC 155
Gebauer Nominees Pty Ltd v Hotrox Charcoal Company [2002] WASC 55
Hotrox Charcoal Company v Gebauer Nominees Pty Ltd [2002] WASCA 293
House v The King (1936) 55 CLR 499
JUDGMENT OF THE COURT: This is an application for leave to appeal against an order of Simmonds J, made on 4 August 2006, by which his Honour, in effect, refused to permit the expert nominated by the appellant (Gebauer) to inspect certain premises and equipment, and to have access to certain samples and information, the inspection and access to which the respondent (Hotrox) says would reveal a commercially valuable trade secret it holds. The order to allow inspection was sought by Gebauer for the purpose of what have become very protracted arbitration proceedings between Hotrox and Gebauer.
On 9 October 2006, McLure JA ordered that the application for leave to appeal be heard with the appeal.
On 15 November 2007, on the hearing of the application for leave to appeal, we refused to grant leave to appeal. We said we would deliver reasons in due course. These are those reasons.
Background
This application for leave to appeal is yet another step in a disturbing history of interlocutory disputes concerning the provision of expert evidence in relation to the arbitration proceedings, proceedings in which these parties have been engaged since 1999. The present dispute arises in the context of the determination of the quantum of damages for which Gebauer is liable to Hotrox, an issue which has been outstanding since May 2000.
In order to set the current application for leave to appeal in context, it is necessary to say something about the history of the matter.
Gebauer is (or was) the owner of premises situated in O'Connor on which there is erected a factory unit. Gebauer leased the premises to Hotrox for a term of 24 months from 1 May 1998. Hotrox intended to use the premises for the manufacture of briquettes of a particular specification. Hotrox says the proposed briquettes have a number of commercial and domestic applications, including in the provision of fuel for aluminium or silicon smelters.
A dispute subsequently arose between the parties. Hotrox contended that, on or about 2 June 1999, rainwater entered the premises, rendering them unfit for occupation and the plant and equipment which Hotrox had installed, unusable. It alleged that the ingress of water had occurred because, contrary to its obligations under the lease, Gebauer had failed to maintain the premises in good repair. The dispute was referred to arbitration in accordance with the provisions of the lease agreement.
On 1 May 2000, the arbitrator delivered an interim award in which he found, in effect, that Gebauer was in breach of its obligations under the lease and was liable in damages to Hotrox.
The substantive outstanding issue in the arbitration proceedings is the amount of damages to which Hotrox is entitled. Hotrox alleges that, as a consequence of the ingress of the water, it was unable to produce briquettes for export, resulting in loss and damage in the order of $8 million. That claim depends, however, (among other things) on whether Hotrox had the capability to produce briquettes of the specification it claims.
That issue in turn involves a question as to whether, as it contends, Hotrox was in possession of unique technology which enabled it to produce sawdust wood briquettes and charcoal briquettes without the use of a synthetic binder or synthetic ignition aides. The nature and efficacy of its technology involves expert evidence of a highly specialised nature. It was not in question that if Hotrox had, and has, technology which would enable it to produce briquettes of the nature claimed, that technology is commercially a very valuable trade secret.
For the purposes of the arbitration proceedings, Gebauer has retained Dr Franklin as an independent expert. Dr Franklin is the principal of a consultancy firm, R & A Consultants, and is a highly qualified chemist. Dr Franklin has in the past undertaken a significant amount of work in connection with the manufacture of briquettes, both on his own account and as a consultant to a number of clients. Among other things, in 1991, Dr Franklin made a patent application in relation to technology concerned with the production of briquettes. The application appears to have lapsed in July 1993. It seems that Dr Franklin is not currently undertaking any work for clients involved in the manufacture of briquettes.
Hotrox objects to Dr Franklin having access to the Hotrox production facilities at the premises or any confidential information relating to its technology, including any information in any answers to interrogatories provided by Hotrox. Hotrox says that Dr Franklin is a trade rival or a potential trade rival of Hotrox, or may in the future be a consultant to a trade rival or a potential trade rival of Hotrox, and if he were to inspect the premises or to have access to the confidential information, that would put at real risk the confidentiality of the process.
Gebauer contends that it would be seriously prejudiced if it was not able to utilise the services of Dr Franklin. Subject to some very recent developments, to which we will come shortly, it has maintained that Dr Franklin is the only person with the relevant expertise it has been able to retain to assist it in what is a highly specialised field. Gebauer says that Dr Franklin is not currently, and has not for some time been, engaged in any commercial activity or consultancy work relating to the production of briquettes and he would enter into a confidentiality agreement before he had access to any confidential information. In the circumstances, there was therefore no risk that the confidentiality of the information would not be maintained if Dr Franklin had access to it. Gebauer also says it has already paid substantial fees to Dr Franklin and that money would be lost if he were unable to continue as its expert.
On 26 March 2002, Master Sanderson made orders which permitted Dr Franklin to inspect Hotrox's plant and equipment at the premises and to have access to information regarding the technology: Gebauer Nominees Pty Ltd vHotrox Charcoal Company [2002] WASC 55. Master Sanderson concluded that as Dr Franklin would be required to enter into a confidentiality agreement, and in the light of the nature of his current work as a consultant, the risk that the confidential information would not remain confidential if Dr Franklin were permitted access to it was 'slight'.
An appeal against that decision was allowed by the Full Court: Hotrox Charcoal Company v Gebauer Nominees Pty Ltd [2002] WASCA 293.
The Full Court concluded that the risk should have been assessed as significantly more substantial than slight. It noted that, on the evidence, Dr Franklin had been interested for some time from a professional point of view in the process of manufacturing briquettes without a binder. Although the project in which he was involved when the application for the provisional patent was lodged came to nothing, the Full Court observed that Dr Franklin would be less than human if he did not wish to take advantage of an opportunity to inspect a process which might show him a way of doing something that he was unable to do. Because of his professional interest, Dr Franklin would be most unlikely ever to forget or put aside what he learnt. It would remain forever as part of his professional know‑how.
The Full Court made it clear that there was no attribution of any dishonest motive or intention to Dr Franklin. But he was now a professional consultant in the field and it could well be imagined that in the future Dr Franklin may be asked about the possibility of doing something along the lines which Hotrox claimed to be able to do. He would then be put in a quandary as to whether directly or indirectly to make use of that information in advising his client.
There would also be a danger that he may subconsciously disclose something learnt on the inspection which he was obliged to keep confidential. The Full Court considered that unless in the future Dr Franklin declined to advise any client interested in pursuing a process similar to Hotrox's, there would be a danger that he would, however unwittingly, make a disclosure which would imperil the confidentiality which he had agreed to preserve.
For those reasons, the Full Court considered that Master Sanderson's conclusion that the risk of disclosure was 'slight' was a clear error and was a miscarriage of the exercise of the discretion.
In turning to the appropriate orders on the appeal, the Full Court said:
A desirable outcome in this case is to refuse an order permitting Dr Franklin to inspect the premises and to see the answers to interrogatories, and requiring Hotrox to substitute for him another expert. But, as the evidence stands at the moment, one would be reluctant to take such a course because, it may be, after all, that Hotrox is right and that the number of experts in this area in this country is very limited. Furthermore, the respondent says that it has retained Dr Franklin and already incurred a not insubstantial amount for fees payable to him. But I think that this aspect of the argument is answered by the fact that, from the very beginning, Hotrox made strong objection to Dr Franklin being the respondent's expert. I would, therefore, be inclined to discount that matter.
In the end, what has to be done as best one can, is justice, in all the circumstances, as between these parties. If the desirable outcome of the obtaining of a new and different expert from Dr Franklin cannot be achieved, justice may demand that he be allowed to make the inspection on Hotrox's behalf. But that, I think, is a course which should be avoided if possible. The only way to find out whether or not it is possible to avoid it is to have more detailed evidence called on the qualifications and experience of others who may be able to do what Hotrox requires sufficiently well to ensure that there is no injustice in Dr Franklin not being able to inspect the premises. At the moment, the evidence does not permit one to say with any confidence whether there are other, and independent, experts who would be able to perform the task … Regrettably, I think there has to be a further hearing of the matter so that this area can be explored properly [55] ‑ [56].
The matter was remitted by the Full Court to the master to be heard and determined again. In fact, for reasons that do not appear from the material before us, the matter was heard by Simmonds J over two days on 3 ‑ 4 April 2006. His Honour delivered judgment on 4 August 2006, in effect, refusing to allow Dr Franklin to inspect the production facilities or to have access to the confidential information: Gebauer Nominees Pty Ltd v Hotrox Charcoal Co [2006] WASC 155.
The learned primary judge concluded, as had the Full Court before him, that in the light of Dr Franklin's previous involvement in the study of possible processes for the production of briquettes, there was a genuine and reasonable basis for Hotrox's concern as to whether the confidentiality of the process would be maintained if Dr Franklin were permitted to inspect it. Once again, we should say that in making that finding the learned primary judge made it clear that it involved no attribution of any dishonest motive or intention to Dr Franklin.
Whilst the learned primary judge was satisfied, on the basis of further evidence, that the patent lodged by Dr Franklin in 1993 had not been (as the Full Court understood it had been) for a binderless briquette, his Honour nevertheless concluded that the patent was relevant as it demonstrated Dr Franklin's personal involvement in a practical project which had proceeded on the basis that it was necessary to use binders to achieve results of the sort that Hotrox claimed to be able to achieve without using binders.
In addition, the learned primary judge found that Dr Franklin had subsequently been involved in work to which the technology that Hotrox claimed to have was relevant. Indeed, his Honour observed that Dr Franklin had said in evidence that, in the technology in the area, the binderless briquette was the 'Holy Grail'.
His Honour also found that there was at least one other person with expertise in the field equivalent to that of Dr Franklin, namely Professor Zhang, Professor of Chemical Engineering at Curtin University. Gebauer did not seek to contend that Professor Zhang's expertise or independence was any less than Dr Franklin's. Hotrox, whose solicitors had apparently first learned of Professor Zhang's expertise in the field some time after the decision of the Full Court was delivered, did not (and do not) object to Professor Zhang having access to the confidential information.
The learned primary judge concluded that in light of the availability of Professor Zhang to provide Gebauer with expert advice, there would be no injustice to Gebauer if Dr Franklin was not given access to the confidential material. His Honour also found that whilst the rates that Professor Zhang was proposing to charge for his services were higher than Dr Franklin's, having regard to the importance of the issues that did not make it unjust that Gebauer retain Professor Zhang.
The learned primary judge ordered, so far as relevant, that Dr Franklin be disqualified from undertaking the inspection and from having access to any confidential information concerning Hotrox's technology for the manufacture of briquettes.
His Honour made it clear, however, that Gebauer was under no obligation to retain Professor Zhang, but the fact that an expert such as Professor Zhang had been located indicated that there might be other experts available, particularly in universities. His Honour left it open to Gebauer to renew its application for Dr Franklin to undertake the inspection and have access to the confidential information if difficulties arose in obtaining the necessary expert advice from Professor Zhang or some other expert.
It turns out that some time after the decision of the learned primary judge, Gebauer's solicitors retained Professor Zhang to provide a report on the Hotrox technology. It seems that, although there has been some delay on Professor Zhang's part due to the pressure of other work, he expects to be in a position to deliver his report to Gebauer early in 2008.
The issues on the appeal
Gebauer contends that in declining to permit Dr Franklin to participate in the inspection and have access to the confidential information, the learned primary judge erred in the exercise of his discretion in two respects. First, the learned primary judge based his decision on the subjective concerns of one of the principals of Hotrox, Mr Cole, of the risk of a breach of confidentiality, rather than an objective assessment of such risk; and, secondly, the learned primary judge failed to take into account that there was no reasonable basis upon which to distinguish the risk of a breach of confidentiality as between Dr Franklin and Professor Zhang.
The disposition of the application for leave to appeal
The current appeal, if leave were granted, would be from a discretionary judgment involving a matter of practice and procedure. The obstacles facing Gebauer are therefore substantial.
The relevant principles to be applied on an appeal of this nature were set out by the Full Court in the earlier judgment to which we have referred: Gebauer Nominees Pty Ltd v Hotrox Charcoal Co [6] ‑ [9]. For convenience, we will restate them briefly.
It is well established that a discretionary judgment is not to be disturbed on appeal unless it is shown that the exercise of the discretion involved has miscarried. There is a strong presumption in favour of the correctness of the decision appealed from. A degree of satisfaction sufficient to overcome the strength of the presumption may exist where there has been an error which consists in acting upon a wrong principle, or taking into account extraneous or irrelevant matters or failing to take into account relevant considerations, or making a mistake as to the facts; or where, while the nature of the error may not be discoverable, the result may be so unreasonable or plainly unjust that the appellate court may infer there has been a failure properly to exercise the discretion: House v The King (1936) 55 CLR 499, 504, 505, Australian Coal and Shale Employees' Federation v The Commonwealth (1953) 94 CLR 621, 627.
In addition, there is a material difference between an exercise of discretion on a point of practice or procedure and an exercise of discretion which determined substantive rights. Where an appeal involves a question of practice and procedure, an appellate court must exercise particular caution in reviewing the decision. Not only must there be an error of principle, but the decision appealed from must work a substantial injustice to one of the parties: Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc (1981) 148 CLR 170, 177.
That is because if a tight rein is not kept on interference with the orders of judges at first instance, the result will be disastrous to the proper administration of justice. The disposal of cases could be delayed indefinitely and costs heaped up indefinitely if a litigant with a long purse or litigious disposition could, in effect, transfer all exercises of discretion in interlocutory applications from a judge in chambers to a court of appeal: Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc (177).
In light of the history of this matter, the warning of the dangers involved if a tight rein is not kept on such appeals has particular resonance. It is not something which is alleviated by the proposed grounds of appeal, neither of which, in our view, has any substance.
Having regard to his Honour's reasons for decision, we are quite unable to understand how it could be contended that the learned primary judge based his decision on the subjective concerns of Mr Cole of the risk of a breach of confidentiality. In fact, the learned primary judge specifically rejected a submission on behalf of Hotrox that it was sufficient that Mr Cole's concerns were 'real' and that it was not necessary to find there was a reasonable basis for them.
The learned primary judge expressly found that there were genuine and reasonable grounds for Hotrox's concern that the confidentiality of the technology would not be maintained if Dr Franklin were permitted access to it of the nature sought by Gebauer. His Honour did so for similar reasons to those of the Full Court. His Honour considered that the history of Dr Franklin's involvement and professional interest in the study of viable processes for the production of briquettes, of which the patent application was a part, and the fact that Dr Franklin was apparently one of the very few professional consultants in the area, provided a genuine and reasonable basis for Mr Cole's concern that Dr Franklin could not be relied upon to maintain the confidentiality of what he would learn if Gebauer's application were granted.
That finding, in our view, was clearly open to the learned primary judge on the evidence.
His Honour also found that there was available to Gebauer at least one other expert in Professor Zhang, to whom no objection was taken by Hotrox. The learned primary judge concluded that the expertise and independence of Professor Zhang was not less than that of Dr Franklin. It appears that counsel for Gebauer did not contend otherwise before the learned primary judge and he did not do so before us. The learned primary judge also concluded that Professor Zhang's charges, although higher than Dr Franklin's, were, in the circumstances, reasonable. Once again, counsel for Gebauer did not take issue with that.
The learned primary judge expressly left it open to Gebauer to renew its application to allow Dr Franklin access to the confidential information if difficulties occurred in obtaining expert advice from Professor Zhang or some other expert. It was not suggested that Gebauer has sought to avail itself of that course or that there are grounds upon which it would be entitled to do so. (In light of the history of this matter, we should perhaps say, lest it be thought that Gebauer is being encouraged to take that course, that it is not a course to be followed unless good and substantive grounds exist for doing so.)
In our view, there is nothing to suggest any error by the learned primary judge in the exercise of his discretion. In any event, having regard to the availability of (at least) Professor Zhang as an independent expert, and the liberty reserved to Gebauer to renew its original application if there turn out to be substantial problems in obtaining the services of a satisfactory expert other than Dr Franklin, there is no basis upon which it might be concluded that the orders of the learned primary judge would cause substantial injustice to Gebauer.
It was for those reasons that we dismissed the application for leave to appeal.
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