Gebauer Nominees Pty Ltd v Hotrox Charcoal Co
[2006] WASC 155
GEBAUER NOMINEES PTY LTD -v- HOTROX CHARCOAL CO [2006] WASC 155
| Link to Appeal : | [2008] WASCA 38 |
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2006] WASC 155 | |
| Case No: | ARB:26/2001 | 3 & 4 APRIL 2006 | |
| Coram: | SIMMONDS J | 4/08/06 | |
| 49 | Judgment Part: | 1 of 1 | |
| Result: | Application granted in part | ||
| B | |||
| PDF Version |
| Parties: | GEBAUER NOMINEES PTY LTD (ACN 008 776 707) HOTROX CHARCOAL CO |
Catchwords: | Commercial arbitration Interrogatories Inspection of property Analysis by expert Whether there is a genuine basis for concern about confidentiality of commercial process Whether other competent experts available |
Legislation: | Commercial Arbitration Act 1985 (WA), s 47 Rules of the Supreme Court 1971 (WA), O 27, O 28 r 2, O 52 r 2, O 81D r 6 |
Case References: | Apache Northwest Pty Ltd v Western Power Corporation (1998) 19 WAR 350 Gebauer Nominees Pty Ltd v Cole as Trustee for the Hotrox Charcoal Unit Trust t/as Hotrox Charcoal Company [2006] WASC 57 Gebauer Nominees Pty Ltd v Hotrox Charcoal Company [2002] WASC 55 Hotrox Charcoal Company v Gebauer Nominees Pty Ltd [2002] WASCA 293 Mobil Oil Australia v Guina Developments Pty Ltd [1996] 2 VR 34 Nauru Phosphate Royalties Trust v Matthew Hall Mechanical & Electrical Engineers Pty Ltd [1994] 2 VR 386 Santos Ltd v Pipelines Authority of South Australia (No 2) (1996) 186 LSJS 257 Decor Corporation Pty Ltd v Australian Housewares Pty Ltd [1988] FCA 1479 Mackay Sugar Co-operative Association Ltd v CSR Ltd (1996) 137 ALR 183 Magellan Petroleum Australia Ltd v Sagasco Amadeus Pty Ltd (1993) 25 IPR 455 Sky Channel Pty Ltd v Austar Entertainment Pty Ltd [2005] NSWSC 853 Warner-Lambert Co v Glaxo Laboratories Ltd [1975] RPC 354 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- Applicant
AND
HOTROX CHARCOAL CO
Respondent
Catchwords:
Commercial arbitration - Interrogatories - Inspection of property - Analysis by expert - Whether there is a genuine basis for concern about confidentiality of commercial process - Whether other competent experts available
Legislation:
Commercial Arbitration Act 1985 (WA), s 47
Rules of the Supreme Court 1971 (WA), O 27, O 28 r 2, O 52 r 2, O 81D r 6
Result:
Application granted in part
(Page 2)
Category: B
Representation:
Counsel:
Applicant : Mr J G Staude & Mr M J Vallve
Respondent : Mr D Vilensky & Mr M H Solomon
Solicitors:
Applicant : Mullins Handcock
Respondent : Bowen Buchbinder Vilensky
Case(s) referred to in judgment(s):
Apache Northwest Pty Ltd v Western Power Corporation (1998) 19 WAR 350
Gebauer Nominees Pty Ltd v Cole as Trustee for the Hotrox Charcoal Unit Trust t/as Hotrox Charcoal Company [2006] WASC 57
Gebauer Nominees Pty Ltd v Hotrox Charcoal Company [2002] WASC 55
Hotrox Charcoal Company v Gebauer Nominees Pty Ltd [2002] WASCA 293
Mobil Oil Australia v Guina Developments Pty Ltd [1996] 2 VR 34
Nauru Phosphate Royalties Trust v Matthew Hall Mechanical & Electrical Engineers Pty Ltd [1994] 2 VR 386
Santos Ltd v Pipelines Authority of South Australia (No 2) (1996) 186 LSJS 257
Case(s) also cited:
Decor Corporation Pty Ltd v Australian Housewares Pty Ltd [1988] FCA 1479
Mackay Sugar Co-operative Association Ltd v CSR Ltd (1996) 137 ALR 183
Magellan Petroleum Australia Ltd v Sagasco Amadeus Pty Ltd (1993) 25 IPR 455
Sky Channel Pty Ltd v Austar Entertainment Pty Ltd [2005] NSWSC 853
Warner-Lambert Co v Glaxo Laboratories Ltd [1975] RPC 354
(Page 3)
- SIMMONDS J:
Introduction
1 This is an application for orders for inspection of property, delivery of samples and administration of interrogatories. Those orders are sought under O 81D r 6 for the purposes of an arbitration under the Commercial Arbitration Act 1985 (WA). The arbitration concerns the respondent's claim for loss arising out of water damage in premises the respondent leased from the applicant for the purposes of the manufacture of wood logs and charcoal briquettes out of jarrah sawdust.
2 On 1 May 2000, the arbitrator made an interim decision that the applicant is liable to the respondent, leaving the remaining questions in the arbitration of the extent of abatement of rent and/or damages. The respondent claims to have lost over $8 million. The largest part of that loss is said to be as a result of not being able to produce or sell briquettes under a contract for supply of them for use in Korea in barbeque restaurants. The orders sought go to the proof of the matter on which that part of the claim rests: whether or not the respondent could have produced the quantities of briquettes of the specification required in the contract. This application was first before this Court for determination in March 2002, when orders were made, broadly in the terms sought. An appeal against this decision was allowed in October 2002. The application is back before this Court, some three and a half years later.
3 The application raises questions of the making of orders of the sort applied for, where concerns have been expressed by the person against whom the orders are sought that compliance with them would involve disclosure of trade secrets to the particular expert retained for the purpose by the person seeking the orders.
4 I begin by setting out the application and its background in rather more detail. This is to permit me to consider the principles that should govern the application. I then consider the evidence on which the application is to be determined.
5 However, I should first note the decision of his Honour Hasluck J in Gebauer Nominees Pty Ltd v Cole as Trustee for the Hotrox Charcoal Unit Trust t/as Hotrox Charcoal Company [2006] WASC 57 (hereafter "Cole"). On the first day of the hearing before me, a copy of this decision was provided to me by counsel for the applicant, and I have found it a useful account of the issues in the underlying arbitration. Hasluck J concluded that a decision of the arbitrator in the underlying arbitration,
(Page 4)
- subsequent to the interim decision as to liability to which I previously referred, that the description of the respondent should be changed from that in the style of the proceedings before me to that as the title of Hasluck J's decision indicates, was made in error. His Honour ordered that the matter of making a change in that description should be remitted to the arbitrator for reconsideration.
6 Counsel for the applicant said to me that the decision in Cole (supra), should not affect the proceedings before me, and no different position was taken by counsel for the respondent. I will therefore continue to use the descriptions of the parties in the papers for these proceedings, and (as will be seen) in the decisions of Master Sanderson and the Full Court on the application now back for a hearing in the Court.
The application and its background
7 The application is brought under Commercial Arbitration Act 1985 (WA), s 47, which provides:
"The Court shall have the same power of making interlocutory orders for the purposes of and in relation to arbitration proceedings as it has for the purposes of and in relation to proceedings in the Court."
8 The relevant provisions of the Rules for the purposes of this application appear to be O 27, on the administration of interrogatories, and O 28 r 2, on the inspection of property. I note also O 52 r 2, which is narrower in scope than O 28 r 2: Seaman, Civil Procedure in Western Australia, [28.2.1]. There appears to be no dispute between the parties that I have the jurisdiction in this case to make orders of the sort applied for. The fundamental question before me is whether I should make the orders in the terms sought, or in other terms (and, if so, what those terms should be).
9 A useful statement of the orders sought in this application, and of further background, is in the first part of the applicant's written outline of submissions. The respondent's written outline of submissions indicates the respondent takes no issue with that part. Omitting the first paragraph of the applicant's outline, as to the respondent's claim of loss, which I have previously rehearsed, and with minor editorial changes, the relevant portions of the outline are:
(Page 5)
- "Although the respondent has never actually commercially manufactured any charcoal briquettes, it claims it has a secret process by which such large profits would have been made.
The orders sought by the applicant by originating summons are as follows:
(a) A representative of the applicant, its solicitors and Dr R Franklin be permitted to inspect units 4, 5 and 6 Ladner Street O'Connor [the premises the applicant had leased to the respondent] and the production facility situated therein at a date and time to be fixed.
(b) The respondent deliver up to the applicant's solicitors within 7 days of the date of this order sufficient quantity of samples of:
(i) Woodlogs
(ii) Charcoal;
(iii) Charcoal briquettes,
manufactured by the respondent with the production facility situate at Ladner Street aforesaid.
(a) The applicant have leave to serve notice requiring the respondent to answer interrogatories set out in the schedule attached hereto.
(b) Such further orders as this honourable Court shall see fit.
(c) The respondent pay the applicant's costs of this application to be taxed.
The application was originally heard by Master Sanderson on 11 March 2002 and a decision was delivered on 26 March 2002: Gebauer Nominees Pty Ltd v Hotrox Charcoal Company [2002] WASC 55 [in my reasons, as well as the submissions, referred to as Gebauer].
In Gebauer the Master at [8] noted that, prior to the hearing, the respondent had indicated that it would consent to an order in terms of the of the second paragraph of the originating summons and an order in terms of the first paragraph, provided
(Page 6)
- that the person to inspect the respondent's premises was not Dr Franklin. The respondent said it would agree to inspection by another suitably qualified expert nominated by the applicant.
The Master granted leave to the applicant to administer interrogatories and found that, without the respondent providing detail as to how the briquettes were to be manufactured, there was no way in which the applicant could investigate the manufacturing process. The Master found that the applicant ought to have the opportunity to obtain the opinion of an expert as to whether or not the respondent would have been able to manufacture briquettes in the quantities and of the quality required to prove its claim.
The Master ordered that Dr Franklin be permitted to access the respondent’s premises and be entitled to see the answers to interrogatories on the basis that he was not a trade rival of the respondent and there was no evidence that he would become a trade rival in the future.
The Full Court granted leave to appeal from the Master's decision and allowed the appeal: Hotrox Charcoal Company v Gebauer Nominees Pty Ltd [2002] WASCA 293. Sheppard AUJ, with whom Steytler and Miller JJ agreed, said at [55], [56]:
'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 [sic the applicant] 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 [sic the applicant] is right and that the number of experts in this area in this country is very limited. …
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 [sic the applicant'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 [sic the applicant] 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. All that there really is in the evidence are assertions, the respondent asserting that there are such experts and Hotrox asserting that there are not. Regrettably, I think there has to be a further hearing of the matter so that this area can be explored properly. It was not explored to any extent at the hearing before the Master. That is not due to any neglect or omission on the part of the Master; it is due to the failure of the parties sufficiently to lead evidence and to cross-examine witnesses in order to aid the process that was being undertaken. The way the case was conducted was not in the Master's hands, but in those of the parties. They chose to slide over this issue and therein lies the problem.'"
10 It is necessary to make some additional references to the judgment of Sheppard AUJ in the Full Court in Hotrox Charcoal Company v Gebauer Nominees Pty Ltd [2002] WASCA 293 ("Hotrox"). This is for two purposes. The first is to explain why his Honour considered the "desirable outcome" of the appeal was as he indicated above. The second is to indicate that there were some further matters to which the Full Court referred. These additional references are necessary in part because of a preliminary matter raised by counsel for the respondent, as to the scope of the hearing before me. Counsel contended that the hearing was for a limited purpose only.
The scope of the hearing before me
11 As will become apparent from the quotations below from Hotrox, the reason given by the Full Court for the "desirable outcome" and its alternative referred to was the position of Dr Franklin and the concern of Hotrox about that position. The Court makes reference to Mr Cole, who as will be apparent from Cole is currently the trustee of the Hotrox Charcoal Unit Trust trading as the Hotrox Charcoal Company. Mr Cole is also the person who developed the technology or process for the production of wood logs and charcoal briquettes that was to be carried on at the premises leased from the applicant. Mr Cole had previously developed other technologies or processes for forming briquettes, as will
(Page 8)
- become apparent when I consider his evidence below. Mr Cole was (with another person) the trustee of the Trust at the time premises were leased so as to enable Hotrox to fill its Korean contract.
12 As to the technology that Mr Cole believed he had developed, and was concerned to protect, Sheppard AUJ (Hotrox at [18]) quoted from the decision of Master Sanderson in Gebauer Nominees Pty Ltd v Hotrox Charcoal Company [2002] WASC 55 ("Gebauer"):
"In the two paragraphs of his affidavit quoted by the Master, Mr Cole said:
'6. I state and verily believe I am the sole author of world unique technology which provides for the successful briquetting of sawdust wood briquettes and charcoal briquettes without the use of a synthetic binder or synthetic ignition aids so as to produce a product which has physical and chemical qualities which are acceptable to both the production of charcoal of suitable physical strength for use in the silicone industry, and the production of charcoal barbecue briquettes suitable for the domestic market.
33. ... The nature of the trade secrets is such that because the confidential information in the samples cannot be extracted through scientific analysis, the "recipes" of how the sawdust is first processed into wood logs and how the charcoal is then manufactured remains secret even though the end products can be analysed and their physical and chemical composition can be revealed. The secret method in which the physical and chemical compositions are reached makes up the secret recipes. It is these recipes which form part of the trade secrets and unique technology that I submit must be protected.'"
"The Master went on to deal with Dr Franklin's background and qualifications. He is the principal of a firm, R & A Consultants. Dr Franklin is a highly qualified chemist. He formed R & A Consultants in 1988 to exploit opportunities to provide consultancy services for a company engaged in the manufacture of firelighters for domestic barbecues. He gave an account of
(Page 9)
- work subsequently undertaken by R & A Consultants in relation to charcoal briquettes. The Master said that there was no doubt that he had undertaken a significant amount of work in the area for a diverse range of clients. It would appear that, at present (that is at the time the Master dealt with the matter), he was not undertaking any work for clients involved in the manufacture of briquettes and had not done so since 1993. Dr Franklin made the point, so the Master said, that R & A Consultants must, if it is to maintain its business, be able to assure clients of confidentiality. He made the point that such assurances were central to the consultancy business. The Master added, 'Quite clearly that is the case'.
Mr Cole's objection to Dr Franklin is set out in his affidavit of 1 February 2002. The Master quoted part of this paragraph in his judgment. It was in the following terms:
'... I strenuously object to Dr Franklin having access to the factory on the basis that R & A Consultants and Dr Franklin personally have or have had, a relationship with Auschar, Simcoa, Iluka, Nufarm, Foremost Firelighters and Western Mining which relationships are admitted by Dr Franklin in paragraphs 13, 14, 15, 16, 17 and 18 respectively of Dr Franklin's affidavit. These relationships related to Dr Franklin's unsuccessful attempts to produce charcoal briquettes and products without the use of synthetic or chemical binders for commercial exploitation. I admit that I have engaged in litigation with Auschar in the past in relation to trademarks but do not believe this prejudices Dr Franklin from being an expert. My concern involves the possibility that Dr Franklin may disseminate deliberately or inadvertently confidential information to Auschar which was originally approached to also be engaged as a technical consultant for the Respondent to work in conjunction with Dr Franklin, similarly to Dr Franklin and Auschar having previously worked together in their joint failed attempts to duplicate or copy other technologies I have previously developed.'
Annexed to Mr Cole's affidavit is a patent application made by Dr Franklin in relation to charcoal briquettes. The application appears to have been made in 1991. It lapsed in July 1993. The Master said that the patent was directed at producing a briquette
(Page 10)
- of suitable hardness without the use of binding agents. It was submitted on behalf of Hotrox that the fact of this patent application showed that Dr Franklin had in mind commercial production of charcoal briquettes. It was further submitted to the Master that even if Dr Franklin was not presently a trade rival of Hotrox, if its manufacturing techniques were disclosed to him, there was a prospect that at some stage in the future, he might either personally or in conjunction with others, become a trade rival of Hotrox.
The Master said that counsel had failed to find any case which was directly in point. In support of its submissions, Hotrox relied on those cases where discovery of commercially sensitive documents was sought from a trade rival. Reference was made to the decision of Hayne JA (then a member of the Victorian Court of Appeal) in Mobil Oil Australia Ltd & McDonalds Australia Ltd v Guina Developments Pty Ltd [1996] 2 VR 34 (at 38); (1995) 33 IPR 82 where Hayne JA said (at 87):
'Once the documents are inspected by the principals of the trade rivals the information which is revealed is known to the trade rival and cannot be forgotten. Confidentiality is destroyed once and for all (at least so far as the particular trade rival is concerned). To say that the trade rival is bound not to use the documents except for the purposes of the action concerned is, in a case such as this, to impose upon that trade rival an obligation that is impossible of performance by him and impossible of enforcement by the party whose secrets have been revealed.'
The Master said that Dr Franklin was not 'presently' a trade rival of Hotrox and there was no evidence that he would become a rival in the future. He had said as much in his affidavit. The Master said that there was no basis on which he could doubt his evidence. I interpose to say in that respect that there was no cross-examination of any of the witnesses, so it would have been impossible for the Master not to accept at face value, the evidence which appears in each of the relevant affidavits which were relied upon. I realise that courts discourage or even refuse to allow cross-examination in interlocutory applications. But, sometimes, at least limited cross-examination is necessary adequately to deal with a matter. This would appear to be such a case.
(Page 11)
- The Master said that Hotrox had submitted that even if Dr Franklin was not himself a trade rival, there was a prospect that at some stage in the future, he might be engaged by a company which was a trade rival of Hotrox. If he were then asked to advise in relation to charcoal briquettes, he would bring to bear on his assignment information that he had learned from Hotrox. The Master said, 'As Hayne JA says, the information learned cannot be forgotten. In those circumstances there is a potential for a trade rival to obtain information via Dr Franklin which might undermine Hotrox's business'. He continued:
'I would accept that there is some slight risk of that occurring. However, Dr Franklin has given undertakings as to confidentiality and there is nothing to suggest that those undertakings will not be honoured. Furthermore, Dr Franklin, through his consultancy business, often acts for different companies who may be competitors. That is apparent from his evidence. He must therefore be accustomed to protecting the confidentiality of a client's information. This situation is really no different.
In all the circumstances I am satisfied that Dr Franklin should be permitted access to the respondent's premises and should be entitled to see the answers to interrogatories. As I have indicated above, I would be prepared to make orders which preserve the confidentiality of any information disclosed by the respondents. I will provide the parties with the opportunity to address on this question and in relation to costs.'
…
The initial question to be determined is whether the Master's discretion miscarried and, if so, whether the matter being one dealing with practice and procedure, leave to appeal should be granted. A critical sentence in one of the Master's decisive paragraphs is that in which he says that there is a 'slight risk' of the information not being kept confidential. That was his assessment as to the extent of the risk and, because of his judgment in that regard, he was led to the conclusion that he should make the orders for inspection and the answers to interrogatories which he did.
(Page 12)
- In the light of the whole facts and circumstances of the case, I am of the opinion that the risk ought to have been assessed as significantly more substantial than slight. I think the evaluation of it as a slight risk did not give enough weight to the very real concerns of Hotrox. After all, Dr Franklin himself had, some 10 years ago, been one of the applicants for a patent in relation to an invention, in the very area of the process which Hotrox claims to undertake. I realise that 10 years is a lengthy period and that Dr Franklin's interests and activities may have changed. But he is, from a professional point of view, interested in the process - I do not mean financially - and he claims to be one of only two people in Australia who have sufficient expertise in the field to give evidence of the kind that is required of him in this case. Although the project upon which he embarked when the application for the provisional patent was lodged came to nothing, he 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 which he was unable to do.
Of course, it may be that what will be demonstrated by any inspection which he has, is that Hotrox's process was no more successful than his own. That, indeed, is the reason why his evidence is required by the respondent. But, in an area such as this, it is difficult to escape the compelling statement made in the dictum of Hayne JA in the Mobil case earlier cited. Because of his professional interest, Dr Franklin would be most unlikely ever to forget, or put aside, what he learns on the inspection. It will stay forever as part of his professional know-how.
I recognise that Dr Franklin is not a trade rival of Hotrox. That distinguishes this case from the Mobil case. But each case must be dealt with on its own facts and circumstances. The fact that Dr Franklin was at one time an applicant for a patent in this very area is something which has to be given very substantial weight. That is what gives Mr Cole the very genuine concern which the evidence establishes that he has. A further factor is that the correspondence annexed to Mr Huston's affidavit establishes that, at one stage, it was proposed by the respondent that, not only Dr Franklin, but also Mr Pekin, should be allowed to inspect the Hotrox factory. Mr Pekin was the other applicant for the patent which has been referred to. The suggestion that Mr Pekin, as well as Dr Franklin, be allowed to inspect the premises would not have been likely to have increased
(Page 13)
- Mr Cole's or Hotrox's confidence in the value of Dr Franklin's assurances that matters would be kept confidential. The fact that the suggestion that Mr Pekin inspect the premises along with Dr Franklin was eventually withdrawn, does not overcome the problem.
Nothing that I have said is intended to attribute any dishonest motive or intention to Dr Franklin. What has been said simply states the reality of the matter. I accept that Dr Franklin is now mainly engaged as a consultant and that he is not presently intending to embark upon any enterprise which would involve him in manufacturing charcoal by this or any other method. He is a professional adviser in this field and he appears to be retained by a number of large undertakings in the industry. But one can well imagine a situation in the future - and this was postulated in argument - in which Dr Franklin is asked about the possibility of doing something along the lines which Hotrox claims to do and, having gained the information he would gain on the inspection which he desires to carry out, would be in quandary as to whether, directly or indirectly, to make use of that information in advising his client. And there would be the danger that he may subconsciously disclose something which was covered by his agreement to keep matters learnt on the inspection confidential. It would seem to me that unless he declined to advise any client interested in pursuing a process similar to that of the respondent, there would always be the danger that he would, however unwittingly, make a disclosure which would imperil the confidentiality which he has agreed to preserve."
14 I should note that the matter of the patent was referred to by Master Sanderson in Gebauer, as Sheppard AUJ in the Full Court in Hotrox indicates, as follows (at [20]):
"The patent was directed at producing a briquette of suitable hardness without the use of binding agents."
15 As I will indicate below, at the hearing before me, a somewhat different picture of that patent emerged.
16 The further matters to which Sheppard AUJ in the Full Court referred were two.
(Page 14)
17 The first matter (Hotrox, per Sheppard AUJ, at [57]) was the possibility that a "competent expert" could take finished charcoal briquettes produced by the respondent's process and "say whether it meets the specifications provided for in the Korean contract". This might show that the briquettes did not do so, and, if that were the case, "Hotrox's case would fail", without, it would seem, having to determine whether the Hotrox plant could indeed manufacture the quantities of product with the specifications required under the contract.
18 The second matter (Hotrox, per Sheppard AUJ, at [58]) related to a firm of consulting engineers which had prepared a report on the respondent's product and the respondent’s capacity to produce it in sufficient quantities for the Korean contract for the purposes of a federal government agency from which the respondent had sought assistance. His Honour raised the question whether or not a suitable engineer from that firm could be asked to help, "perhaps by making further inspections and considering the matter in more detail". Indeed the firm's report itself might be of greater assistance than the parties had theretofore concluded it might be.
19 Counsel for the respondent put it to me that I should not take all of these references to be an indication that the hearing before me was one "de novo", in which there could be a return to all of the matters before the learned Master, aided perhaps by a consideration of those further matters. The hearing before me was, on counsel's submission, rather to be seen as one which, as a result of the Full Court's decision, should be focussed on the "sole issue" of whether "more detailed evidence exists on the qualifications and experience of others" who may do what the applicant requires Dr Franklin to do "sufficiently well to ensure that there is no injustice in Dr Franklin not being able to inspect the premises" (Hotrox, per Sheppard AUJ, at [56]) and "without injustice to Hotrox" (at [59]).
20 Counsel for the applicant submitted to me that the hearing was indeed one de novo, although it appears on the applicant's view to be one in which I should take it that I had at least the evidence before the Master, as well as such further evidence as the parties chose to put before me, whether in the form of new affidavits or cross-examination and re-examination on any of the affidavit evidence, or both sorts of evidence. Further, in that hearing, I should approach all of the evidence before me by reference to the guiding principles the Full Court referred to, principles I will shortly reach.
21 I agree. I note order 3 of the Full Court:
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- "The matter be remitted to the Master to be heard and determined again on such further evidence as each of the parties may decide to lead."
22 There is no qualification of that order as to the issues the parties may raise.
23 It seems to me that the Full Court has indicated what, on the evidence before the Master, as the Master understood it, was the nature of the Master's error, and what further evidence should address. It does not seem to me, however, that the Full Court was restricting the evidence that might be introduced on such matters. In particular the Full Court has, it seems to me, allowed for the possibility of cross-examination of deponents, including on the contents of previously lodged affidavits, without restriction. It seems to me this would necessarily allow for the possibility that evidence would emerge that would qualify the understandings on which Master Sanderson's decision proceeded, including those which the Full Court did not indicate were in error. It does not seem to me that, in respect of the Master's findings which the Full Court did not indicate were in error, the Court was doing otherwise than indicating what findings would be appropriate if that evidence so understood were all that was before the decision-maker.
The principles governing the determination of this application
24 I consider the principal authority for my purposes to be Mobil Oil Australia v Guina Developments Pty Ltd [1996] 2 VR 34,which, as I have indicated, was referred to and distinguished by Master Sanderson in Gebauer (at [21] - [23]), and which was also referred to and heavily relied upon by Sheppard AUJ in Hotrox (at [25] and [50], [51]).
25 Mobil (supra) was an appeal from an order of a Judge of the Practice Court of the Supreme Court of Victoria for inspection of certain documents prepared for the purposes of the determination of the preferred developer of a service centre in connection with the Western Ring Road in Melbourne.
26 The litigation was by an unsuccessful tenderer, against the authority which made the determination. Inspection was resisted on the basis that the documents contained information that would enable a trade rival of the successful tenderers to gain information about the level of financial return (called the "hurdle rate") below which the successful tenderers or at least one of them would not tender for such a project in the future. One of the documents was the financial proposal of the successful tenderers, Mobil
(Page 16)
- and McDonald's. The other two documents were documents of the authority said to be derived from the tenderers' document.
27 The Practice Court order for inspection was on terms that the principal of the applicant give an undertaking not to disclose or discuss the contents of the documents to or with any person, other than the applicant's legal advisers and accounting experts, without the consent of the defendant to the litigation or the leave of the court. The appeal was by the intervening parties, the successful tenderers; there was also a cross-appeal by the applicant, to permit inspection of the documents of the authority by any expert nominated by the applicant, and not only by its accounting experts. The appeal was allowed, and the matter remitted to the Master below to determine it afresh; the cross-appeal was dismissed.
28 In Mobil, Hayne JA, Winneke P and Phillips JA agreeing, said this (at 37 – 38):
"I consider that the learned judge erred when, not having first inspected the documents, he held that the fears of Mobil and McDonald's that a competitor would gain significant advantage from inspecting the documents in question were not sufficient to outweigh what he described as the strong competing interest of justice in full and proper disclosure of all relevant documents in the case.
In Home Office v Harman [1983] 1 AC 280 Lord Keith of Kinkel said at 308:
'Discovery constitutes a very serious invasion of the privacy and confidentiality of a litigant's affairs. It forms part of English legal procedure because the public interest in securing that justice is done between parties is considered to outweigh the private and public interest in the maintenance of confidentiality. But the process should not be allowed to place upon the litigant any harsher or more oppressive burden than is strictly required for the purpose of securing that justice is done. [Emphasis added.]'
It is because the 'compulsion [to disclose documents on discovery] is an invasion of a private right to keep one's documents to oneself' and because 'the public interest in privacy and confidence demands that the compulsion should not be pressed further than the course of justice requires' that both the litigant and practitioner obtaining discovery are taken to
(Page 17)
- undertake to the court that the documents obtained on discovery will not be used for any purpose other than the action in which they are produced: Riddick v Thames Board Mills Ltd [1977] QB 881 at 896 per Lord Denning MR."
29 I note there is a similar undertaking implied in relation to the answers to interrogatories, until they are admitted into evidence: Seaman (supra), at [27.4.5].
30 It was following these passages in Mobil that Hayne JA identified the case of inspection which would reveal trade secrets to a trade rival as one raising the particular considerations for these principles set out in the passage from his judgment that is referred to in Gebauer, and Hotrox as I have indicated above. Hayne JA went on in that passage to say (emphasis added):
"How is the trade rival to forget what internal rate of return the competitor seeks to achieve on a new investment of the kind in question? How is the party whose hurdle rate has been revealed to know whether the rival has used the information in framing a tender? Thus, if the trade rival may inspect the documents concerned, the confidentiality of the information in them is at once destroyed. Is that necessary for the attainment of justice in the particular case?"
31 His Honour went on to indicate that in the circumstances of that case it was not possible without an inspection of the documents in question to determine whether there was such a necessity. This was because (at 39, original emphasis):
"It is of the first importance to recall that the case which the plaintiff seeks to make at trial is that the corporation gave undue weight to the return which it would obtain under the Mobil-McDonald's proposal. Thus the way in which either Mobil or McDonald's may have arrived at that proposed financial return is not directly in issue. At first sight, then, there seems little reason for concluding that the plaintiff needs to have access to any part of the document except that part of it which reveals the proposed return to the [authority]."
32 In the case before me, it is accepted, both that Dr Franklin is not presently a trade rival of the respondent, and that an understanding of what is said to be information in the nature of trade secrets which granting the orders for inspection and access to answers to interrogatories sought
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- would afford is necessary to the matter the applicant is seeking to address in the arbitration. That matter is as to whether or not the respondent did indeed suffer the loss complained of.
33 I note, however, that the second of the two points I have just referred to as accepted by the parties would appear to dispose of the first of the two further matters raised by Sheppard AUJ in Hotrox. That matter concerned analysing a briquette produced by the Hotrox process to determine if it met the contract specifications as dealing with the arbitration. While there will indeed be such analysis, on the orders sought by the applicant, I take it there is no expectation on either side that that will make the balance of the orders unnecessary.
34 The second of the two further matters, having to do with using a suitable officer from the company that had done a report on the Hotrox process previously, or the use of that report itself, cannot be so dealt with. I return to that matter below.
35 As Mobil, indicates, the need to balance the interests of the party seeking access to information and the party resisting it on confidentiality grounds may lead the Court (per Hayne JA, at 39 – 40):
"… to mould orders that will distinguish between the plaintiff, its officers, its legal advisers and experts. Again it may be accepted that generally a party is entitled to inspect the documents of an opposite party by itself its servants or its agents. But in the present kind of case, is it necessary to destroy the legitimate claim to confidentiality from trade rivals by permitting the principal of that rival to look at the documents? Is it sufficient to permit counsel and solicitors (and nominated experts) to do so? It is now commonplace in the courts for material to be made available only to the legal advisers of the parties and nominated experts. Of course such arrangements bring with them their own difficulties and are arrangements that should be adopted only where there is a need to do so; of course they are arrangements that may need to be reviewed as the matter progresses towards trial or as the trial itself proceeds. But they are arrangements that are made and should be made when doing so would strike a fair balance between the competing interests of the party seeking inspection and the party claiming confidentiality. No more specific rule can be laid down - each case will fall for determination according to its own facts. In particular the nature and the content of the
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- disputed documents is a matter that will usually, if not invariably, be of great importance in forming a conclusion and, if that is so, it will be appropriate for the judge to inspect the documents concerned. In the present matter, where the plaintiff did not challenge the evidence given below that the information supplied by Mobil and McDonald's to the corporation in document 38 [the financial proposal] was confidential and commercially sensitive, there would appear to be powerful reasons for limiting access to that information (at least in the first instance) to counsel, solicitors and nominated experts. It is by no means self-evident to me that disclosure to the principals of the plaintiff is necessary for the attainment of justice. In particular it is not self-evident that the plaintiff can properly consider the course which it will follow in relation to the litigation only if its principal has access to the material that is confidential."
36 Counsel for the applicant in his written submissions cited to me authorities establishing, in the context of discovery or subpoenas, that commercial sensitivity will not excuse non-production, although it might cause the court to impose restrictions upon disclosure being made: Santos Ltd v Pipelines Authority of South Australia (No 2) (1996) 186 LSJS 257, Full Ct SA, cited with approval in Apache Northwest Pty Ltd v Western Power Corporation (1998) 19 WAR 350.
37 I do not consider that, if there were a conflict between that line of authority and Mobil, I could depart from the approach in the latter, in view of the approach adopted in the Full Court in Hotrox, by whose decision I am of course bound. In any event, I find no conflict between the other line of authority and Mobil. It seems to me that Hayne JA recognised that confidentiality of the sort at stake in this case must indeed yield to the interests of justice, where such a yielding is necessary. Hotrox also so indicates. However, there is no such necessity where, as indicated in Mobil and in Hotrox, there is a basis for a concern about the loss of confidentiality that can be addressed consistently with the interests of justice in the case.
38 Counsel for the applicant referred me to the basis for the concern in Hotrox referred to in the judgment of Sheppard AUJ at [51], quoted above. That basis was laid in "the fact that Dr Franklin was at one time an applicant for a patent in this very area", and thus might in the future, consciously or unconsciously, make use of the information he gained in this case, for his own benefit or that of a consultancy client. Counsel put
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- it to me that the Full Court's decision leaves it open to me to find this fact was not in fact a basis for any such concern. The hearing before me is, as I was reminded, a hearing de novo.
39 For the reasons I have previously given, I do not consider that, if the evidence before me remained only that before the learned Master, it would be open to me to find there was not the basis for concern described in the Full Court's judgment. Nor is that evidence simply that Dr Franklin was an applicant for the patent referred to. There is also that part of his affidavit in those proceedings in which he deposes to his opinion that he is "one of only two people in Australia who have sufficient expertise in the field to give evidence of the kind that is required in this case" (Hotrox, per Sheppard AUJ, at [49]). This makes the nature of his professional interest in the respondent's processes clear, on that evidence. It is because of that professional interest he "would be most unlikely ever to forget, or put aside, what he learns on the inspection" (at [50]). In turn, given the nature of his consultancy business (at [52]):
"… unless he declined to advise any client interested in pursuing a process similar to that of the respondent, there would always be the danger that he would, however unwittingly, make a disclosure which would imperil the confidentiality which he has agreed to preserve."
40 However, as I have explained, there is in this hearing the possibility of further affidavit evidence and cross-examination of deponents. There is the possibility that such evidence might qualify the effect of the evidence before the learned Master, his failure to properly weigh which the Full Court found was the principal source of his error, such that there remained no sufficient basis for the confidentiality concern. There is also the possibility that any such qualification might not have that effect.
41 Counsel for the applicant put to me that, even accepting that there is indeed a basis for a confidentiality concern, and even if it is shown that a different expert from Dr Franklin could be found, as a result of what the Full Court (Hotrox, per Sheppard AUJ, at [56], quoted above) referred to as "more detailed evidence" than was before the Master in Gebauer, the applicant is entitled "in the interests of fairness to appoint an expert of its choosing". This may particularly be so in what is an arbitration proceeding, and not a proceeding before this Court.
42 I accept there is a general entitlement of the sort on which counsel for the applicant relies: see for example O 40 r 6(1). However, where the
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- processes of this Court are invoked in aid of an arbitration under Arbitration Act, s 47, that section indicates that the Court has to approach the matter as if the underlying proceedings were ones before it. Where a litigant seeks to invoke processes for compelled disclosure as here, it seems to me that the Court may condition their availability on an expert other than the one who engaged that concern. This may be done at least if another expert is likely to be available and is one to whom it is not clear the litigant could take reasonable objection. It seems to me that this is what the Full Court in Hotrox had in mind when they indicated that "more detailed evidence" of the sort they referred to could be provided. There would be no point to such a process if the applicant could simply indicate that its choice of expert was not constrained.
43 There is a further question, left open by the decision of the Full Court in Hotrox, per Sheppard AUJ, at [59]. It would arise where it was determined "that the only appropriate order to be made results in the retention of Dr Franklin". That question was whether or not it might be appropriate to require him to give an undertaking to Court to "keep matters confidential". It was indicated that there might be a reason to doubt "whether an undertaking to the Court may be required when the proceedings are by way of arbitration and not in the Court itself".
44 I am of the view that, in circumstances where the processes of this Court to compel disclosure are sought in an arbitration under Arbitration Act s 47, the Court may condition their availability in the same way it may condition them in relation to proceedings before it. Undertakings as to the use of information gained from processes such as these are indeed implied, as I have indicated. I do not consider that I should doubt their availability in circumstances like the ones before me. It also seems to me that, whether or not the expert ultimately used is Dr Franklin, it might be found to be appropriate to mould orders to protect the confidentiality of the information obtained in the same way as for other proceedings in the Court, as Mobil, per Hayne JA, at 40 indicates. I return to this matter in the last section of my reasons.
45 I turn now to consider the evidence before me in these proceedings.
The evidence
46 As I previously indicated, the evidence before me is that before the learned Master, in the form of affidavits of a number of deponents. There was additional evidence, in the form of further affidavits, both from some of those deponents, and from others; there was also cross-examination of two of the deponents in the first category, and one of the deponents in the
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- second, and re-examination in the cases of the two deponents in the first category.
47 The deponents in the first category, of those affidavits from whom were before the Master, were Dr Franklin; a member of the firm of former solicitors for the applicant, Mr Huston; and Mr Cole. Their affidavits were as follows:
• Dr Franklin: affidavits before Master Sanderson, sworn 28 November 2001 and 15 February 2002; and further affidavits, sworn 19 December 2005 and 3 April 2006;
• Mr Huston: affidavits before Master Sanderson (two volumes), sworn 12 December 2001 and 15 February 2002; no further affidavits; and
• Mr Cole: affidavit before Master Sanderson, sworn 1 February 2002; and further affidavits, sworn 6 February 2006, 3 April 2006 and 4 April 2006.
48 The deponents in the second category, of those affidavits from whom were not before Master Sanderson, were a member of the applicant's current firm of solicitors, Mr Vallve; a Professor of Chemical Engineering at Curtin University of Technology, Dr Dong-Ke Zhang; and counsel for the respondent. Their affidavits were as follows:
• Mr Vallve: affidavits sworn 24 January 2006 and 3 April 2006;
• Dr Zhang: affidavit sworn 20 March 2006; and
• Mr Vilensky: affidavit sworn 21 March 2006.
49 By virtue of the directions for the hearing before me made by Registrar Powell on 24 January 2006, leave had to be sought for the admission of a number of these affidavits. There was no objection by either party to any of the other's affidavits going in, and I granted the leave sought in each case.
50 Finally, at the hearing there was cross-examination, or cross-examination and re-examination, of Dr Franklin, Dr Zhang and Mr Cole.
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The orders sought and those parts of the orders not in contest
51 Over the history of this application, there has been a significant narrowing of those aspects of the orders sought by the applicant that remain in contest, with, however, some qualification of that trend most recently.
52 The orders sought by the applicants are in the same terms as those sought before Master Sanderson. I have already referred to their terms, which are also set out in Gebauer, at [7].
53 The interrogatories which the applicant seeks to have the respondent answer (by its order (c) above) are in the same terms as those in the schedule referred to. Those interrogatories are set out in Gebauer, at [12]:
"1. Refer to paragraph 7 of the Respondent's Further Re-Amended Points of Claim undated but delivered 14 November 2001 and answer the following interrogatories:
(a) what is:
(i) the approximate dimensions of the woodlogs,
(ii) the heating regime detailing times and temperatures for a typical batch of charcoal and charcoal briquettes,
(iii) the method of cooling charcoal and charcoal briquettes and the temperature profile during cooling,
(iv) the approximate composition of the atmosphere in the ovens that had been commissioned plant and equipment throughout the process with particular reference to oxygen levels.
(b) what are the process control parameters.
(c) what is the exhaust gas composition during the course of the process of producing charcoal or charcoal briquettes.
- (d) are any quality control checks in the process of producing charcoal or charcoal briquettes and if yes to this interrogatory what are the control checks.
- 2. Refer to paragraph 4B(a) of the Respondent's Further Re-Amended Points of Claim and describe the test methods used to evaluate the physical strength of 'A grade' charcoal briquettes suitable for the Korean market.
3. Refer to paragraph 13.2 of the Respondents Further Re-Amended Points of Claim and provide details of the manufacturers specifications for the insulating material used in the construction of the ovens installed at the factory premises."
54 Before the Master, the respondent indicated it had no objection to the order (b) above (as to delivery of sample products), and would consent to the Order (a) (as to inspection), provided that "the person to inspect the respondent's premises was not Dr Franklin" (Gebauer, at [8]). However, the respondent also put in issue whether it ought to be compelled to answer the interrogatories (at [8]).
55 Before the Full Court in Hotrox, the respondent indicated that it did not maintain its objection to answering the interrogatories, provided that the answers were not shown to Dr Franklin (per Sheppard AUJ, at [15]).
56 Before me, the respondent indicated that it maintained the same position as before the Full Court. However, as I will indicate when I reach the respondent's minute of proposed orders, the respondent now seeks an order that Dr Franklin (and certain other persons and entities) not be engaged by the applicant as a witness, whether expert or non-expert, and not only be "disqualified" from having access to the premises to be inspected and to any "confidential information" (in the sense to be identified, below), but also from having any access to "any expert witness report provided in the course of the Arbitration", and further "be prevented from having any involvement whatsoever in the Arbitration".
57 In addition, the respondent seeks an order for referral to mediation.
58 I consider the appropriateness of these further orders when I consider the respondent's minute below.
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The issues before me
59 They appear to me to be the following, as a result of the position of the parties on the orders sought, and my conclusion on the preliminary matter raised by the respondent:
• Whether, after all of the evidence is considered, there is indeed a reasonable or genuine basis for the concern of Mr Cole as to the risk of the information as to Hotrox's process not being kept confidential if Dr Franklin were involved;
• Whether, if so, there were other and independent experts who would be able to perform the task sufficiently well with "no injustice from Dr Franklin not being able to inspect the premises", and "without injustice to Hotrox"; and
• The terms of the final orders in this case.
60 It will become apparent that there was a further issue raised in the hearing before me, as it appears to have been before Master Sanderson, of whether or not Dr Franklin was some one who could be relied upon to approach his task without preconceptions that would prevent him forming a proper opinion on the information he acquired as a result of the orders sought. For the reasons I will set out below, this issue is best discussed in relation to the first of the three issues I have identified, to the extent it is relevant to my deliberations.
Mr Cole's concern about confidentiality
61 Having observed Mr Cole give his evidence, I have no doubt he has the strong objection to Dr Franklin's involvement to which Mr Cole deposes in his affidavit sworn 1 February 2002, particularly in the paragraphs quoted from it in the passages in the judgment of Sheppard AUJ in Hotrox, which I set out above. I also do not doubt Mr Cole has a further concern about Dr Franklin, having do with what he saw as the "prejudice" Dr Franklin would bring to his task if he were involved, to which I will shortly return.
62 It was put to me that the Full Court's judgment in Hotrox required only that I be satisfied that Mr Cole had "real" concerns (Sheppard JA, at [49]). The existence of a reasonable basis for such a concern would only be matter of evidence in relation to that issue. A reasonable basis was not an independent requirement.
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63 I disagree. I refer to the language used in the judgment of Sheppard AUJ in Hotrox, and his reference (at [51]) to the basis for such a concern in Dr Franklin's being "an applicant for a patent in this very area", as a matter "which has to be given very substantial weight", in a case where Dr Franklin "is not a trade rival of Hotrox". It was that which gave "Mr Cole the very genuine concern the evidence establishes that he has".
64 This takes me to the basis for Mr Cole's concern that the Full Court identified with the patent application. Before me there was no additional affidavit evidence in relation to the application to that before Master Sanderson, and thus that before the Full Court. However, there was the cross-examination and re-examination of Dr Franklin before me. That viva voce evidence suggests that it is necessary to consider the broad character of the process that represents Hotrox's technology so as to identify in what ways it is similar to and different from the subject matter of the patent application. This permits me to determine whether, if that additional evidence had been before the Full Court, their conclusion as to a reasonable basis for Mr Cole's concern would have been different.
65 I also need to evaluate one other matter arising out of the evidence of Dr Franklin before me, including his further affidavit evidence. It was the matter, which appears to have been raised in Hotrox, per Sheppard AUJ at [26], and pressed on me by counsel for the respondent, of whether there was any other basis for concerns about Dr Franklin's capacity to preserve confidentiality of information such as that sought in the present application.
66 Dr Franklin's evidence is that the patent application was a part of a consultancy his consulting firm, R & A Consultants, had in April 1990 undertaken for a company, Nufarm Energy Ltd, which as he deposes in his affidavit of 28 November 2001 (par 13.1)
"… had been formed to develop sawdust and sawdust/coal and sawdust/charcoal briquettes as a fuel for the domestic market and overseas markets, particularly the Korean restaurant charcoal market."
67 As he deposes in that affidavit, Nufarm Energy had been formed by Nufarm, "a Melbourne based company", which had acquired the intellectual property and physical assets, in Collie, of Australian Carbon Pty Ltd, "a failed Western Australian company" (Franklin affidavit of 28 November 2001, par 13, opening words). Nufarm Energy had engaged
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- another company, Vector Energy Pty Ltd, "to develop the technology acquired from Australian Carbon" (par 13.1). As he further deposes (par 13.2), in August 1990 the scope of R & A Consultants' consultancy was "increased" to encompass "evaluation of the technology" acquired from Australian Carbon, and "to develop alternative products to the sawdust/coal briquettes".
68 In the affidavit of Mr Cole of 1 February 2002 (par 41) he deposes that the technology of Australian Carbon was invented and developed by him, although in his viva voce evidence he said it may in fact have been made available to Nufarm Energy in a form imperfectly copied by Vector Energy. In his viva voce evidence, Mr Cole made it clear that the technology he had then developed for producing briquettes did not involve the use of synthetic binders and chemical or synthetic additives for the purposes of binding the material to form the briquettes and giving that material the desired burn characteristics. A different and later form of that technology was that at the heart of Hotrox's claim for damages in the arbitration.
69 It emerged, both from the viva voce evidence of Mr Cole and that of Dr Franklin, that there is an important distinction between briquettes whose structural integrity and heat generating characteristics derive from such binders and additives, and briquettes whose characteristics in those respects derive from the material itself as a result of the application of heat and pressure. This distinction is important because, if it is possible to achieve the desired characteristics without synthetic or chemical additives and binders, and to do so in a viable way, this is preferable to achieving the desired characteristics with such synthetic or chemical additives and binders.
70 I note that viability in this case appears to go to the acceptability of the product as well as the capacity of the process to produce it to achieve the necessary levels of production of product of the quality called for, and the availability of suitable and sufficient sources of supply of jarrah sawdust.
71 In his viva voce evidence, in cross-examination, there was the following exchange with Dr Franklin (TS 60):
"I'm going to put something to you that I put to the Full Court which wasn't objected to, and I am going to ask you whether you agree with the assertion that the ability to convert sawdust to charcoal briquettes with the use of a binder, for want of a
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- better expression which is quite topical, could be construed by people within your industry as the Holy Grail? --- Yes, it could be construed as a kind of - any kind of binderless briquetting is always desirable over briquetting involving binders, yes.
Sure. That's not an understatement. Would you say what I have just put is an understatement? --- It’s not an understatement."
72 I understood this position of Dr Franklin's to be one assuming there to be no viability issues of concern, and to obtain for both of the major markets for briquettes the subject of evidence before me, the barbeque market (including restaurant and domestic uses, it seems) and the industrial market (such as feedstock in smelting).
73 Dr Franklin did not deny that it was technically possible to produce jarrah sawdust briquettes without binders. Indeed, in his viva voce evidence he referred to products used abroad for the production of sawdust briquettes without binders (cross-examination, TS 48 – 50). He referred to Nufarm Energy having sent jarrah sawdust to Italy and the United States where manufacturers turned it into briquettes which were returned to Nufarm Energy (TS 50). Further, in his viva voce evidence, elaborating on his affidavit of 28 November 2001 (par 13.3), Dr Franklin’s evidence of his evaluation for Nufarm Energy of the work done by Vector Energy was that the company had managed to produce (re-examination TS 83):
"… a sawdust, in fact sawdust charcoal briquette that was physically quite strong. It met the - basically the physical criteria that were laid down for a satisfactory barbecue fuel."
74 However, Dr Franklin's evidence was also that the briquettes the subject of that evaluation were without "merit" as a "barbecue fuel" (re-examination, TS 82), "principally" because when put on a barbecue and set alight they produced flames and smoke and, when those died down, "most of the calorific value of the product had gone" (TS 83). These briquettes were "shown to be incapable of meeting the criteria required for the Korean restaurant market" (par 13.3).
75 On Dr Franklin's evidence this left Nufarm Energy with the problem that, as the technology it had received from Vector Energy had failed, Nufarm Energy "didn't have a product" (re-examination, TS 83). Dr Franklin was then asked to work on alternative products, including it would seem industrial fuels. This work culminated in the patent application referred to in Gebauer, and Hotrox: a copy of the patent
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- application, showing a "complete filing date" of 23 October 1991, is annexure GJC1 to the Cole affidavit of 1 February 2002. This patent application was for a process for the forming of briquettes from carbonaceous material and silica fume for use in silicon smelting processes. The carbonaceous material was to come from Nufarm Energy, and the silica fume was to be supplied by an entity called Simcoa Operations, from which Nufarm Energy had been obtaining its charcoal fines, and which was keen to find a market for Simcoa's silica fume (TS 83).
76 The patent application showed as the "Applicant (for all States except US)" Nufarm Energy. It also showed as "Inventors/Applicants (for US only)" both Dr Franklin and Michael Pekin. There was the reference to Mr Pekin in Hotrox, per Sheppard AUJ at [51], that I quoted above. On Dr Franklin's evidence, Mr Pekin had been "site manager" at Collie when Dr Franklin worked for Nufarm Energy, and he and Mr Pekin had a "fairly close working relationship" for the three-year-period during which Dr Franklin worked for the company (cross-examination, TS 29). Mr Pekin had subsequently joined Auschar, with which he was employed when it was proposed he and Dr Franklin inspect the factory premises of Hotrox. I briefly return to Auschar below.
77 The patent application indicates that carbonaceous material for its purposes included charcoal, charcoal fines, and "any other carbon material derived from the destructive distillation of organic materials or coal". Silica fume is so indicated to be the fine particulate by-product of the processing of silica ores. The patent application also indicates that the fine particle size of the silica, in a mixture with the carbon in the briquettes, "assists in binding the briquettes", although "without any additional binders" the resultant briquettes would be more brittle and less robust than with the addition to the mixture of "small amounts of certain binders".
78 Dr Franklin's viva voce evidence was that the process was not exploited, and the patent application allowed to lapse, because it was found that the silica fume could be used more profitably in the manufacture of cement.
79 It will be seen that the patent application was for briquettes that were not ones involving no use of binders, and indeed the process described is one indicating the need for additional binders, additional to the silica fume (that, on Dr Franklin's evidence, was one of the principal reasons for the application), for better performance.
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80 However, the Cole affidavit of 1 February 2002 indicates his understanding of the "published claims of the failed patent application" as including a claim that (par 47):
"… involved briquetting of material without the use of a binder, but on the other hand claimed that in the event that the binderless claim of the invention failed, then the claims of the invention then went on to rely on the use of binders."
81 Mr Cole was not cross-examined on this understanding, which may have underlain Master Sanderson's understanding of the patent application in his decision in Gebauer, in which he described the patent as one ([20]):
"… directed at producing a briquette of suitable hardness without the use of binding agents."
82 It was put to me, with other viva voce evidence of Dr Franklin, being he had never "tried to manufacture briquettes without the use of binders" (cross-examination, TS 48), that the evidence as to the process in the patent application apart from that of Mr Cole to which I have referred removed that application as a reasonable basis for Mr Cole's concern.
83 I disagree. While I find that the patent application was not one for the production of binderless briquettes, I also find that it could reasonably be seen as his personal involvement in a practical project resting on the view that it was necessary to use binders to achieve results of the sort subsequently claimed for the Hotrox process for the production of binderless briquettes.
84 That is, it seems to me that the patent application should be seen against the background of Dr Franklin's earlier evaluation of briquetting technology not using binders or limited binders, albeit for a different market.
85 Further, subsequently, in 1993, Dr Franklin was retained by Simcoa to evaluate technologies for forming briquettes for use as feedstock for its silicon smelter from, among other substances, jarrah sawdust, which Simcoa was producing as a waste by-product of its silicon smelting operation. His evaluation concluded that sawdust briquettes could not be manufactured from jarrah sawdust and then carbonised "to give a product with sufficient physical strength" to be a "viable product" for such a use (his affidavit of 28 November 2001, par 14.3). In his viva voce evidence he confirmed that there had not been any formation of sawdust briquettes done for Simcoa on which he had based this conclusion. Rather, he had
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- derived it in part from his work for Nufarm Energy (cross-examination, TS 77).
86 Viewed in that context, the patent application could in my view reasonably be seen to be part of a pattern of Dr Franklin's involvement in the evaluation of processes for the formation of viable briquettes from carbonaceous material, including jarrah sawdust, without binders or with limited binders, for the restaurant and smelting markets. The patent application represented his personal involvement in the development of a new process, albeit one not for the production of binderless briquettes, but rather with ones using silica fume and additional limited binders. He had determined as part of that evaluation history that the technologies for the production of jarrah sawdust briquettes formed without binders with which he was acquainted did not result in a viable product for either market. He had been involved in the patent as an inventor together with an employee of Nufarm Energy, Mr Michael Pekin.
87 It is true, as the Full Court noted in Hotrox, that Dr Franklin's work as an inventor was some time ago, in 1991, as I have indicated. However, as confirmed by Dr Franklin in his viva voce evidence before me, he had been involved more recently in overseeing work on carbonising jarrah sawdust to form jarrah charcoal, which might be used to form sawdust briquettes, although that more recent work did not involve him being involved in any such formation (cross-examination, TS 44). In his affidavit of 28 November 2005 he deposes that the more recent work was in 1998 (par 15.3).
88 Dr Franklin in his affidavit of 15 February 2002 (pars 2 - 5) deposes that he is aware of only one other "independent consulting engineer" who is "suitably qualified" to provide the applicant with "independent expert advice on the production of charcoal briquettes from woodlogs produced from jarrah sawdust". In his viva voce evidence he indicated that the qualification he had in mind was expertise resting on sufficient proximity to work in the area to appreciate "some of the hands-on aspects", such as the activation of carbon from jarrah sawdust (TS 61). Dr Franklin's possession of that qualification is both a function of and supported by his work with industry as I have described it. That work, as I have indicated, has involved him considering the possibilities for binderless briquettes from jarrah sawdust, and having reached the conclusion that the technology with which he is acquainted is not a means for producing viable briquettes for the markets meant to be served by the Hotrox technology, which of course he has not yet had the opportunity to inspect.
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89 I have considered whether, at most, the evidence to which I have referred establishes that Dr Franklin has a professional scepticism of the possibility of claims like those for the Hotrox process being sustainable under evaluation of the process. I do not consider that professional scepticism would itself be sufficient to create the possibility of injustice of concern for the purposes of the law on which the Full Court's decision in Hotrox, rested, a matter to which I will return shortly.
90 However, I consider that the evidence before me establishes a level of professional interest in that possibility that goes beyond that which might simply produce professional scepticism about it. It was that level of professional interest which was of the sort of concern to the Full Court in Hotrox.
91 There is no doubt that Mr Cole, as indicated in his affidavit of 1 February 2002, quotations from which (in the judgment of Sheppard AUJ in Hotrox) I have set out earlier in my reasons, and in his viva voce evidence before me, believes he has developed a process for producing jarrah sawdust briquettes without binders that is different from that he had previously developed and that is viable for the restaurant and smelting markets.
92 In his viva voce evidence Mr Cole put his concerns about Dr Franklin in terms of his preconceptions or "prejudice" about the possibility of viable binderless jarrah sawdust briquettes, and Mr Cole's concerns about whether or not Dr Franklin could be trusted to maintain the confidence of what he would learn if the present application were granted. On their face these two concerns appear to be to some degree in tension with one another. Either Dr Franklin would recognise the value of Mr Cole's technology or he would not. If he did, he would have to overcome his preconceptions. If he did not, the risk of loss of confidentiality would be less.
93 It seems to me that Mr Cole's concerns about preconceptions or "prejudice" have their bearing on the decision I must make in relation to the origins and intensity of Dr Franklin's professional interest in what I have previously identified as viable processes for the formation of briquettes from carbonaceous material, including jarrah sawdust, without binders or with limited binders, for the restaurant and smelting markets. This interest was of course the basis for the concern which appears to have been at the heart of the decision of the Full Court in Hotrox.
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94 It does not seem to me that it would be appropriate to deny the applicant its order on the basis of Mr Cole's concerns as to Dr Franklin's "prejudice" understood as preconceptions about the claims for Mr Cole's process. That matter of whether his "prejudice" so understood prevented those claims being properly evaluated at the arbitration would fall to be tested at the arbitration at which any report or evidence of his was being considered.
95 In any event, on the material before me, I find there is no significant likelihood of him having preconceptions of the sort that would prevent him bringing his acknowledged expertise to bear on what he learnt from the inspection in which the applicant wished to involve him, or him doing so in a way that was open to the possibility that it had succeeded where other technologies had failed. Assuming Dr Franklin's prior work had caused him to be sceptical of claims such as those of Mr Cole, I do not consider that scepticism would operate to prevent him from so acting.
96 However, it was put to me for the respondent that there could be a reasonable concern that Dr Franklin would not be an independent witness in relation to the Hotrox process, not simply because of the conclusions he had drawn from his prior work, but because of the extent of his apparent identification with the applicant’s case in the arbitration. This apparent identification was to be seen in the length of time he had continued to be involved in the case as an expert proposed to be used as the application provides for, notwithstanding the views expressed by the Full Court in Hotrox. This apparent identification was also to be seen in his apparent contribution to the case's formulation, at least in providing the advice the text of which the solicitors for the applicant had apparently used in the drafting of the applicant's interrogatories (cross-examination of Dr Franklin, TS 53 - 55).
97 I consider the submission made on this account must fail, for two reasons. I assume (without deciding) that the matter is to be tested on the basis that the standards for a trial in this matter would apply to an arbitration. The contrary was not suggested to me by either party.
98 First, the submission, it seems to me, confuses the role of an expert adviser with an expert witness. At most the material relied upon establishes that Dr Franklin has been retained as an expert adviser, a matter with respect to which I do not need to form a final view, as I will explain.
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99 There is no basis it seems to me for me, through orders on the present application, to determine whom the applicant may retain as an expert adviser otherwise than by reference to the confidentiality concern in Mobil, and Hotrox. I note on the role of the expert adviser the Law Reform Commission, Review of the Criminal and Civil Justice System in Western Australia Final Report Project 92 (1999), par 22.8, describing it as "consistent with the adversarial goal of advancing a party's case as strongly as possible".
100 It might be suggested that different considerations arise where an expert adviser is to be called as an independent expert witness. That is a matter yet to be decided in respect of Dr Franklin, as I understand the position of the applicant, although it may be expected he is likely to be so resorted to.
101 The LRC Final Report, (supra), at par 22.9 recognises the difficulty for an expert adviser in giving an independent opinion as an expert witness at a trial. Expert evidence presented to a court "should be, and should be seen to be, the independent product of the expert, uninfluenced as to form or content by the exigencies of litigation": Seaman, (supra), at [36A.3.1B]. However, an expert adviser is not disqualified from being an expert witness because that person has worked as an expert adviser in the case. Rather, the matter would one of possible exclusion of the witness’s evidence on the basis that it is (Seaman, at [36A.3.1C]):
"… unsound and cannot provide probative material of value to the court's task of determining the issues in the proceeding. The possibility of the expert witness having a bias in favour of a party is a matter to be taken into account by a court when deciding what weight to give to his or her evidence, but it is not a ground for excluding evidence that may be assistance to the court in reaching the correct result."
102 I also find that Dr Franklin's professional interest in the matters of concern to Mr Cole did not (on the evidence before me) derive from the patent application in the way the Full Court, on the evidence before the Master, concluded it had. That patent application was focussed on technology using (limited) binders. It did not represent an attempt by Dr Franklin to develop equivalent technology to that Mr Cole claims Hotrox has successfully developed. However, the patent application was in part the outcome of work that covered binderless technology, which Dr Franklin acknowledged was, among the technologies in the area, "the Holy Grail", and which his work prior to and following the patent
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- application had indicated to him was not viable, at least for the markets the Hotrox technology was meant to serve.
103 I find the history of Dr Franklin's involvement in and findings from the practical study of the possibility of viable processes for the production of briquettes from carbonaceous material, including jarrah sawdust, without binders or with limited binders, for the restaurant and smelting markets, of which the patent application was a part, and his understanding of the position of expertise in the area which he occupied apparently as a result, together provided a genuine or reasonable basis for Mr Cole's concern whether or not Dr Franklin could be trusted to maintain the confidentiality of what he would learn if the present application were granted.
104 However, I do not find there was a sufficient likelihood that Dr Franklin, not presently a trade rival of Hotrox, would become such a rival to ground such a concern. The matter of that likelihood was one on which he gave clear and convincing viva voce evidence to the same effect as his affidavit evidence on which the Master in Gebauer relied. Below, however, I return to this point in relation to some evidence from Dr Franklin on which counsel for the respondent put particular emphasis.
105 For the applicant, it was put to me, however, that it was so unlikely that any other concern would approach Dr Franklin on the matter of binderless sawdust briquettes I should consider it to be not something a reasonable person would take into account. On the evidence I cannot do that. It was put to me I should infer such a low likelihood from the lack of any such approaches to Dr Franklin during the period of the arbitration, and from the lack of any activity by Hotrox itself over that period apart from an approach to otherwise exploit its process, through other manufacture or through licensing. However, if the Hotrox process is as Mr Cole believes it to be, and has indeed been kept secret, then, in view of Mr Cole's wish to have Hotrox exploit the process through manufacture, and his uncontested evidence of the cost of doing this (as indicated in his cross-examination, at TS 118 – 119), I do not consider any such inference should be drawn.
106 I should repeat that I do not conclude, as I consider the Full Court in Hotrox, did not conclude, that there is any reason to consider Dr Franklin would not bring his expertise to bear on the Hotrox technology in a way that was open to the possibility that it had succeeded where other technologies had failed. It is rather the character of the interest and the
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- position in which it appeared to leave Dr Franklin that I have found to be the reasonable basis for Mr Cole's concern.
107 I should not conclude this section of my reasons without addressing the matter put to me by counsel for the respondent, that in any event or in conjunction with the patent application there was a basis for a concern on the ground of maintenance of confidentiality, arising out of the evidence of Dr Franklin before me. This was couched in terms of the likelihood that Dr Franklin would become a trade rival in the future. I was referred to his evidence, in his affidavit of 19 December 2005, at pars 14 and 15, and in his testimony before me (cross-examination, TS 57 - 60; and see re-examination, TS 85 - 86). That testimony had to do with the depositions in his affidavit that he was prepared to sign a Deed of Confidentiality that would prevent him from disclosing any trade secrets held by Hotrox for "not less than three years", and that he was prepared to give an undertaking to the Court that he would not be involved in any charcoal briquetting or agglomeration manufacturing for "not less than three years". In his cross-examination his attention was drawn to the time limited character of the two sets of proposed obligations, which he conceded. I was invited to infer from this that Mr Cole, reading those paragraphs, would have reason to be concerned about Dr Franklin maintaining thereafter the confidentiality of what he learned.
108 I would not draw that inference. I consider the relevant paragraphs in the affidavit need to be set in the context of his earlier acknowledgement, in the same affidavit, that he had signed a Deed of Confidentiality proposed by Mr Cole that he not disclose confidential information relating to the relevant manufacturing process to any person (par 13), as well as his statement, in a letter to the then solicitors for the applicant that is annexure RFW6 to his first affidavit, of 28 November 2001, that
"As a Member of the Royal Australian Chemical Institute and a Member of the Royal Society of Chemistry, I am bound by the Code of Ethics and the Code of Conduct respectively of those organisations. Those Codes inter alia specifically prohibit me from using this information for my personal gain or in any manner contrary to the interests of Hotrox Pty Ltd."
109 I consider that the context I have referred to sufficiently qualifies the effect of the two paragraphs of the Franklin affidavit of 19 December 2005 to remove them as a reasonable basis for any such concern as that referred to.
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110 This then takes me to the second of the three issues I have identified.
The possibility of the use of other experts
111 I first consider what I previously identified as the second of the two further matters raised by the Full Court in Hotrox, as possible alternatives to the use of Dr Franklin. That matter was the possibility of the use of a suitable engineer from the firm of consulting engineers which had prepared a report on the respondent’s product, and on the respondent's capacity to produce it in sufficient quantities for the Korean contract, for the purposes of a federal government agency from which the respondent had sought assistance in relation to that contract. I also consider the further matter so raised, of the use of the firm’s report itself.
112 I take the use of the report itself first. It was by Sinclair Knight Merz, the well known firm of consulting engineers, and is annexure RSH65 to the Huston affidavit of 12 December 2001, and also DZ5 to the Zhang affidavit of 20 March 2006. There was no point made to me by either side that the report could be used as an alternative to retaining Dr Franklin. In any event, the evidence from Dr Franklin (see cross-examination, at TS 45), the only witness to be examined on the report, and my own examination of the report would indicate to me that this is because there is no sufficient description of the Hotrox process to permit the claims made for it to be evaluated.
113 As to the use of a suitable engineer from the firm that prepared the report, I also note that no point was made before me in relation to this, and that there is no apparent reference to such a person in the list of persons approached as suitable alternatives to Dr Franklin. Further, I note that there is some evidence that the report is proposed by the respondent to be used in support of the respondent’s position in the arbitration, and that the applicant has taken the position that no current employee of the firm would be suitable for the purposes of the orders sought by the application (Vallve affidavit of 24 January 2006, par 20).
114 Therefore I do not consider either of these alternatives has been made out on the material before me.
115 I should add that there is a further report on the Hotrox process in evidence before me, by a government agency, the CSIRO. This report was also before the Master, who referred to it, with the Sinclair Knight Merz report, in Gebauer,at [10] and [11], and was referred to, also with the Sinclair Knight Merz report, in the judgment of the Full Court in Hotrox, per Sheppard AUJ, at [16]. It is annexure RSH67 to the Huston
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- affidavit of 12 December 2001. It was not, however, referred to by either counsel in the present connection, as to the use of the report or of one of its authors, as an alternative to Dr Franklin. In any event, the evidence of Dr Franklin (cross-examination, TS 46- 47) and of the only other witness to comment on the report, Professor Zhang (cross-examination, TS 102), as well as my own reading of the report, would indicate to me that there is no sufficient description of the Hotrox process to permit the claims made for it to be evaluated.
116 I next consider the matter of whether there are other and independent experts able to perform the tasks envisioned for Dr Franklin under the orders sought by the applicant.
117 I have already referred to Dr Franklin's evidence in this respect. There is also evidence, in the Vallve affidavit of 24 January 2006, of extensive efforts having been made to identify suitable experts who did not work for a trade competitor of Hotrox or for a firm whose advice was to be relied upon by Hotrox, and who would be available to provide the advice sought. A number of the names suggested came from the solicitors for the respondent. The efforts were not restricted to persons who were working or had worked for firms of consulting engineers. Those efforts had failed to produce an alternative to Dr Franklin. In particular, the "only other independent consultant engineer", an employee of the CSIRO in Victoria, of whom he was aware proved not to be available.
118 However, there was also evidence that the solicitors for the respondent, following their receipt of the Vallve affidavit of 24 January 2006, had made inquiries of staff members in the Department of Mechanical Engineering at The University of Western Australia, the School of Engineering Science at Murdoch University and the Department of Chemical Engineering at Curtin University of Technology. From those inquiries, which do not appear to have been exhaustive, at least as to Curtin University, one person was identified as available, Professor Dong-Ze Zhang, Professor of Chemical Engineering at Curtin University. Professor Zhang is also Director of the University's Centre for Fuels and Energy (Vilensky affidavit of 21 March 2006, pars 6 - 10).
119 Dr Franklin in his viva voce evidence indicated he had not thought of universities in suggesting names of suitable experts, as universities (cross-examination, TS 61)
" … hadn't figured in this type of work at all from my point of view, and I suppose I considered that academic people might be
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- too far removed to appreciate some of the hands-on aspects of this."
120 Dr Franklin also testified he had not previously heard of Professor Zhang (cross-examination, TS 61). As to Professor Zhang's qualifications to provide qualified independent expert advice, Dr Franklin said this (cross-examination, TS 67, 68):
"Do you accept that there - I think this was your evidence earlier but just again - could well be another expert, another independent expert out there that could give the same evidence that you are able to give without Mr Cole being concerned about it?---No.
You don't think so?---No.
You don't think Dr Zang [sic Zhang] could be a potential? When you say 'no', are you including Dr Zang [sic Zhang]?---Yes.
Even though you don't know much about him?---All I know about Dr Zang [sic Zhang] is what I have seen on the Internet that's there in relation to his activities.
Are you basing your decision on that?---Yes.
All right, so you are the only person that can give us evidence, in your view?---No, no, no. You're asking me is Dr Zang [sic Zhang] - do the same objections apply to him. Yes, I believe so. He clearly has commercial interests where this technology could be
Yes, but if Mr Cole didn't object to Prof Zang [sic Zhang], there wouldn't be an issue. That issue is completely removed, isn't it?---Yes.
…
All right, so is it your evidence that you do accept that there could be a person, a suitable person, independent expert out there other than yourself that could provide this evidence?---I would have thought that anybody who had the necessary expertise must also at some point have had contact with commercial organisations in the same way that I have, otherwise they wouldn't have the expertise."
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121 Later Dr Franklin explained what he meant by the last reference to contact with industry, although in terms which seemed to qualify the reference to "necessary expertise" somewhat (cross-examination, TS 73):
"You said in your evidence that you didn't think about exploring the possibility of the universities in Western Australia to see if an appropriate expert - - -?---That's correct. I was thinking in terms of the industry contacts that I have, not academic contacts.
Was that something that slipped your mind or did you not consider it as a possibility?---It wasn't that it slipped my mind, I didn't consider it as a path to explore because I felt that the kind of expert that was being looked for was someone with hands-on experience working with sawdust and the commercial manufacture of charcoal.
So are you saying that only a person that has had hands-on experience working with sawdust and charcoal and briquettes can provide this evidence?---I think it would be extremely advantageous to have hands on experience."
122 Professor Zhang's uncontested evidence was that he worked "very closely" with "industry", which in his view made him "quite different from vast majority of academics, or engineering academics found across Australian universities" (cross-examination, TS 89). His work was in two forms (cross-examination, TS 90):
"I do private consultation and I also do technical service and technology development on behalf of university for industry."
123 His work had included "hands-on experience" in the manufacture of coal briquettes (cross-examination. TS 94), including work (in both of the forms he had described) for Griffin Coal at the premises of Auschar at Collie, which provided the services to produce the briquettes. The briquettes included "binderless briquettes" (cross-examination TS 94). I note that Auschar, to which several references appear earlier in these reasons, was the company to which Nufarm Energy had sold its business in or about 1993, and for which Nufarm Energy required Dr Franklin to work for the last part of his contract with the company (cross-examination of Dr Franklin, TS 84):
"… to transfer what I knew to Auschar and also to develop what they called a house brand barbecue fuel for Auschar."
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124 Professor Zhang related the process of making coal briquettes with which he had been involved to processes for making binderless sawdust briquettes as follows (cross-examination TS 95 - 96):
"The process that you're developing, is that one that could be employed to use other waste products such as sawdust?
---Yes, I do believe it can be applied to other materials but process operating parameters might be slightly different because obviously you're starting with different material. But just let me comment here on application to sawdust as you - well, that's the key word in your question and I believe the process would even do better for sawdust because the lignin and resins naturally present in biomass - sawdust is certainly a biomass - will be released on heating and that will provide very good binding force to hold the resulting char together and to provide the mechanical strength a lot of industry applications like iron reduction - iron ore reduction I should say or silicon smelting.
Yes, so as I understand it it's your experience as well as binderless coal briquettes you can also manufacture binderless sawdust briquettes relying on the resin and the lignin to bind the particles naturally. Is that right?---It is what is within my scientific knowledge to believe that is the case.
And those briquettes can be carbonised the same way as the coal briquettes. Is that correct?---A similar way, I wouldn't say 'same way.'
Yes?---Because the process conditions would be slightly different.
Are you familiar with the process conditions required to carbonise different materials in briquette form?---You hardly find anyone knows better than I do.
That's because you've done this work down at Griffin Coal on this subject or are you relying on other experience as well?---And it occurs almost weekly or even daily in my laboratory."
125 On the basis of all of this evidence, from Dr Franklin and Professor Zhang, I have little difficulty in concluding that Professor Zhang has been shown to be a person qualified to provide independent expert advice of the sort Dr Franklin can provide. Indeed, I did not understand counsel for
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- the applicant to press the contrary, either as to Professor Zhang's expertise or as to his independence. Unlike Dr Franklin, however, Professor Zhang is also a person to whom Mr Cole takes no objection, which would remove any possible injustice to Hotrox.
126 Counsel for the respondent put to me that the discovery of Professor Zhang by the solicitors for the respondent showed that there was no injustice to the applicant from excluding the possible use of Dr Franklin. This was apparently on the basis that such finding showed the availability of expert advisors on a significantly greater scale than the evidence of Dr Franklin, and the Vallve affidavit of 24 January 2006, would suggest.
127 I agree. Although the evidence of Dr Franklin and the Vallve affidavit of 24 January 2006 would indicate the difficulty (if not the impossibility) in finding suitably qualified independent expert engineers who were available to act in the matter, this did not take account of the possibility of finding persons with those attributes in universities. While Professor Zhang's evidence indicated that finding such person would not be altogether easy, the fact that one had been discovered in Perth after inquiries which do not appear to have been exhaustive is indeed significant, as showing both that suitable alternatives to Dr Franklin are on that evidence likely to be available, and be ones to which no reasonable objection is presently evident to me, with an exception put to me, as to Professor Zhang, which I now reach.
128 Counsel for the applicant drew my attention to the comparative cost of Dr Franklin relative to Professor Zhang, as shown in the affidavit of the former of 3 April 2006, par 2 and the affidavit of the latter of 20 March 2006, annexure DZ7. Professor Zhang's hourly rates, particularly the rate for a "Court appearance", are very much higher than those of Dr Franklin. For this purpose, I do not add to the balance in favour of Dr Franklin the significant account of the amounts already spent for Dr Franklin's services, for the reason given in Hotrox, per Sheppard AUJ at [55], 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."
129 I do not consider that the rates Professor Zhang is proposing to charge, relative to the importance of the issues with respect to which expert advice is required in this arbitration, and the amount at stake in it, are so much as to make such an expert prohibitively expensive, and to
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- make it unjust the applicant retain such an expert charging fees of that order.
130 At the same time, however, there seems to me to be no question of requiring the applicant to retain Professor Zhang. Another expert who would also be suitable as he is might well be found, and the applicant should not be prevented from seeking such an expert.
131 This takes me to the appropriate orders in this case.
The orders in this case
132 At the beginning of these reasons I set out the orders sought by the applicant.
133 At the hearing before me the respondent provided a minute of proposed orders. The minute contained orders for inspection, delivery of samples and answer to interrogatories which were different in a number of respects from those sought by the applicant, going beyond the preclusion of the use of Dr Franklin. The minute also contained a number of orders with no equivalents in the applicant's order, most notably a proposed order for mediation.
134 I deal with those proposed orders in view of my conclusions above.
135 I begin with the confidentiality provisions of the proposed orders. The provisions are two, the minute's proposed order 7 and proposed order 8.
136 The minute's proposed order 7 calls for the answers to the interrogatories and any information concerning the respondent's production facility at Ladner Street and the respondent’s manufacturing process learned in the process of inspection to be kept "strictly confidential at all times". This "Confidential Information" is to be disclosed only to the listed persons "all of whom shall be bound by this order", being "solicitors, counsel for the applicant and the applicant, and the independent expert who may be ordered or agreed, as the independent expert nominated by the applicant". The confidential information is to be used only for the limited purposes of the arbitration and any court proceedings arising out of it.
137 The minute's proposed order 8 provides that, within seven days of the final determination of the arbitration or any appeal from it, and on the expiration of any applicable appeal period, the applicant is to retrieve from the applicant's counsel and "the independent expert" all of the
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- Confidential Information and deliver it up to the respondent's solicitors, except for privileged communications.
138 I have already indicated my view that orders to protect the confidentiality of information secured as a result of orders of the Court of the sort referred to in Mobil, per Hayne JA at 40 might be made in cases like this one. On that basis, orders of the sorts represented by proposed order 7 and 8 appear to me to be ones that could be made in this case.
139 I have noted, however, from Mobil,per Hayne JA, at 40, the need to ensure orders like these, and the others I will reach, strike a "fair balance between the competing interests of the party seeking inspection and the party claiming confidentiality", while also ensuring there is a facility to permit the arrangements to be "reviewed as the matter progresses towards trial or the trial itself proceeds". In this case the provision for review will need to take account of the fact that there is an arbitration involved, and not a trial.
140 I note that the provision for an independent expert in the order allows only for an independent expert who is as "ordered or agreed". This differs from the terms in which an independent expert is referred to in relation to the inspection provided for in proposed order 1 of the minute, to which I return below. It is not clear to me why there is this variance, a matter to which I also return below.
141 The minute further provides (in proposed order 4) that Dr Franklin and certain other persons and entities are to be "disqualified" from undertaking the inspection or being engaged by the applicant as "an expert or non-expert witness" or:
"… from having access to any Confidential Information … or any expert witness report provided in the court of the Arbitration and be prevented from having any involvement whatsoever in the Arbitration."
142 Although no submissions were addressed to me on the matter, I take it that the other persons and entities than Dr Franklin are seen to be so closely associated with him as to raise the perceived risk of loss of confidentiality, against which this order seeks to protect, to unacceptable levels. However, this proposed order, even on that assumption as to those other persons and entities, is one that in my view goes beyond the protection of confidential information. It seems to me that it would prevent the involvement of the persons the proposed order refers to even where there is no risk of access to confidential information, such as where
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- it is sought to use Dr Franklin's knowledge of other processes than the Hotrox one, or indeed to use him to examine products of Hotrox's process, an examination which it appears to have been accepted before me, as it appears to have been accepted before Master Sanderson in Gebauer, could not reveal the confidential information the respondent seeks to protect. It seems to me that proposed order 7 and 8, together with a prohibition on participation in the inspection and access to any confidential information in whatever form is involved (including any expert witness report), would be sufficient in this regard.
143 I now turn to the minute's proposed orders as to inspection, delivery of samples, interrogatories and mediation.
144 The minute's proposed order 1 provides for inspection by the applicant's solicitors "and such independent expert who may be ordered, agreed or engaged by the applicant with the exception of those persons referred to in paragraph 3 [sic 4] below". This appears to allow for the applicant to engage an "independent" expert of its choosing, with the exception noted. This is at variance with the provision of proposed order 7 above, which as has been seen only allows for an "independent expert who may be ordered or agreed, as the independent expert nominated by the applicant". Although it is not entirely clear, order 7 appears to allow for an independent expert to be as ordered by the Court or agreed by the parties. It is not apparent why, on that basis, an independent expert who is neither may participate in the inspection in proposed order 1.
145 It appears to me that the appropriate provision for the independent expert is that in order 1. The ordinary provision for an ordered inspection, examination of an ordered inspection or examination of answered interrogatories is that the there is no restriction as to the inspecting party's access, including that of its advisers, to the information produced for the inspecting party. Here there will be the restrictions I have previously referred to in proposed order 7 and 8, and the exclusions in proposed order 4. I do not consider that the need for any further restriction has been established. However, there should be provision for notification to the respondent of the independent expert who is to be employed for the purposes of the inspection, in the same way as proposed order 2 requires the applicant's solicitors to give the respondent’s solicitors not less than seven days written notice of the date and time of the proposed inspection. This is to permit the respondent to provide any objection to the choice, and to permit steps to be taken to deal with the objection.
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146 The inspection permitted by the minute's proposed order 1 is expressed more restrictively than the corresponding order sought by the applicant, being limited to a right to inspect "on an 'as is where is' basis such of the plant, machinery and equipment which formed part of the production facility of the Respondent ('Production Facility') as described in the Further Re-Amended Points of Claim in the arbitration proceedings". At first blush, however, I do not see a material difference between the two forms of order.
147 The minute's proposed order 3 has no counterpart in the orders sought by the applicant. That proposed order provides for the right of the respondent to remove the production facility from the premises after the completion of the inspection by the date nominated, of 28 April 2006. That date would need to be adjusted in the circumstances of the date of delivery of this judgment. Otherwise, the proposed order appears to me to allow for the reasonable need of the respondent to resume the use of the equipment.
148 The minute's proposed order 5 provides for the delivery up by the respondent to the applicant's solicitors of the three sorts of product, and within the time provided for, in the orders sought by the applicant. However, departing from the orders sought by the applicant, proposed order 5 limits the quantity of each to 3 kilograms, and describes the purpose for the delivery up as:
"… to enable an independent expert ordered or engaged by the applicant to examine and if required to arrange for laboratory analysis of the samples."
149 I note that no issue was taken before me with what appears to be the finding of Master Sanderson in Gebauer, not commented upon by the Full Court in Hotrox, that analysis of samples of the product of the Hotrox process would not reveal that which is the basis of the confidentiality concern in this case, the nature of that process. This would seem to make it appropriate to have the examination and analysis of the sample undertaken by an independent expert who would not necessarily be one who should be permitted to undertake the inspection of the production facility or to have access to the answers to the interrogatories. On my view of proposed order 4, as I have previously explained, that expert could, in my view, be Dr Franklin. However, it is not clear to me why the independent expert is qualified as order 5 provides.
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150 The minute's proposed order (proposed order 6) as to the answers to interrogatories is for the respondent within 21 days to answer the applicant's interrogatories dated 28 November 2001, saving objections other than on the grounds of confidentiality or trade secrets. While the form of this order differs from the corresponding order sought by the applicant, I do not, as a matter of first impression, see that the applicant would be disadvantaged by this form.
151 The minute's proposed order (proposed order 9) as to mediation is for a referral with the mediation to be completed by 31 May 2006. Assuming such order is to be made, and as for the completion of inspection, this date will need adjusted in light of the date of delivery of this judgment.
152 At first blush it is not altogether clear that Commercial Arbitration Act, s 47 gives me the authority to make such an order.
153 My authority would presumably have to be located, under the Rules, in O 29, rather than O 29A. That is because, it appears to me, O 29A on its face does not apply to an arbitration under the Act.
154 Order 29 r 2, opening words, provides that
"In any proceedings the Court may at any time of its own motion on notice to the parties or upon the hearing of a summons for directions or other application review the progress of the proceedings and make such orders or give such directions to lead to their efficient and timely disposal as it may consider just and expedient and without limiting the generality of that power, may …"
- among other orders refer the parties to mediation before a Registrar (O 29r 2(q)-(ra)).
155 Such orders are envisaged as part of the process of case flow management in the Court. It is not altogether clear to me that arbitration proceedings under the Act, which do not have the same procedural incidents nor the same decision-making institutions as adjudication in the Court, are to be regarded as appropriately the subject of that process. It is not apparent why the view of the Court, as expressed in Practice Direction No 5 of 2005 (see Seaman, (supra), at [29.2.13]), that virtually all actions should be mediated, would be appropriate for arbitrations under the Act.
156 The Court's power to order a mediation would, on the face of it, more properly reside with the arbitrator, a location for which O 29 makes no provision. It does not seem to me that there would be any barrier to an
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- arbitration agreement providing for the arbitrator to exercise powers in the same terms (see Commercial Arbitration Act,s 2 and s 14).
157 However, s 47 of the Act confers wide power to make interlocutory orders: see Nauru Phosphate Royalties Trust v Matthew Hall Mechanical & Electrical Engineers Pty Ltd [1994] 2 VR 386, Smith J, at 403; Seaman, (supra), at [81D.6.4]. I am not able to see how, consistently with that conferral, any line between "interlocutory orders" and orders under O 29 r 2 can be drawn. In any event, it seems to me that mediation may well be efficacious in relation to a dispute the subject of an arbitration in the same way it has often proved efficacious in relation to a dispute the subject of proceedings in this Court. It may well be that an arbitration would benefit from a court-ordered mediation, which may draw on the authority of the Court to assist the parties towards either a compromise or a narrowing of the issues in dispute between them. It does not seem to me, however, that Practice Direction No 5 of 2005 would properly apply in this setting.
158 This takes me to the question of whether this is a suitable case for court ordered mediation and, if it is, whether the proposed order should be made in the form requested.
159 It seems to me that the Full Court in Hotrox, per Sheppard AUJ at [60] recognised in November 2002 the value of the parties seeking to confer so as to avoid what became the hearing before me. It seems to me that now, some years later, any such required mediation conference should occur after the applicant has had the opportunity to conduct the inspection, have the samples examined and consider the answers to the interrogatories. That is because any such mediation should be with a view to a possible compromise of the remaining issues of the action, which in view of the technical character of those remaining issues is best approached when the applicant has the information it has been seeking. Of course, this does not prevent any such conference as the parties themselves consider appropriate, at whatever time they consider best.
160 Finally, as to costs, the minute's proposed order 10 would make the costs of the application the costs in the arbitration, while as appears above the order sought by the applicant is the respondent pay the applicant's costs of the application to be taxed.
161 I note, however, the order in the appeal in Hotrox, per Sheppard AUJ at [61] as follows:
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- "The costs of the hearing before the Master and of the further hearing which is to take place should abide the outcome of the arbitration."
162 I consider that is the order that is controlling in the circumstances.
163 I would add that it would be appropriate for there to be a general liberty to apply on short written notice. This would be to provide, for example, for the possibility of the unavailability of any suitable independent expert (including Dr Zhang). In those circumstances, as the Full Court foreshadowed in Hotrox, per Sheppard AUJ at [56], it may be necessary to return to the possible use of Dr Franklin.
164 I will hear from the parties as to the appropriate orders that should be made in view of my conclusions.
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