GlaxoSmithKline Australia Pty Ltd v Ritchie (No 2)
[2009] VSC 25
•6 February 2009
| IN THE SUPREME COURT OF VICTORIA | Unrestricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
INTELLECTUAL PROPERTY LIST
No. 2063 of 2004
| GLAXOSMITHKLINE AUSTRALIA PTY LTD (ACN 100 162 481) | Plaintiff |
| v | |
| JARROD RITCHIE and TPI ENTERPRISES LIMITED (formerly TPI ENTERPRISES PTY LTD) (ACN 107 872 453) | Defendants |
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JUDGE: | HARPER J | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 17 JUNE 2008 | |
DATE OF JUDGMENT: | 6 FEBRUARY 2009 | |
CASE MAY BE CITED AS: | GSK AUSTRALIA PTY LTD v RITCHIE & ANOR (No.2) | |
MEDIUM NEUTRAL CITATION: | [2009] VSC 25 | |
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COSTS –Alleged breach by the first defendant of duty of good faith and fidelity – Alleged misuse by both defendants of confidential information – Judgment for the defendants on the claim, and for the plaintiff on the counterclaim – Application by the defendants for indemnity costs on the claim – Proceeding commenced without identification of allegedly confidential information – Unsupportable claims for confidentiality – Allegations of misuse not made out at trial – Alleged abuse of process - Principles to be followed.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr P. Collinson SC with Ms K. Beattie | Deacons |
| For the Defendants | Mr C. Scerri QC with Mr G. Dalton | Arnold Bloch Leibler |
HIS HONOUR:
The first defendant, Jarrod Ritchie, is a graduate in science (with honours) from Deakin University. The plaintiff, GlaxoSmithKline Australia Pty Ltd (“GSK”) is a major manufacturer of medicinal products, including those based upon opiate alkaloids.
On 4 December 1996 Mr Ritchie joined the staff of GSK’s predecessor, Glaxo Wellcome Australia Ltd, as a graduate chemical analyst. By November 2001, he had been promoted to the position of Research & Process Development Manager. He remained in this senior position when, on 1 July 2002 or thereabouts, the business was acquired by GSK, and he became an employee of that company. As such, the law imposed upon him important responsibilities for the proper preservation of his employer’s confidential information. The plaintiff claimed that he unlawfully used that information, or some of it, when setting up the second defendant, TPI Enterprises Limited (“TPI”), as a manufacturer of opiate alkaloids in competition with GSK.
All but a tiny fraction of the work involved in the establishment of TPI was done after Mr Ritchie resigned as an employee of GSK in December 2003. During the balance of that month, he worked as a consultant to TPI. It was incorporated on 5 February 2004.
Some nine months later, on 15 October 2004, GSK instituted this proceeding. It claimed that Mr Ritchie and TPI had misused its confidential information, and would continue, unless restrained, to do so. The result was long, difficult and expensive litigation which, save for arguments about costs, concluded with my judgment of 22 May 2008.
If there had been any misuse before the proceeding commenced, it did not arise out of the actual manufacture or sale of anything. It was not until 4 August 2005 that TPI obtained a licence from the Government of Tasmania to plant trial crops of opium poppies; and not until November that year that it commenced the construction of a manufacturing facility in Cressy in that State. By September the following year it had been granted, by the appropriate State and Federal authorities, all the licences necessary to manufacture, sell and export opiates for lawful use. Only then was it poised to create additional competition for GSK.
I found for the defendants on the plaintiff’s claim. They now submit that they are entitled to their costs on the claim, assessed on an indemnity basis.
The defendants’ submission is put under a number of heads. They contend that, singly or together, these heads constitute special circumstances that justify an order for indemnity costs. First, it is said that GSK commenced the proceeding without identifying beforehand the information which it alleged to be confidential; and this omission was in the face of the defendants’ repeated requests for it. Secondly, the defendants contend that GSK made, and then persisted with, hopelessly wide and unsupportable claims for confidentiality. Thirdly, the defendants allege that GSK made serious allegations of misuse of confidential information despite there being no factual basis for those allegations. The inference necessarily to be drawn, according to the defendants, is “that GSK commenced this proceeding for the ulterior purpose of destroying or harming TPI’s business rather than for the legitimate purpose of protecting its confidential information from threatened use by the defendants.” Finally, the defendants claim that GSK unreasonably rejected two “Calderbank”[1] offers. This too was consistent, or so the defendants allege, with what they suggest was GSK’s true motivation.
[1] Calderbank v Calderbank (1975) 3 All ER 333.
The plaintiff accepts that an order for costs, albeit costs that are taxed as between party and party, will be made against it. It nevertheless resists any order for indemnity costs, and submits that it should be awarded the costs of the first defendant’s counterclaim, because that counterclaim was abandoned at trial.
The defendants agree that, the counterclaim having been abandoned, the plaintiff is entitled to such of its costs as are referable to that aspect of this litigation. I will make an order accordingly. They likewise agree with the plaintiff’s contention that GSK is entitled to the costs of a particular interlocutory application, the costs of which were reserved. Again, I shall order that those costs be paid as agreed. On the other hand, the plaintiff contends - against the opposition of the defendants - that it should not be ordered to pay the costs incurred in the preparation of a report prepared for the defendants by Professor Robert Capon, one of their experts. That is an issue with which I must deal in this judgment.
The principal point of contention, however, is the plaintiff’s resistance to the defendants’ application for costs to be assessed on an indemnity basis. That resistance, it maintains, rests on three grounds:
(a)there is no basis for the conclusion that GSK commenced the proceeding for the ulterior purpose of destroying or of harming TPI’s business;
(b)GSK’s case was not hopeless; and
(c)the rejection by GSK of the two “Calderbank” offers was reasonable.
The power of the Court to order costs is to be found in s.24(1) of the Supreme Court Act 1986. This states that, unless otherwise expressly provided in relevant legislation (such as rules of court), the costs of and incidental to all matters in the Court “is in the discretion of the Court and the Court has full power to determine by whom and to what extent those costs are to be paid.”
Order 63 of the Supreme Court (General Civil Procedure) Rules 1996 governs the exercise of the discretion to which the statute refers. By r.63.02, the Court’s “power and discretion” granted to it by s.24 “shall be exercised subject to and in accordance with this Order”.
The general basis upon which costs are to be assessed is that referred to in the Rules as the “party and party basis”.[2] Nevertheless, the Court may in the exercise of its discretion order that costs be taxed on some basis other than that.[3] It is this latter power which the defendants seek to invoke. On a taxation on an indemnity basis, all costs shall be allowed except in so far as they are of an unreasonable amount or have been unreasonably incurred.[4] Any doubt which the relevant taxing officer may have about the reasonableness of any item of costs shall be resolved in favour of the party to whom the costs are payable.[5]
[2]Rules of the Supreme Court r.63.31.
[3]Rules of the Supreme Court r.63.28.
[4]Rules of the Supreme Court r.63.30.1(1).
[5]Rules of the Supreme Court r.63.30.1(2).
The Rules also allow for the taxation of costs on a solicitor and client basis. On a taxation of solicitor and client costs, all costs reasonably incurred and of reasonable amount shall be allowed.[6]
[6]Rules of the Supreme Court r.63.30
An order of the kind sought by the defendants will be made if the justice of the case so requires. But that would only be so “in a special case, where the circumstances justify departure from the ordinary principle”.[7] It is for the party seeking such a departure to satisfy the court that the circumstances provide the requisite justification. That burden therefore falls, in this instance, on the defendants.
[7]Ragata Developments Pty Ltd v Westpac Banking Corporation (Unreported, Federal Court of Australia, 5 March 1993, per Davies J).
But it was the plaintiff that alleged, in its statement of claim in this proceeding, that Mr Ritchie and TPI had misused GSK’s confidential information. Accordingly, the burden of proving that cause of action rested on GSK. It ought not to have been pursued unless there was some proper basis for thinking that the burden could be discharged. The discretion to order indemnity costs is enlivened whenever, for whatever reason, a party persists in what should on proper consideration have been seen to be a hopeless case.[8]
[8]See, for example, J-Corp Pty Ltd v Australian Builders Labourers Federation Union of Workers (WA Branch)(No.2) (1993) 46 IR 301 at 303 per French J.
This is the issue to which I must direct my attention. If the plaintiff realised, or on proper consideration should have realised, that its allegations of misuse of confidential information were hopeless, yet persisted with them, its motivation in doing so would when deciding questions of costs probably be irrelevant; and if its case was fairly arguable, even if in the end unsuccessful, again - as the unsuccessful party - its motivation would, generally speaking, not influence the outcome of an application for costs.[9] There may be some exceptions, but in general it is no answer to a good cause of action that the motives of the person bringing it are unmeritorious, or that he or she has an ulterior purpose. Accordingly, the question of GSK’s motivation is in that sense a distraction. But the defendants raised it, and the plaintiff responded. I shall, therefore, turn briefly to it.
[9]An exception might be that the cause of action was for breach of contract where no damage had resulted. If litigation, founded on such a cause of action, was brought for an ulterior and totally unmeritorious purpose, the defendant might obtain an order for indemnity costs.
The plaintiff sought, through the evidence of the then general manager of its chemicals division, Mr Zippel, to make good its submission that GSK did not commence this litigation for the ulterior purpose of destroying, or of harming, TPI’s business. Mr Zippel’s evidence was to that effect. The plaintiff points out that no suggestion of mendacity was put to him in cross-examination, and that I made no finding that reflected adversely on his credit. All this is true. It is also true, nevertheless, that Mr Ritchie’s resignation in December 2003 necessarily carried with it the threat of competition. There was also the certainty that that competition, if it came at all, would come through a newly established entity, TPI, that enjoyed the very considerable advantage of his former access to confidential information; information the confidentiality of which had until his resignation been retained by GSK.
In these circumstances, I have no doubt that the reaction of GSK to Mr Ritchie’s resignation was the product of more than a simple fear that he would commit what GSK regarded as a breach of confidence. The plaintiff also foresaw the entry into the industry of a new competitor equipped, if not with weapons of mass destruction, at least with the very considerable firepower that Mr Ritchie’s presence in its ranks enabled it to bring to the battlefield. Unless one entirely abandons one’s common sense, experience of life and knowledge of the world,[10] one cannot escape an otherwise inescapable conclusion. GSK hoped that this litigation would result in TPI’s defeat and, with it, the withdrawal of a potentially formidable competitor. The correspondence to be analysed below amply confirms that GSK was acutely aware of, and strongly resistant to, the competition threatened by TPI’s existence.
[10]These are attributes which, in our system of criminal justice, juries are told they are expected, indeed required, to call upon in their fact-finding task. Judges must use the same tools when, in civil cases, they sit as the fact-finding tribunal.
To say this is not necessarily to say that GSK commenced this litigation for an improper purpose. It had a legitimate interest in the protection of the confidentiality of its confidential information. If, therefore, these proceedings were intended to afford that protection, and there was a reasonable basis for thinking that they were necessary or appropriate to achieve that end, their institution was no more than the exercise by the plaintiff of its undoubted right. No order for indemnity costs could be grounded in the conclusion that they were brought for an improper purpose. And this is so even if their success would have had the incidental – albeit, as GSK saw it, the highly desirable - result of removing or reducing the threat of a potential competitor.
It is not open to doubt that these proceedings were intended to afford protection for GSK’s confidential information. There remains the issue whether there was a reasonable basis for thinking that litigation was necessary to secure that end.
The circumstances upon which the defendants rely must be viewed against the factual matrix of the dispute. An examination of that matrix begins with the industry in which the plaintiff operates. It is an industry based upon the marriage between science and technology – in this case embodied particularly in the expertise of experienced chemical analysts and experienced chemical engineers. Science and technology, together with expertise and experience, must be called in aid if medicinal opiates are to be safely manufactured so as to meet appropriate standards. GSK has each of these attributes at its command. They are very valuable assets. Part of their value lies in the fact that a portion of the knowledge which is their product is confidential to GSK.
The plaintiff wishes to preserve that confidentiality. The most effective means of preservation is an appropriately-worded clause in relevant contracts of employment. I found that GSK was not protected in this way, at least not in the case of Mr Ritchie.
Even in the absence of a confidentiality clause in his contract of employment, however, Mr Ritchie was bound to preserve in perpetuity the confidentiality of that portion of GSK’s confidential information which he, as “a person of ordinary intelligence, in all the circumstances of the case, including, inter alia, the relationship of the parties and the nature of the information and the circumstances of its communication, [would] recognise … to be the property of [GSK] and not his own to do as he likes with”.[11] (Such information is sometimes referred to as a “trade secret” -an expression with, as yet, no settled meaning; but it is nevertheless helpful to employ it here).
[11]Deta Nominees Pty Ltd v Viscount Plastic Products Pty Ltd [1979] VR 167 at 193.
There is, on the other hand, another side to this coin. Both sides must be seen as integral to any examination of the use and misuse of confidential information in the employment and post-employment context. To the extent that it does not constitute a trade secret, an ex-employee may exploit the general stock of knowledge, skill and experience which is at his or her command and which constitutes his or her accumulated expertise. This accumulated expertise is sometimes referred to as the “know-how” of the ex-employee.
Mr Ritchie was therefore free, when he left GSK’s employ, to use, either for his own benefit or for the benefit of a new employer, certain information (his know-how) derived during the course of his service with GSK. To the extent that it did not constitute the sole property of GSK (to the extent, therefore, that he was within his rights in dealing with it as his own) he was entitled to exploit the general stock of knowledge, skill and experience which was then at his command and which constituted his accumulated expertise in the manufacture and marketing of medicinal alkaloids. And he could do so even if the information in question, or some of it, although not a trade secret, was properly classified as confidential - in the sense that, as an employee of GSK, Mr Ritchie had an obligation, so long as he remained in GSK’s employ, to preserve its confidentiality.
The propositions described in the preceding paragraphs embody what is now settled – indeed, trite - law. It is applicable when questions of misuse of confidential information arise. I am satisfied that GSK was, after Mr Ritchie’s departure, concerned about his possible misuse of its confidential information. This trite law is, therefore, that which ought to have governed GSK’s approach to this case.
GSK’s first task was to identify what I have called its trade secrets - that information which was peculiarly its own property, in the sense that Mr Ritchie should have recognised it as not his to do as he liked with. This was and is information which Mr Ritchie could not legitimately employ (whether on his own or another’s behalf) save to the extent that GSK permitted. GSK should then have sought, and Mr Ritchie and TPI should have proffered, an undertaking that the defendants would not use any GSK information of the forbidden class, save to the extent (if at all) allowed by GSK. If such an undertaking were not forthcoming, GSK would then have had an impeccable basis upon which to institute proceedings. A similarly impeccable basis would have been provided were there evidence that the defendants had already exploited, or otherwise failed to maintain the confidentiality of, GSK’s trade secrets and other information likewise peculiarly its own.
The distinction between, on the one hand, information which remains the property of the former employer (for convenience I shall refer to such information as “trade secrets”), and the general background knowledge and experience of the ex-employee on the other (“know-how”) may sometimes be difficult to draw. It is nevertheless, in the present context, crucial. It is only in the exceptional case that, in the absence of a properly drawn restraint of trade clause, a former employer should seek to prevent (or, more particularly, could succeed in preventing) the use by a former employee of all the information which the former employer regards as properly confidential. Rather, the employer should, indeed in certain circumstances must, recognise that a large part, perhaps extending to the whole, of the information which it rightly regards as confidential may (in the absence of a properly drawn clause in restraint of trade) be exploited by the departed employee. This is not because the information is not confidential; it is because, in the absence of a properly drawn clause in restraint of trade, the law will not (to the extent that the information does not amount to a trade secret or trade secrets) fully protect the former employer’s interest in it. Given its importance in this case, it is necessary to re-emphasize that, in the absence of agreement, protection will not extend to prevent the use by the former employee of the know-how of that employee; the latter travels with him or her and, being part of his or her persona, may - to the extent that it is not a trade secret - be exploited by that employee in any subsequent employment.
In saying this, I repeat that it may not be easy to distinguish between information which remains the property of the former employer and that which forms the general stock of knowledge of the ex-employee. GSK and the defendants may have honestly reached different conclusions on the point. In those circumstances, the course most consonant with a just outcome of the dispute may well have been a meeting between the parties, each prepared honestly to discuss their differences. The defendants persistently sought a meeting. GSK, with equal persistence, rebuffed them.
When set against what should have been done, GSK’s failure to act with propriety is starkly revealed. Its first salvo was to brand all its confidential information as a trade secret, or as a series of trade secrets. It ignored – totally – the vital distinction between its confidential information that had not been misused (and which was therefore in this context irrelevant) and its confidential information which had been the subject of a breach of confidence. Consistently with this misguided approach, it ignored the significance of Mr Ritchie’s know-how. In a letter dated 17 September 2004, and therefore written by GSK’s solicitors to TPI before the latter had commenced to manufacture anything, the solicitors said, in part:
… GSK perceives a real and significant risk that TPI has used and will continue to use its confidential information, which has been developed and refined over time by GSK at considerable expense, and remain trade secrets of GSK, for the purposes of establishing itself as a direct competitor to GSK’s legal opiates business.
…
In order to alleviate GSK’s concerns, and satisfy GSK that TPI has and will continue to respect all of GSK’s rights … GSK requests that TPI provide it with the following undertakings:
(1)that TPI has not received any information that is confidential to GSK, including but not limited to the following:
(a)scientific and technical information incorporating GSK’s processes and development activities relating to:
(i) growing and breeding poppies; and/or
(ii) extracting alkaloids from poppy straw; and/or
(iii) value added derivatives of opiate alkaloids;
(b)commercial, business, financial and strategic information relating to GSK’s opiates business;
(c)business and commercial information about GSK’s opiates clients, including information as to pricing and quantities supplied to these clients by GSK, and details of relevant client contacts;
(2)that TPI has not used any information that is confidential to GSK, including but not limited to the categories of information listed in subparagraphs (1)(a)-(c) above;
(3)that TPI will not use any information that is confidential to GSK, including but not limited to the categories of information listed in subparagraphs (1)(a)-(c) above.
A moment’s thought will reveal that the undertakings sought are inappropriately wide. Take the very first of them. GSK is not the world’s only grower and breeder of poppies; untold numbers around the world make this basically routine activity the principal endeavour of their lives. There is only a certain amount of scientific and technical information involved, and the public domain is the repository of most of what there is. GSK has a monopoly of only so much of it as amounts to a GSK trade secret.
It goes without saying that GSK cannot, simply in order to avoid competition, lawfully prevent TPI or anybody else growing and breeding poppies. Any undertaking imposed by or on behalf of GSK would therefore have to be restricted to such technical and scientific information about the growing and breeding of poppies which can properly be characterized as a GSK trade secret, and over which it therefore properly has a continuing monopoly. It was incumbent upon GSK to identify with precision that part of its information which would be so characterized.
The reason is clear. If GSK wishes lawfully to prohibit TPI from using such a trade secret, it must describe that secret in a way that enables TPI to know what GSK is talking about. Only then could a meaningful undertaking be given. After all, undertakings must not be given lightly. It necessarily follows that, for the protection of both the giver and receiver of any undertaking, it should be tightly framed and unambiguous. Undertakings given in the form set out in the letter of 17 September 2004 would have had neither quality. Not only that, but they would have prevented Mr Ritchie using most if not all of his expertise in the service of TPI, even though that expertise included much that did not amount to a trade secret.
17 September 2004 was a Friday. The letter of that date received a prompt reply. On the following Tuesday, 21 September, the then solicitors for the defendants wrote to GSK’s solicitors. They stated that their clients had not used and did not intend to use any of GSK’s confidential information; but they did not attempt to define that expression as used by them in this way. They declined on the defendants’ behalf to give the desired undertakings. They did, however, “acknowledge that certain business, financial and strategic information concerning your client’s opiates business may be confidential to your client.” Consistently with that position, they told the plaintiff’s solicitors that “if your client is prepared to provide details of the allegedly confidential information which it is concerned may have been misused by our clients, and also to outline the factual basis of those concerns, please provide that information to us, so that we may seek instructions from our clients.”
When this letter received a short and uncooperative response, the solicitors for the defendants wrote again. Their second letter is dated 23 September. They noted their clients’ undertaking that they did not “possess any documents which are confidential to your client.” They correctly described the undertakings sought by GSK as “inappropriate”, and declined – with complete justification - to give them. They did, however, offer to consider an undertaking in respect of precisely identified information. Of particular importance, they announced their clients’ offer to meet the plaintiff to discuss the plaintiff’s concerns. It was an offer that was repeated in a letter dated 24 September.
In my opinion, the defendants’ position as thus expressed was close to impeccable. If there is to be any criticism of it, it is only that they did not bring absolute intellectual clarity into the debate. They did not ask, in terms, that GSK identify those trade secrets about which it was concerned. Nor did they volunteer to give an undertaking that, once properly identified, no trade secrets would be either revealed or exploited by them.
Impeccable or not, the defendants’ response initially received a curt reply. On 24 September, the plaintiff’s solicitors requested an assurance that neither TPI nor Mr Ritchie had “any documents or materials in their possession or control containing information that is confidential to GSK nor possess any other property belonging to GSK.” But such an assurance had already been given – although, it is necessary to point out, it had been given without identifying the individual documents that Mr Ritchie admitted having in his possession following his resignation, but which he claimed to have subsequently destroyed. GSK were understandably anxious to have those documents identified. Mr Ritchie never answered this request, save to indicate, somewhat obliquely, that he could not. In their letter dated 24 September, his solicitors wrote:
A diligent search by Mr Ritchie of his personal belongings resulted in a number of such materials being located. These materials were promptly destroyed. Mr Ritchie did not closely review these materials. He did not need to do so. He did not make any attempt to identify whether or not they contained information which could be confidential to your client. Rather, he simply identified the materials as being materials which related to your client’s business, and then destroyed them.
Mr Ritchie did not keep a record of the precise materials which were found and the precise dates on which they were destroyed. … It should be sufficient to allay any concerns which your client could legitimately have in this regard to restate that – as noted in our facsimiles dated 21 September 2004 and 23 September 2004 – our clients did not use any such documents for the benefit of the TPI … business. The precise nature of the materials which were located, and their date of destruction, are irrelevant.
The 24 September letter went on to repeat that, if GSK “has any particular concerns regarding information which it considers confidential to it, then – as [previously] noted – our clients remain willing to meet to discuss your client’s concerns.”
GSK’s solicitors responded at some length. By letter dated 29 September, they gave several reasons why they doubted “the veracity of any statements your clients may make”. But even if the doubts were justified, the focus of the plaintiff’s attention should have been its own case. Fundamental to any civilised legal system is the proposition that the burden of proving an accusation rests upon those who make it; and that it is therefore necessary that every accusation be framed with sufficient clarity and precision as to be capable of a meaningful response. In contra-distinction to this, GSK preferred in these opening skirmishes to attack the opposition rather than illuminate the real issues; and so it laid charges that were impossibly vague. At the same time, it declared that TPI and Mr Ritchie had already been found guilty.
The point is illustrated by a passage from the letter of 29 September. The final paragraph of this passage is of sufficient importance in this context to warrant my printing it in italics for emphasis. The passage reads:
Mr Ritchie was employed in a senior position in a unique industry. Mr Ritchie, as a senior manager of the Chemicals Division of GSK at Port Fairy, was provided with unfettered access to GSK’s manufacturing guides, analytical methods, batch sheets, product specifications, standard operating procedures and laboratory notebooks, among other information, relating to the extraction and processing of opiate alkaloids at GSK’s Port Fairy site. In addition, Mr Ritchie had access to GSK’s detailed and confidential sales, budgetary and client information.
In particular, Mr Ritchie had intimate knowledge and unfettered access to information and data pertaining to the:
(1)agronomy, including breeding and treatment methods, employed by GSK to achieve optimal alkaloid extraction efficiency from its poppies;
(2)combination and sequence of the chemical and engineering processes used by GSK to achieve optimal alkaloid extraction efficiency from its poppies;
(3)sequence, timing and nature of poppy extract purification processes adopted by GSK to achieve optimal efficiency;
(4)chemical data developed at GSK laboratories, such as solubility, pH and solvent partition data; and
(5)likely yields of opiate alkaloids achieved at each of the key manufacturing steps of initial extraction, purification and concentration, impurity removal.
This information and data was compiled and/or developed by GSK at great effort and expense, is not in the public domain and is considered by GSK to be its trade secrets.
Furthermore, we are instructed that this information would not be practically possible to independently develop from information existing in the public domain without extensive laboratory or pilot data due to the limited availability of empirical data of this type in the public domain. In this regard, the empirical data used by GSK to develop and refine its processes … has also been developed and compiled over time at considerable expense and remains confidential to GSK.
It can only be the case that, in the circumstances where Mr Richie’s detailed knowledge of the above was only by virtue of his access to (and contribution in developing) GSK’s confidential information, Mr Richie and TPI (through Mr Ritchie) have used and will continue to use GSK’s confidential information in the process of establishing a business in opiate extraction.
The letter went on to state that, in the light of these considerations:
… our clients clearly have differing views as to what constitutes GSK’s confidential information and the threat of use of such information.
In the circumstances, GSK sees little utility in participating in the meeting that your clients propose.
Again the defendants’ response was prompt. In a letter written on the following day (30 September), their solicitors repeated their complaint that “the information which your client alleges to be confidential to it” remained unidentified. They continued:
Your facsimile merely makes vague references to certain types of information which do not enable our clients to assess the validity of your client’s claims. Your facsimile makes reference to “… manufacturing guides, analytical methods, batch sheets, product specifications, standard operating procedures and laboratory notebooks … and confidential sales, budgetary and client information.” We are instructed that our clients do not possess any GSK documents which deal with the above matters. However, these matters are very broad categories which no doubt include a significant volume of information which on no reasonable view could be considered confidential to your client. Equally, our client accepts that some information used in your client’s business relating to the above categories will be confidential to it. These broad categories of documents, however, fail to identify any particular information which is genuinely confidential to your client … Please provide further particulars of the allegedly confidential information so that our clients can consider your client’s concerns.
…
It is … apparent that there is a wealth of publicly available material relating to the licit opiates business. It is incorrect to assert that this information cannot easily be obtained. There is no need to conduct extensive laboratory testing in order to obtain this information.
As noted above, our clients acknowledge that some information relating to your client’s opiates business is confidential to it. This may include the [XXXXX XXXXX X] extraction technique and/or certain synthetic value added processes that are not available in the public domain. Our clients are prepared to undertake that they will not be using the confidential [XXXXX XXXXX X] extraction technique, nor will they be using any synthetic processes which are confidential to your client.
…
Notwithstanding that our clients have given extensive assurances and undertakings to your client, our clients still do not understand the precise nature of the information which your client asserts to be confidential to it. Our clients remain ready and willing to discuss the specific information which may be of concern to your client. Our clients would also consider providing further undertakings when that information has been precisely identified. Despite the statements in your facsimile that the lack of a mutual understanding in relation to your client’s concerns means that a meeting would not be useful, we consider that this fact underlines the very purpose of a meeting to discuss these issues. Our clients are genuinely prepared to listen to your client’s concerns (if those concerns remain).
Our clients would like to work with your client in a constructive and co-operative way in order to determine whether this dispute can be resolved in a mutually satisfactory way. This need not result in any significant delay. Our clients are available to meet with your client on either Tuesday 5 October 2004 or Wednesday 6 October 2004. Please let us know whether your client is willing to meet to discuss this issue.
In my opinion, there is little if anything to criticise in this response.
In a letter dated 6 October 2004, the solicitors for the plaintiff re-stated their view that a meeting between the two sets of clients would not be useful “given their clearly diverging views as to what constitutes GSK’s confidential information and the threat of use of such information”. They noted the defendants’ “repeated refusal to provide the undertakings requested by GSK in this regard” and “in the circumstances” saw “little alternative but to issue the contemplated proceedings against your clients.”
The defendants’ solicitors wasted no time in responding. On 7 October, they highlighted a principal point of difference between the parties by expressing surprise at GSK’s opinion that it had little alternative but to issue proceedings, and that a meeting would be futile. They pointed out that any divergence between the respective positions of the antagonists “only serves to underscore the sense in the parties meeting to discuss this matter rather than bringing the matter inappropriately before a court”. The invitation to meet was once more extended.
The letter of 7 October then turns to the sufficiency (or otherwise) of the particulars provided by GSK concerning the information said to be confidential. The letter continues:
We note that your client has again failed to identify with sufficient particularity the alleged confidential information which your client is concerned may be (or may have been) used by our clients. It follows that your client has not provided a proper basis for the assertion that any such information is confidential to it. As you would be aware, your client will be obliged to particularise the allegedly confidential information in any legal proceedings against our client in relation to this matter … It is not reasonable for your client to withhold this information until the commencement of legal proceedings. Nor is it appropriate to refuse our clients’ offer to meet, on the apparent basis that the parties have diverging views about some matters, when your client has not provided our clients with sufficient particulars regarding your client’s alleged confidential information.
We refute the assertion that our clients have repeatedly refused to provide undertakings requested by your client. Our clients have already provided extensive undertakings to your client. In particular:
·our clients have undertaken that they do not possess any documents which are confidential to your client …
·our clients have undertaken that they will not be using the confidential [XXXXX XXXXX X] extraction technique …
·our clients have undertaken that they will not be using any synthetic value addition processes which are confidential to your client or the subject of a valid patent in the name of your client.
The latter two undertakings were provided on the basis of our clients’ reasonable assumptions regarding the specific information which could be confidential to your client. These undertakings were provided despite your client failing to sufficiently particularise the asserted confidential information. Our clients are not in a position to provide further undertakings to your client given that your client remains unwilling or unable to identify with particularity the information which is alleged to be confidential to your client. In those circumstances, the scope of the further undertakings sought by your client are uncertain and therefore would impose unreasonable restrictions upon the conduct of our clients’ business. As noted previously, our clients will consider any requests for further undertakings which are targeted at the use of information which could genuinely be said to be confidential to your client.
Our clients therefore reiterate their request that your client identify with precision the information which your client asserts to be confidential to it, in order that our clients may consider your client’s concerns. Our clients also reiterate their offer to meet to discuss this matter. Our clients consider that a meeting could be a useful forum for a discussion of the particular information which your client asserts to be confidential to it, and a discussion regarding possible targeted undertakings.
It is unfortunately true that, despite the defendants’ repeated requests, GSK never answered them by the identification, with the necessary precision, of the information that GSK considered to be confidential, let alone misused. It is similarly unfortunately true that, despite the defendants’ repeated invitations, no meeting was held. Instead, on 15 October 2004, eight days after the last request was made and the last invitation was issued, the plaintiff initiated the present proceedings. In its opinion, the provision of information was not necessary and further discussion was not warranted. It was wrong on both counts.
By contrast, there is much to be commended in the position consistently adopted by Mr Ritchie and TPI in the correspondence set out above. GSK did, it must be conceded at once, have reason to fear that the defendants were using – or, more relevantly in the circumstances as they then obtained, would continue to use - GSK’s trade secrets. It must also be conceded that the defendants did not couch their frequent and repeated requests for information in what were precisely appropriate terms. They ought to have concentrated upon information about trade secrets. They ought also to have emphasised their acceptance of the proposition that neither Mr Ritchie nor TPI were entitled to, and therefore would not, exploit any GSK trade secrets because these consisted of confidential information that properly belonged exclusively to GSK. But they did acknowledge, on multiple occasions, that GSK had information which was confidential. And they did ask that GSK identify such information (some of which, to the extent that it formed part of Mr Ritchie’s stock of knowledge and experience and was not a trade secret, Mr Ritchie and, through him, TPI, could lawfully exploit). Moreover, they did on occasion, but always in vain, couple that request with the further, and necessary, request that GSK identify that confidential information which (to quote from a passage, set out above, from the letter of 7 October) GSK was “concerned may be (or may have been) used by” Mr Ritchie and TPI. They therefore did get close, in this correspondence, to the real issue: the identification of that confidential information, if any, which Mr Ritchie and/or TPI did misuse.
The same could not be said of GSK. In the exchange of correspondence in question, it and the real issue remained on opposite sides of the horizon.
Some repetition of a point previously touched upon in this judgment may here be warranted. It is that, whenever there is a query about the use by a former employee of the confidential information of the former employer, the emphasis must be on the identification of the information which has been misused. Confidential information which has not been misused is of lesser relevance, if not (depending on the circumstances) quite irrelevant. Yet this case is another example of the tendency for former employees who are defendants or potential defendants to ask that all the former employer’s confidential information be identified, and for former employers (having extracted undertakings to preserve confidentiality) to dump on a defendant who is a former employee vast amounts of information that are irrelevant to the dispute because they have not been misused and (as is revealed as the litigation grinds on) are not alleged to have been misused.
It is quite possible that any meeting between GSK on the one hand and Mr Ritchie and TPI on the other would have foundered on problems such as these. In its written outline of submissions on costs, GSK argued that:
[t]he defendant’s position is and always has been that almost none of the information said to be confidential by GSK was confidential. In these circumstances, the defendants would clearly not have agreed to provide any suitable undertakings to GSK.
That submission does not accurately reflect the correspondence set out above. In any case, it is no reason why a meeting should not have been held. It remained possible that what should have happened would have happened: each party may have acted reasonably, and in accordance with the applicable legal principles. Under the pressure of a face to face encounter, GSK may have taken advantage of the defendants’ concession that they would not use either the [XXXXX XXXXX X] extraction technique or any synthetic value addition processes. GSK may have identified other confidential information which the defendants could not lawfully exploit, or which the defendants had no interest in exploiting. Mr Ritchie and TPI may then have given satisfactory undertakings that they would not use any such secrets, or otherwise improperly deal with any of GSK’s confidential information.
The reason given by GSK for its refusal to meet was in any event spurious. There was no suggestion in the correspondence from the solicitors for Mr Ritchie and TPI that either would be inflexible; and no justification for GSK’s solicitors to assume (if they did assume) intransigence on the part of those opposite. Rather, those on the GSK side ought to have borne in mind the wisdom contained in the judgment of Laddie J in Ocular Sciences v Aspect Vision Care Ltd[12]:
A claim based even in part on wide and unsupportable claims of confidentiality can be used as an instrument of oppression or harassment against a defendant. It can be used to destroy an ex-employee’s ability to obtain employment or a competitor’s ability to compete. The wider the claims, the longer and more expensive the litigation… Furthermore a defendant faced with a narrow claim may decide that the commercial realities point towards a tactical withdrawal. He may be able to relinquish use of the contested information, yet stay in business. The possibility of doing this reduces as the width of the plaintiff’s claim increases. The defendant is left with no alternative but to fight on in heavy litigation, spending money on lawyers which he would prefer to spend on building up what may be a new business. The attractions of this to a plaintiff bent on harming a competitor’s business are obvious.
[12][1997] RPC 289 at 360-361.
The relevance of this passage to this case is equally obvious. Despite the evidence of Mr Zippel, I have no doubt that, while GSK had a legitimate interest in the protection of its confidential information, a desire to harm TPI’s business significantly influenced its decision to fight the defendants in the heavy litigation that began almost immediately after the solicitors’ correspondence came to an end.
In its written outline of submissions on costs, the plaintiff contends that it was “not in a position to tailor tightly framed undertakings because it had incomplete knowledge about the activities of the defendants.” The concession about incomplete knowledge is significant, and I shall return to it. One point should be made now. If it had a case at all, GSK was in a position to identify that part of its confidential information which, even if it was an element of Mr Ritchie’s know-how, at least arguably could not be used by him because (being encompassed by what I have called its trade secrets) it remained the exclusive property of GSK. Were it otherwise, GSK would have and could have no cause of action for breach of confidence; and it may well be that some such information could have been identified not merely arguably, but with practical certainty. GSK’s knowledge, or the lack of it, about the activities of the defendants is in this context irrelevant. Once GSK identified those elements of its confidential information which constituted its exclusive property and which, therefore, neither Mr Ritchie nor TPI could exploit except on behalf of GSK, it was in a position to frame undertakings which reflected that position – and, in the course of the correspondence, ask the defendants to give them. If they refused, the basis for a claim to injunctive relief would in all likelihood be made out.
In its pre-litigation correspondence, GSK failed properly to attempt to identify, let alone actually to identify, the information that the defendants could not use. Rather, it indiscriminately covered under the rubric of a trade secret all the information it claimed to be confidential. It is true that, as the litigation continued through the trial, GSK became more and more inclined to emphasize that it was the “combination of the material uses, the chemistry, the operating parameters …, the sequence in which they are operated, [which] is confidential to GSK”.[13] As such, the information that the defendants could not use became more difficult to identify because so much depended on context. But that was a problem which, if it could not be overcome, would be a barrier to the launching of proceedings, and in particular to the grant of injunctive relief – not an excuse for instituting litigation without proper particulars.
[13]T 555 lines 9-26, as quoted in the plaintiff’s written submissions in relation to costs at [40]. Emphasis as in the written submissions.
The plaintiff submits that it was entitled to be suspicious of Mr Ritchie, and to take that into account when deciding whether or not to commence this action. His involvement in the Premgen project is put forward as one justification for that approach. In my opinion, however, Premgen was relevant only because GSK saw it as an irritant, and as a sign of what it viewed as Mr Ritchie’s tendency to insubordination. On no objective assessment could it have given rise to a suspicion that Mr Ritchie was likely to commit, still less had committed, a breach or breaches of confidentiality.
Next, the plaintiff points to the fact that, whilst a GSK employee, Mr Ritchie was involved with the incorporation of a company called Otmax Pty Ltd. This company is the sole shareholder in TPI. That is an irrelevance, even given that others likewise involved, among them Messrs Connolly and McMullan, also had access to some information that was confidential to GSK.
Equally irrelevant is the plaintiff’s next argument: that TPI “was seeking to establish itself as a manufacturer and supplier of legal opiates; however, it had not conducted any trials or experiments in relation to alkaloid extraction (and did not have the required permits to do so)”.
The facts are correctly stated. TPI did wish to become a manufacturer and supplier of legal opiates, and had not conducted any trials or tests, or obtained any permits. The assumption seems to be that, for these reasons, TPI must have been constrained to rely on the misuse of confidential GSK information; and that this litigation was accordingly justified. But that does not follow in either theory or fact. In the fullness of time, the permits were granted and the facilities were constructed. Until then, no serious tests could be done, and no meaningful experiments could be performed; but TPI could proceed with planning by calling upon Mr Ritchie’s know-how. To suggest that, in the interim, TPI must of necessity have been misusing GSK’s confidential information, is to maintain a position that was not open on the evidence. It is also to suggest that TPI should never have been allowed to become established and, thereby, to compete with GSK.
The result of TPI’s tests and experiments, when coupled with Mr Ritchie’s background knowledge and experience, was a method of producing medicinal opiates that employed no information that belonged to GSK in the sense of being what I have called a trade secret. In other words, all the information that Mr Ritchie and TPI have actually employed in the manufacture of their medicinal opiates was information that they had a right to use as their own.
In this context, GSK’s admission that “it had incomplete knowledge about the activities of the defendants” is significant. The fact is that this litigation began before the defendants were in a position to misuse GSK’s confidential information in the manufacturing process. Ant it certainly began before the plaintiff was aware of any misuse.
In early November 2003, Mr Ritchie made a request of Ms Claire Hampton. She was and is the finance manager of GSK’s Chemicals Division. Mr Ritchie wanted information that had not then been published in GSK’s budget materials, and which was still covered by the company’s pre-publication confidentiality regime. Ms Hampton gave it to him. I found, however, that his request was legitimate. The plaintiff now submits that this was an issue it was entitled to contest, and to do so by means of this litigation.
I agree, but with a qualification. Even had Mr Ritchie misused the information he obtained from Ms Hampton (an outcome rendered less than likely because of its limited currency and his knowledge, as part of his “know-how”, of the broad trends in the relevant financial data) a wholesale attack upon the defendants’ exploitation of GSK information was not warranted by the Hampton episode. It was, after all, limited to an alleged misuse of financial, not scientific or chemical, information. And by the time the defendants were in a position to misuse it, even had that been their intent, it was out of date.
The next issue of concern to GSK as it contemplated whether to institute these proceedings was, according to its written outline of submissions on costs, certain instructions given by Mr Ritchie to a subordinate at GSK. In fact, however, GSK first became aware of these instructions only after proceedings began. That knowledge, therefore, had nothing to do with the launching of this litigation. Not only that, but the instructions that Mr Ritchie gave were to perform experiments using acetic acid in the primary stage of alkaloid extraction. GSK claimed that the results constituted confidential information which Mr Ritchie gained at GSK’s expense, and then used against it. But the claim must be seen against the circumstance that GSK did not and does not use this acid as its primary extraction liquid. Nor has TPI ever used it as such. Once GSK discovered this fact, it should have tailored its position accordingly. Regretfully, it did not.
The allegations of misuse of information about acetic acid demonstrate, it seems to me, something of the extent to which GSK’s concern about TPI as a competitor affected its capacity to make rational judgments about the difference between suspicion and hard evidence. In a chronology to which both sides contributed, GSK make the point that, in July and August 2002, Mr Ritchie was engaged in important research into the use of acetic acid in the manufacture of thebaine. The results, according to several GSK entries in the chronology, were never satisfactorily or fully made known to it. Then, after this litigation was instituted, documents were obtained which indicated that acetic acid was to be used by TPI as its primary extraction liquid. The implication that GSK seems to have drawn for the purposes of this litigation (and which it would have me draw) is that Mr Ritchie withheld information from GSK in 2002, as a result of which GSK did not proceed with plans to use acetic acid; but then, armed with information belonging to GSK although never revealed to it, in 2004 Mr Ritchie and TPI benefited from it by using it in their plans.
There are difficulties in drawing these inferences. One is that, if Mr Ritchie did indeed fail to provide an adequate report about the results of his research, GSK nevertheless retained him as a senior employee until his voluntary resignation 18 months later – and there is no evidence of any attempt in the interim to have him remedy his delinquent reporting. A second difficulty is that TPI has never used acetic acid, and the evidence is that it does not intend to do so. I accept that it once did so intend, and that this is a matter of significance – to which I shall return. The point for present purposes is that GSK’s contribution to the chronology is replete with references in which innuendo is a substitute for substance.
Throughout its submissions about costs, GSK stressed that all have a right to seek the assistance of the courts in the resolution of their disputes. GSK was correct to do so. As Lord Diplock said in Bremer Vulkan Schiffbau und Maschinenfabrik v South Indian Shipping Corporation Ltd:[14]
Every civilised system of government requires that the state should make available to all its citizens a means for the just and peaceful settlement of disputes between them as to their respective legal rights. The means provided are courts of justice to which every citizen has a constitutional right of access in the role of plaintiff to obtain the remedy to which he claims to be entitled in consequence of an alleged breach of his legal or equitable rights by some other citizen, the defendant.
[14][1981] A.C. 909 at 977.
It is also generally true that rights must be exercised responsibly. This is a particularly important consideration in cases in which allegations of misuse of confidential information are made. Unless care is taken, the judgment of a litigant or potential litigant may be clouded by self-interest to the point at which the exercise of that judgment is quite irresponsible. The desire to kill off potential competition may blind the potential plaintiff to the weaknesses in its allegation of misuse of confidential information. Unduly wide claims for confidentiality may be made, with all the deleterious consequences to which Laddie J referred in Ocular Sciences. Or what is seen by the plaintiff as an exercise of its right to bring to the courts a contestable claim for misuse of confidential information may in truth be nothing more than an abuse of process.
I am satisfied that, when the present writ was issued, the plaintiff had no direct evidence of any misuse by the defendants of any confidential information. It had the evidence of Ms Hampton about the request for budget book figures; and from this an inference could properly be drawn that there was a contestable issue, albeit limited in scope, between the parties. The other circumstantial evidence available when the present writ was issued on 15 October 2004, such as that about missing documents, could not support an inference that misuse of information had occurred. In other words, this other evidence did not justify the institution of proceedings.
My conclusion about the lack of evidence to support a case of breach of confidentiality is based in part upon a reading of the plaintiff’s contribution to the joint chronology. The entire document is 41 pages long. The plaintiff was the principal contributor to it. No entry in it contains a description of any direct evidence, known to the plaintiff at the time this proceeding was initiated, of misuse of confidential information.
The plaintiff relied, in its submissions about costs, on the “extraction process documents” that became known as DC4, DC5, DC6 and JDR29. As the plaintiff is at pains to point out, these were either never discovered by the defendants or (in the case of DC6) were only discovered in part. Their existence was unknown to the plaintiff as at 15 October 2004.
Mr Ritchie certainly used his know-how in giving Mr Connolly the instructions that led to their creation. It is indeed also true that, in an affidavit sworn on 23 January 2006, Mr Connolly gave evidence that DC6 was “a true copy of the current version of the spreadsheets and flow diagrams which describe the proposed TPI process and plant.” None of the extraction process documents, however, described a “combination of the material uses, the chemistry, the operating parameters” that, in a particular sequence, were relevantly similar, let alone identical, to those which “are operated [by] GSK”. And it was GSK itself that insisted upon the importance of the combination of parameters as constituting its confidential information.
But not only did the extraction process documents describe a different combination of operating parameters; they were intended for a different purpose. None were intended to do for TPI that which the manufacturing guides known as MGBC1 and MGBC3 did and do for GSK. The extraction process documents were merely signposts for costing and perhaps other uses. They were not complete and self-sufficient manufacturing guides. Of equal importance, neither they nor the information they contained were ever used as such.
In these circumstances, the extraction process documents were not the product of the misuse of confidential information. At most, the employment of the information upon which they were based was by the nature of its use no more than an example of the exploitation of Mr Ritchie’s know-how. This was information which, in my opinion, he was entitled to use as his own for the limited purpose of assessing the cost of establishing the business of TPI, and for other steps in the planning which preceded manufacture. Depending on the circumstances, that position might change if the information were used in the manufacturing or selling stages.
Although GSK did not learn of the existence of the extraction process documents until after it launched this litigation, it subsequently relied on them as supporting its position on the question of costs. It pointed out that none were the subject of discovery, and submitted that jointly and severally they supported the conclusion that contestable issues existed - which (if they did) the plaintiff was of course entitled to contest in court.
It was plain from the outset, however, that the extraction process documents did not replicate GSK’s manufacturing guides, and did not adopt the same combination of parameters, even if some individual parameters were similar. Consistently with this, a disinterested expert must have doubted that the draft overviews were of themselves sufficiently detailed to serve, and were otherwise capable of serving, as manufacturing guides for medicinal opiates.
I am nevertheless prepared to accept that, once the existence of the extraction process documents became known to GSK, it was entitled to consider that they raised an arguable case of misuse, both actual and potential, of GSK confidential information. On the other hand, even if it could be said that the extraction process documents raised contestable issues when first they came to the plaintiff’s notice, by 30 October 2006 GSK was aware that the defendants were asserting that no decision about their precise manufacturing processes had then been made. Early the following year, the fact that TPI had lodged a patent application became known, and permission to inspect the application was granted to GSK by the Court on 14 May 2007. On 11 October, Mr Ritchie filed an affidavit describing in some detail the many significant differences between the GSK and the TPI processes. That evidence remained unchallenged.
This is a very significant circumstance in any context, but particularly in the context of a dispute about the basis upon which the costs of this litigation should be assessed. It was the plaintiff’s case that the confidentiality that it was concerned to protect lay primarily in the combination of processes and parameters which together constituted its method of manufacturing opiate alkaloids, although particular elements of the method may have been confidential in themselves. But the nature of the industry is such that, in the words of Mr Ritchie, the accuracy of which I accept, “[t]he same sequence is used by all companies that extract opiate alkaloids”. This marries neatly with the words of Dr Andrew Ross, the Head of Chemistry Primary Supply for GlaxoSmithKline Plc:
In process design and development two processes could be similar in overall philosophy and conceptual design and this may indicate that one was used as the basis for the design of the other. However, it is not categorical that the two processes are based upon each other. In my opinion, the greater the similarities the higher the likelihood that the two processes originate from the same design. Furthermore, it is my opinion that very specific details regarding control parameters and design philosophies would be a stronger indicator that one process was the bases [sic] of the other.[15]
[15]Confidential exhibit “ARR4” to his affidavit affirmed 27 August 2007, paragraph 15 (CB.8.B.005812).
It also follows that the greater the dissimilarities, the higher the likelihood that the two processes do not originate from the same design. And here the dissimilarities as revealed before the trial began were very marked. GSK has one milling process for its poppy straw; TPI has another. GSK uses [XXX] and [XXX], or [XXX] and [XXX], as its primary extractant; TPI uses [XXX]. GSK [XXX] the partially depleted straw; TPI [XXX] it. In the production of morphine, GSK employs a take-off ratio of [XX], and in the production of thebaine a ratio of [XX]; TPI has settled upon a uniform take-off ratio of [XX]. GSK and TPI use different pH levels to filter after initial extraction. TPI then concentrates the alkaloid content by [XXX], whereas GSK does it by [XXX]. TPI has incorporated a filtration stage into its manufacturing process, while there is no equivalent in the process adopted by GSK.
All these differences were known by GSK before trial. By then, therefore, GSK knew or ought to have known that its case was verging on, if not manifestly, hopeless. Save for the evidence of Ms Hampton, the litigation itself was launched without supporting evidence, and following an indefensible refusal to accept the defendants’ invitation to discuss their differences. Then the extraction process documents seemed to give the case some arguable basis. But before the commencement of the trial, almost all the evidence GSK had had was shown to be without sufficient substance to maintain its claims. In particular, the extraction process documents were shown not only to be deficient as fully-fledged manufacturing guides, but also to describe a process or series of processes that TPI had not in the end adopted. Yet the trial proceeded, spending a huge proportion of its 17 days examining other parameters of the combination of GSK processes to ascertain whether at some other point the defendants might have misused GSK confidential information. The examination revealed no such misuse.
In these circumstances, it seems to me that a costs order should allow the defendants more than that which would be recovered on a taxation as between party and party. Alleged breaches of confidence must not be allowed to become inappropriate barriers to competition or the movement of labour. Yet that was the effect of this litigation.
It only remains to determine the appropriate basis for a taxation of costs in this case. Because there was a contestable, albeit ultimately unsuccessful, basis for the plaintiff’s claims in relation to the budget book as well as in relation to certain aspects of the GSK manufacturing guides, I would in other circumstances have ordered that costs should be taxed not on an indemnity basis but as between solicitor and client. But the circumstances which I must take into account include the fact that the defendants made two offers to settle the matter before the trial commenced. On 17 October 2007, the defendants made a Calderbank offer[16] on terms that GSK pay 50% of the defendants’ party/party costs and that the claim and counterclaim be otherwise dismissed. This was followed on 22 October by a second Calderbank offer by which the defendants proposed that the claim and counterclaim be dismissed with no costs orders. At the same time, Mr Ritchie offered to admit a breach of the implied term of confidentiality in his contract of employment with GSK, and to pay $1.00 damages for that breach, with a comprehensive release then being given by all parties.
[16] Calderbank v Calderbank (1975) 3 All ER 333.
My judgment led to GSK being in a less favourable position than it would have been in had either offer been accepted. The plaintiff nevertheless submits that these offers failed to represent a true compromise, and that it did not act unreasonably in rejecting them. And it is true that the mere refusal of a Calderbank offer does not necessarily entitle the party who made it to a special costs order, even if the offer is more favourable to the other party than is the result of the case.[17] The critical question is whether the rejection of the offer was unreasonable.[18]
[17]Jacomb v The Australian Municipal, Administrative, Clerical and Services Union [2004] FCA 1600 at [5] per Crennan J.
[18] Hazeldene’s Chicken Farm v Victorian WorkCover Authority (No 2) (2005) 13 VR 435 at [23] (CA).
Generally speaking, an offer must represent a genuine compromise.[19] It will not necessarily satisfy this criteria, even if the losing party loses comprehensively, where the litigation gave rise to clearly arguable or contestable issues and the offer, if accepted, would have resulted in the capitulation, or near capitulation, of the offeree – that is, the losing party.
[19] Jacomb v The Australian Municipal, Administrative, Clerical and Services Union, ibid.
Here, each offer, if accepted, would have had that result. For the reasons expressed above, however, this was not a case where the litigation, looked at in the broad, gave rise to clearly arguable issues. Only a tiny fraction of the areas of dispute fell into that category. When these are set against GSK’s initial and repeated refusal to negotiate, and against the importance of a former employer not allowing concerns about competition to sway its judgment when seeking to protect its confidential information, the refusal to accept the Calderbank offers can be seen in its true light – as unreasonable.
For these reasons, it seems to me that, with an exception to which I shall refer below, the defendants are entitled to an order that their costs be taxed on an indemnity basis. I shall order that the defendants pay the plaintiff’s costs of the counterclaim, such costs to be taxed as between party and party.
I accept the plaintiff’s submissions about the report of Professor Capon. In my opinion, the plaintiff should not be ordered to pay the costs incurred by the defendants in the preparation of his report. I shall therefore except those costs from the general order referred to above. The defendants accept that they should pay the costs reserved on 21 February 2007, and I shall order accordingly.
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