Harpur & Ors v Ariadne Aus Ltd

[1997] HCATrans 177

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Brisbane  No B64 of 1996

B e t w e e n -

PAUL HENRY HARPUR

First Applicant

ARLAW HOLDINGS PTY LTD

Second Applicant

HIGH TECH EXPORTS PTY LTD

Third Applicant

and

ARIADNE AUSTRALIA LIMITED

First Respondent

N.Z.I. CORPORATION LTD

Second Respondent

SOLUTION 6 PROFESSIONAL OFFICE SYSTEMS PTY LTD

Third Respondent

Application for special leave to appeal

BRENNAN CJ

TOOHEY J
KIRBY J

TRANSCRIPT OF PROCEEDINGS

AT BRISBANE ON THURSDAY, 26 JUNE 1997, AT 10.36 AM

Copyright in the High Court of Australia

_______________________

MR D.B. FRASER QC:   If it please the Court, in this matter I appear with MRS J. HUNTER: for the applicants. (instructed by Ebsworth & Ebsworth)

MR P.A. KEANE QC:   If it please the Court, I appear with MR L.M. KELLY for the respondent. (instructed by Minter Ellison)

BRENNAN CJ:   Mr Fraser.

MR FRASER:   Your Honours, we do not wish to add anything to the outline in relation to the first and second special leave questions referred to, and they are the contract questions dealing with the ‑ ‑ ‑

KIRBY J:   This is another shaking of hands case.

MR FRASER:   At least in one instance, yes, your Honour.  Your Honour, the third point, however ‑ ‑ ‑

BRENNAN CJ:   Before you leave those first points, is there anything which requires any further consideration of Masters v Cameron?

MR FRASER:   In terms of principle, no, your Honour.

BRENNAN CJ:   Then it is a fact case only on the aspect?

MR FRASER:   Your Honour, in relation to one aspect only, that is the question of context, all that could be said is, although Mastesr v Cameron identified the need to examine matters in context, the question that would emerge is, how do you assess the relative competing aspects of transaction?

KIRBY J:   But Justice Thomas said that there were factors that favoured your interpretation and there were a wealth of factors that did not, and that it is just a matter of sifting through the facts and coming to the right conclusion.  That gives you an unpromising basis for special leave.

MR FRASER:   I appreciate the difficulty of that approach, your Honour.  It is a matter which has really been set out, as fully as it can be, in the outline, and I did not want ‑ ‑ ‑

KIRBY J:   You want to get as quickly as possible to your second point.

MR FRASER:   In fact, it is the third point, but I do want to get as quickly as possible to that, yes.

KIRBY J:   Confidentiality.

BRENNAN CJ:   It seems to have more legs, Mr Fraser, so you take us to it now.

MR FRASER:   Thank you, your Honour.  Your Honours, the question which is raised in the factual context of the case gives rise to an issue of important legal principle, and that is where a duty of confidentiality arises, does the recipient of the confidential information owe the duty to the person who imparts the information or is the duty only owed to the person who was originally entitled to the confidential information?  The issue arises because, classically, the duty of confidentiality is generated where there are three elements present:  firstly, the information must be of a confidential type; secondly, it must be received by the defendant in circumstances as to impart an obligation of confidence; and thirdly, there must be an actual or threatened misuse of the confidential information without the consent of the plaintiff, such as, for example, using the information for a purpose beyond that for which the information was conveyed.

TOOHEY J:   Do you mean by that, that there is a category of confidential information of such a nature that its communication necessarily attracts confidentiality, or are you putting it in terms of the basis upon which the information is conveyed, from one party to another?

MR FRASER:   The basis, your Honour.  That is because it is necessarily involved that in conveying the information there must be a limitation, because if it is conveyed unreservedly, then there cannot be anything which binds the conscience of the defendant.  If it is the circumstances of it being conveyed which generate the relationship of confidence, which we submit is the rationale behind equity’s intervention to protect the confider against the confidee’s misuse, or the confidence misuse of the information, then the point of distinction in this case is that although the confidential information was information to which the company, and hence its receivers, were entitled by authorising Mr Harpur to convey the information for the purposes of an equity investment rather than limiting him to whatever purposes the receivers might choose to later adopt, the company has clothed Mr Harpur with authority to put a limitation upon the use to which the information might be put, which the company could not later repudiate.

BRENNAN CJ:   Mr Fraser, help me a little, if you would.  I do not understand what the confidential information is precisely; could you tell me about it?

MR FRASER:   In this case it was the accounting information, the manufacturing processes and the general financial information concerning the status of Hartley Computer Applications.

BRENNAN CJ:   It was the accounting information?

MR FRASER:   The manufacturing processes ‑ ‑ ‑

BRENNAN CJ:   What is the accounting information?  You mean the state of the books?

MR FRASER:   Yes, your Honour.  There was a lot of detail about how the company could be taken out of its then plight, a business plan.  There had been a financial submission prepared, which was made available, suggesting ways in which matters could be ‑ ‑ ‑

BRENNAN CJ:   Right.  So there was a business plan; it was put forward to a potential purchaser.

MR FRASER:   Yes, your Honour, a potential investor.

BRENNAN CJ:   Investor?

MR FRASER:   Yes.

BRENNAN CJ:   In the company.

MR FRASER:   Yes, your Honour.

BRENNAN CJ:   The second was the manufacturing process?

MR FRASER:   Yes, your Honour.  The company was involved in the manufacture of computers and the generation of computer software; it had confidential information as to those processes, and they were made available to the purchaser as well.

BRENNAN CJ:   It was not a case of any patentable information, it was simply confidentiality?

MR FRASER:   Yes, your Honour.  It was found to be confidential information, at first instance, and that was not controverted on appeal. 

BRENNAN CJ:   And the third category of confidential information - I thought you mentioned three.

MR FRASER:   Your Honour, there were three stages, if I can put it in those terms:  firstly there was a financial submission; then there was a business plan; then there was obtaining complete access to all the company’s records at the company’s premises.

BRENNAN CJ:   How is it used by those who, in your allegation, misused it?

MR FRASER:   They used it to acquire the assets of the company, directly from the receivers, cutting out Mr Harpur’s involvement, although when he had conveyed the initial information and arranged for them to view the company’s internal workings, with the consent of the receiver, he had clearly done so on the basis that it was for an equity investment in the company, because, as was found in the Court of Appeal, he would only be interested in that ‑ ‑ ‑

KIRBY J:   But he was doing that as an officer of the company and for the company’s benefit.

MR FRASER:   Your Honour, he was authorised by the receiver to do two things:  to seek an equity investor, or to seek to obtain someone who might be interested in buying the assets of the company.  In so far as he is seeking an equity investor, the receiver placed no limitations on that, and whether it involved an investment of equity in exchange for a right to acquire shareholders’ shares or some other form of investment was not defined when the authority was given.  So in the agreement that was contended for that was what was proposed, that there be an equity investment ‑ ‑ ‑

KIRBY J:   An equity investment in the company, of which he was an officer, and for the purpose of which the information had to be supplied.

MR FRASER:   Yes, your Honour.  And the consideration which the equity investor wished was to be able to buy the shares in the company.  In other words, it would make a loan of substantial funds against the right to be able to exercise an option to buy all the shares in the company.

BRENNAN CJ:   What right does Mr Harpur have to insist on confidentiality of this information, it being the company’s information?

MR FRASER:   Because the confidence which equity will protect is the confidentiality or the confidence under which he gave the opportunity and the information to the investor, who professed to be interested only on the basis of making an equity investment.

BRENNAN CJ:   That he, utilising information which was the company’s information, gave to the potential investor.

MR FRASER:   Yes, your Honour.

KIRBY J:   And the company makes no complaint about the breach of its confidence?

MR FRASER:   Not before your Honours, no.

BRENNAN CJ:   What is the locus standi of Mr Harpur?

MR FRASER:   Because if equity interferes to protect the confidence that arose by virtue of the circumstances of a disclosure of information, the person who confided the information was Mr Harpur, and he did so on a basis upon which the company would be taken out of receivership by a scheme where his shares would be bought by the investor.

BRENNAN CJ:   I understand that, but if you got relief, what relief would it be?  An account of some sort?

MR FRASER:   In this case, it would simply be equitable damages, your Honour.

BRENNAN CJ:   And on whose behalf would Mr Harpur hold those?

MR FRASER:   He would hold that on behalf of the shareholders.  He was the beneficial owner of the shares in the company.  On behalf of the shareholders in the company.

BRENNAN CJ:   In other words, he utilised his position, as an authorised agent of the receiver and as an agent of the company, in order to acquire a right which sounds in damages which he can pocket for himself.

MR FRASER:   He was authorised to do that by the receiver, on the findings, because it was ‑ ‑ ‑

BRENNAN CJ:   Quite so, but the receiver has no authority save that of the company.

MR FRASER:   Yes, your Honour, but the company could authorise transactions to be carried out, or carried through, in which not only was it interested but also its shareholders were interested if overall it was for the benefit of the company, because in this way both would profit:  the company would cease to be in receivership and would get back to manufacturing computers; and the shareholders would enjoy benefits.

BRENNAN CJ:   Yes.

MR FRASER:   So it comes about, as your Honour has pointed out, because of the diverse consequences of the proposal which the equity investor was concerned with.

TOOHEY J:   How is the information misused, Mr Fraser?  Is it misused in the sense that it enables an assessment to be made of the company’s assets and worth and hence form the basis for some offer to purchase the company?

MR FRASER:   Yes, your Honour.

TOOHEY J:   It seems a different situation from one in which information is then used by someone to carry out their own manufacturing or other activities.  It is not that sort of situation, is it?

MR FRASER:   No, your Honour, it is a situation where, if one analyses the confidence as being the confidence between Mr Harpur and the investor and being the limited purpose for which Mr Harpur was making the information available, that is for an equity investment in the company, then once the recipient of the information went beyond that purpose he was breaching the confidence that Mr Harpur had imposed in him.

TOOHEY J:   Simply in imparting the information to any one.

MR FRASER:   In using it for a purpose beyond that for which it was imparted.

TOOHEY J:   Yes, thank you.

MR FRASER:   The consequences are these.  If Mr Harpur was owed a duty of confidentiality, albeit in relation to confidential information of a third party - in this case the company - then the duty could not be waived by the company.

KIRBY J:   Would the damages he claims be held by him for the benefit of the company?

MR FRASER:   The damages in - it would be a question of analysing the consequences for the parties.  To the extent that the company would have benefited there would have to be an accounting of that kind, an analysis of that, but to the extent that the shareholders that he in effect represented, it would be their loss, because under the scenario, that was what he was putting to the investor.  I should say, just diverging from the ‑ ‑ ‑

KIRBY J:   The other scenario, of course, is that he was putting it for the company, being for the company’s benefit, as an officer of the company, and that he had to supply it for the purpose of the negotiation that he was carrying out as an officer of the company for the company’s benefit.

MR FRASER:   Yes, your Honour, but there are express findings that he was authorised to do it in order to achieve a share sale for the shareholders.  It comes about because the person entitled to the confidential information may not always have the same interest as the person who imparts the confidential information.

BRENNAN CJ:   That is right; that is where the problem lies, is it not?  And the question is whether you regard the information as some form of property.  So that whatever the proceeds may be of the action it must redound in favour of the person who owns that “property”.

MR FRASER:   Yes.  But I see recently, in Breen v Williams, that some of the members of the Court have identified that confidential information is not property, except to the extent that equity will restrain the use of it.

BRENNAN CJ:   That is right, and that is where the problem lies in this case.

MR FRASER:   Yes, your Honour.  Because the way that the trial judge approached it was to say that Mr Harris, the receiver, could waive the confidentiality, and clearly had done so, by selling the assets, down through to the company that was the nominee of the NZI subsidiary, or partly owned subsidiary, Ariadne.

BRENNAN CJ:   But, you see, on that footing, if the receivers sold the assets to NZI or Ariadne, and that was in the discharge of their duty as receivers, then the claim which Mr Harpur makes is one which is inconsistent with the performance of that duty.

MR FRASER:   No doubt, at the time they gave him authority to do what he did and it was consistent with the exercise of their duty.

BRENNAN CJ:   Of course it was, but the point really then becomes, how is it that the right of action which Harpur may have had if the information was then misused, could become a ground of equitable relief if the use of that information was then something which the defendant was entitled to have in performance of the contract for the acquisition of the company’s assets?

MR FRASER:   The response must be that that contract could not have been entered into without the use of the confidential information.  In other words, everything they knew, which induced them to buy the company’s assets, came about because of the introduction to the company by Mr Harpur.

BRENNAN CJ:   But does it not mean that Mr Harpur’s initial authority must be construed as a right to divulge the company’s information for the benefit of the company?  And if that benefit ultimately results in the acquisition of the company’s assets rather than acquisition of the company’s shares, then that must surely be something which defines the nature of the authority first given,

MR FRASER:   Your Honour, as I think I have already responded, the interests of the company, if they change, the basis upon which Mr Harpur communicated the information, if that was in the interests of the company at

that stage - and certainly it would see that the interests of the company were to have an equity investor to restore its fortunes - an asset sale would rather seem to be more of a last resort in terms of the interests of the company. 

So, if there was a change of interest of the company, in terms of preserving its business or preserving the company’s interests as a whole, then the company is still left with the consequences of what it authorised Mr Harpur to do in the first place, and the confidence that he reposed in the investor still exists.  I was going to mention that there were some observations in the respondents’ outline that suggests this is not a matter that was litigated.  There is a passage in the trial judge’s judgment which establishes, at page 26, that this claim was fully litigated and had to be addressed.  It is about line 22. 

Your Honours, the issues were very shortly addressed in the judgment from the Court of Appeal.  Justice Fitzgerald was the only one who dealt with the issue; his judgment was agreed in by the other members of the court.  Again, I should mention that there are some submissions in the respondents’ outline to the effect that Mr Harpur did not convey the information on a limited basis.  The applicant’s submission is that the primary facts found make it quite plain that his Honour was expressing a conclusion of the involvement of the receiver, that is that the receiver, when he permitted access, impliedly did so - that is access when the investor came to Brisbane to investigate the assets of the company - did so on the basis that there may be an asset sale or an equity investment.  Our submission is that the only basis advanced in the evidence for the negotiations by NZ was an equity investment; and, indeed, there is an express finding that although NZI privately entertained the idea that they might embark on an asset purchase, that was never communicated to Mr Harpur.

BRENNAN CJ:   Thank you, Mr Fraser.  Mr Solicitor, we need to hear you only on the second limb of the argument.

MR KEANE:   Your Honours, the information in question related to the company’s assets; it was not ever suggested otherwise.  The matter is usefully summarised in the application book at page 213, in the judgment of the President in the Court of Appeal.  Your Honours will see, at page 213, that his Honour summarises what was in the statement of claim in respect of breach of confidence, and we will refer your Honours particularly to paragraphs (i) and (ii) in relation to the propositions that the information related to the company’s assets not any assets of Mr Harpur.  If we can ask your Honours to go over the page, your Honours will see there, at 214, between lines 5 and 12, that his Honour observes that Mr Harpur is only mentioned in the pleadings:

where it is said that, “on behalf of” HCA and Hartley Computer, he provided confidential information to NZI.  A restriction on the purpose for which such information was provided is asserted in the pleading; namely, “the provisions [sic] of loan funds to [HCA] and the acquisition of a substantial shareholding in [HCA] to ensure the future of [HCA and Hartley Computer]”.

The primary judge rejected the proposition that the purpose for which this information was to be made available was for an equity investment, a share sale ‑ ‑ ‑

BRENNAN CJ:   Where is that?

MR KEANE:   He rejected that expressly at page 133, commencing at line 12, the first full paragraph of that text on the page, lines 12 to 20. 

BRENNAN CJ:   There is a finding of fact that there has been no abuse of confidence.

MR KEANE:   And a further finding to that effect in terms, your Honour, which commences at page 134, at line 16.  It is the passage that goes from line 16 on 134 of the application book over the page to line 5 on 135, where his Honour concludes:

It follows that I am not satisfied on the evidence that the plaintiffs have proved that there was any improper use made either by N.Z.I. or Ariadne of any confidential information supplied or made available.

TOOHEY J:   That is on the footing, presumably, that the confidentiality was of a very limited nature or, at least, did not preclude NZI from making whatever use they might wish to make of the information to acquire the shares in the company.

MR KEANE:   Yes, and his Honour, in effect, found as a fact that no such restriction was put on it.  The point that has been made about the way the matter has been litigated really relates to the absence of an assertion that Mr Harpur was acting otherwise than on behalf of the companies.  Your Honours, if we can go back to the way in which these issues were dealt with, the learned primary judge, as did the Court of Appeal, recognised the possibility that a duty of confidence might give rise to a claim in Mr Harpur, and that that is so was recognised in the passage cited from the judgment of the learned primary judge by the President, at page 216.  If I could ask your Honours to go to that, your Honours will see that the learned primary judge said:

In broad terms the cause of action is vested in the entity to whom the duty of confidence is owed.  That was the approach adopted by the Court of Appeal in Fraser v Evans which was followed and applied by Brownie J in Bacich v Australian Broadcasting Commission.

He then sets out a passage from Justice Brownie’s judgment in that case.  The learned primary judge goes on to make findings to the effect that there was no separate recognition of any separate duty or separate responsibility to or confidence owed to Mr Harpur on the facts, not surprisingly, having regard to the circumstance that Mr Harpur’s case was put on the footing that he was acting on behalf of the companies.  The relevant findings can be found at page 217, lines 5 to 15 and 25 to 35, on page 218, line 14 to 25 - and I might mention to your Honours that the Mr Harris referred to there is one of the receivers of the companies - page 219, lines 1 to 15, and then his Honour’s conclusion on 219, at about line 27:

In any event I am not satisfied that with respect to [the Hartley Business Plan] there was any confidence vested to Harpur separate from that vested in the companies.  Harpur prepared [the Hartley Business Plan] pursuant to the general authority conferred on him by the receivers and managers to take such steps as he considered necessary to interest investors in the companies, and the companies, through the receivers, consented to the use in fact made by N.Z.I. and Ariadne of the information contained therein.

KIRBY J:   So that if the question of the differential position of the company and company directors is to be tendered to this Court, this is not really a very good vehicle to tender it, given the factual findings.

MR KEANE:   No, your Honours, because the findings of fact are contrary to the proposition to enable it to go forward as a question of principle.

KIRBY J:   The issue is not without its interest, but the case does not seem to be a good vehicle.

MR KEANE:   In our respectful submission, it depends upon overturning findings of fact, findings of fact which were confirmed, as one sees in the Court of Appeal, in the judgment of the President at page 220, on the issue of confidentiality, the other two members of the court having agreed with the President, if one goes to page 220 - and we really need to invite the Court to read all of what is said at 220 in relation to the lack of merit of the

breach of confidence claim - and in doing that we draw attention particularly to what is said at lines 15 to 25:

Further, the attempt to distinguish between activities taken by Harpur “on behalf of” HCA and those taken in his personal capacity, with the “Business Plan” included only in the latter category, seems to me extremely artificial; while sole intent was a share sale, the “Business Plan” was also material to a prospective purchaser of the assets, and the trial judge found that it was created pursuant to the receivers’ authority and contained no information which was not otherwise available from HCA.  Further, there is no suggestion that, at the time, Harpur drew the distinction now asserted between himself and HCA, of which he was managing director.

In our respectful submission, those findings, the findings of the trial judge, confirmed as they were in the Court of Appeal, really stand as a bar to this Court being tendered these issues as issues of principle.  Those are our submissions, if it please the Court.

BRENNAN CJ:   Mr Fraser.

MR FRASER:   Your Honours, I was mindful of the conclusions reached by the trial judge when I made the submission that the findings of primary fact made the case a suitable vehicle.  May I draw your Honours’ attention to the findings of the trial judge at page 131 of the record, at line 30, beginning with, “As noted earlier”.

KIRBY J:   What is the passage on that page you are directing us to?

MR FRASER:   Page 131:

As noted earlier, after their appointment the receivers and managers gave ‑ ‑ ‑

BRENNAN CJ:   131, line 30.

MR FRASER:   And then going over to the next page, to about line 22.

BRENNAN CJ:   The findings that stand in your way is that the purchasers did not misuse the information given to them.

MR FRASER:   Your Honour, that is, with respect, a conclusion of law as to a premise that the company was entitled to authorise the investors to use the material by waiving the obligation of confidentiality.  The receiver could not waive that obligation if it was a duty owed to Mr Harpur, because it is otherwise ‑ ‑ ‑

BRENNAN CJ:   You say the receiver owed a duty to Mr Harpur not to waive it?

MR FRASER:   Not at all.  The recipient of the information could not rely on a waiver of the duty of the company to the recipient, because the duty that the recipient owed was to the confider, in this case Mr Harpur.

BRENNAN CJ:   But Mr Harpur was acting as the alter ego of the company.

MR FRASER:   He was acting upon the basis of authority given to find a financier who was interested in either taking over the group or acquiring its assets; one could only take over the group by buying its shares.

BRENNAN CJ:   Or buying its assets was the authority he was given.

MR FRASER:   Yes, but if ‑ ‑ ‑

BRENNAN CJ:   You say that he imposed, by implication, an obligation of confidentiality, so that this information could not be used for the acquiring of the assets?

MR FRASER:   Could not be used by the recipient, exactly, your Honour.  If the only basis upon which the recipient was introduced was on the basis of taking over the group by buying its shares, and that was the circumstance under which the confidence between Mr Harpur and the investor arose, then at that point it would be a breach of the duty of confidence that was owed to Mr Harpur to use the information for a purpose inimical to his interests, because to proceed any other way would render him the beneficial owner of the shares in a worthless shell.

Your Honour, perhaps I should also mention, in relation to this issue of whether there was a limitation on the basis upon which the information was given, that the detail of the negotiations between Mr Harpur and the findings of fact are to be found at page 33, line 15 - it is, unfortunately, quite a lengthy passage - through to page 37.  Perhaps the most significant passage of the evidence which I could take your Honours to, to shorten matters, is the letter of intent prepared by NZI, which appears at page 36 of the record, starting at line 14, and it clearly indicates that NZI’s expressed interest in Mr Harpur was in taking an equity position.

Despite the privately held view of the company that it might investigate acquiring the assets, which is set out at page 38 of the record, in the passages excerpted from about line 19, the terms of that resolution were not drawn to Mr Harpur’s attention and he was not aware of it until after litigation, and that is at page 39, line 6.  It must be the case, in our submission, that the only basis upon which Mr Harpur was negotiating with NZI was on an equity investment basis, and if NZI could not appreciate that that was the basis upon which Mr Harpur was interested in providing the information, or procuring the provision of the information to them, then an absurd proposition would arise.  It could hardly be suggested that Mr Harpur would be interested in an asset sale which would defeat his interests, which he had been authorised to pursue by the receiver.

BRENNAN CJ:   This application raises two questions.  The first is whether a transaction between commercial interests resulted in a concluded agreement.  That is a question of fact that does not require consideration by this Court.  The second question relates to the use which a potential investor in a company might make of information relating to the company’s affairs and manufacturing processes.  However, on the findings made by the trial judge, it would not be open to the applicant to argue an appeal on the footing that there was any misuse by the respondent of the information conveyed to it by, or on behalf of, the company.  In the light of this finding, the appeal does not enjoy sufficient prospects of success to warrant a grant of special leave.   For those reasons, special leave is refused.

MR KEANE:   May it please the Court, we ask for costs.

BRENNAN CJ:   You have nothing to say about that, Mr Fraser?

MR FRASER:   No, your Honour.

BRENNAN CJ:   Special leave is refused with costs.

AT 11.14 AM THE MATTER WAS CONCLUDED