Industrial Rollformers Pty Ltd v Ingersoll-Rand (Australia) Ltd - [2001] NSWCA 111

NEW SOUTH WALES COURT OF APPEAL

CITATION: Industrial Rollformers Pty Ltd & Anor v Ingersoll-Rand (Australia) Ltd [2001] NSWCA 111

FILE NUMBER(S):
40653/00

HEARING DATE(S): 7 & 8 December 2000

JUDGMENT DATE: 24/04/2001

PARTIES:
Industrial Rollformers Pty Ltd - First Appellant
Strata Control Pty Ltd - Second Appellant
Ingersoll-Rand (Australia) Ltd - Respondent

JUDGMENT OF: Priestley JA Meagher JA Giles JA

LOWER COURT JURISDICTION: Supreme Court - Equity Division

LOWER COURT FILE NUMBER(S): ED 4997/99

LOWER COURT JUDICIAL OFFICER: Bergin J

COUNSEL:
D E Grieve QC & M P Sindone - Appellant
F M Douglas QC, D T Kell & G Rich - Respondent

SOLICITORS:
John Spence & Associates, Bankstown - Appellant
Baker & McKenzie - Respondent

CATCHWORDS:
CONTRACT - non-exclusive supply agreement - manufacturer using purchaser's patent rights and other information - whether the specifications and tolerances for the product were confidential information - whether lost the quality of confidence because the product could be reverse engineered - clause of agreement restraining use of confidential information by the manufacturer for five years after the termination - whether valid - another clause of the agreement by which manufacturer could not make similar product for five years after termination - whether could be read down under Restraints of Trade Act 1976 - whether properly read down to lesser restraint on "springboard" reasoning - associated company of manufacturer made and supplied products - whether by course of conduct a contract containing the same clauses restraining the associated company. D.

LEGISLATION CITED:

DECISION:
1. Appeal allowed in part. 2. Set aside the declarations and orders made by Bergin J to the extent of - (a) deleting subparagraph (a) from each of declarations 12 and 14; (b) deleting the references to the second appellant from each of orders 18 and 19; (c) making consequential grammatical and punctuation alterations. 3. Order the appellants to pay the respondent's costs of the appeal. 4. Liberty to apply on two days notice.

JUDGMENT:

THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

CA 40653/00
ED 4997/99

PRIESTLEY JA
MEAGHER JA
GILES JA

Tuesday 24 April 2001

INDUSTRIAL ROLLFORMERS PTY LTD & ANOR
v
INGERSOLL-RAND (AUSTRALIA) LTD

JUDGMENT

PRIESTLEY JA: The facts in these appeals cover more than fifteen years and the legal questions and answers depend upon close scrutiny of those facts by the court. This has been done by Bergin J, following a long trial, and, with the advantage of her judgment, done again by Giles JA in this court, whose work I have had the benefit of reading in draft.
I agree with Giles J’s analysis of the facts and the legal rules applicable to them and also with those parts of his reasons in which he makes evaluations and assessments. In my opinion the orders he proposes should be made.
MEAGHER JA: I agree with Giles JA’s judgment.
GILES JA: This is an appeal from a decision of Bergin J in which, by a variety of declarations and orders, the appellants were constrained in the manufacture and supply of one of their products and their claim to recover damages from the respondent was rejected.
The respondent’s Split Set product
In the early 1970’s, in the United States of America, Professor James Scott invented a friction bolt for use as a support system for the roof of a mine or tunnel. It was given the trade name Split Set, and offered advantages over standard rock bolts or fully grouted resin bolts. In a paper published in September 1974 Professor Scott described it thus -
“Split Sets are formed by rolling thin plate sections in the form of a long, split tube which has one end tapered for insertion and the other upset for containment of a roof plate. The split tube can be pushed into a hole substantially smaller than the diameter of the tube and force fit to this hole to provide sufficient friction to secure the geological material into a more-or-less reinforced mass.”
Professor Scott held patents for the friction bolt and the method of its insertion, and the Split Set was developed and modified under arrangements with Professor Scott by Ingersoll-Rand Company of New Jersey. Ingersoll-Rand Company itself came to hold patents relating to the support system.
Specifically, on 29 January 1974 Australian Patent No 497039 was granted to Professor Scott for his invention of the friction bolt, and he granted to Ingersoll-Rand Company an exclusive licence to make, have made, sell and use the friction bolt under that and other patents with the right to sub-licence. In 1982 Ingersoll-Rand Company granted to the respondent Ingersoll-Rand (Australia) Ltd, its subsidiary, a non-exclusive sub-licence to make, have made, sell, distribute and use the friction bolt in Australia and its territories.
The Split Set as developed by Ingersoll-Rand Company consisted of a tube and a bearing plate. The tube, with the split along its length, was made of high strength steel. One end was tapered, the other end had a welded ring flange to hold the bearing plate. The welded ring itself had a gap to allow for reduction in diameter when the tube was driven into the smaller diameter hole. The bearing plate bore upon the roof or wall of the mine or tunnel when the tube was fully inserted, held in place by the flange abutting its outer surface.
Features of the Split Set to which reference will be made were the grade and type of steel for the tube and the ring; the length of the tube; the external diameters of the body of the tube and of its tapered end; the diameter of the ring wire; the gap in the ring measured at its outside diameter (known as the outer ring gap); and the distance between the non-tapered end and the welded ring (known as the ring stand off). As well, the external diameter of the tube was related to the lesser diameter of the hole into which it was driven.
The agreement between the respondent and the first appellant
On 18 April 1984 an agreement was entered into between the respondent and the first appellant Industrial Rollformers Pty Ltd, providing for the manufacture of Split Sets by the first appellant for the respondent “on a nonexclusive basis”. The respondent was described as “Buyer”, the first appellant was described as “Seller”, and the Split Sets were described as “Products”.
Clause 3 of the 1984 agreement provided -
“3. The term “Products” means tubes and plates. The Products shall be manufactured in strict accordance with the requirements set forth in the following documents:
Tubes
(a)Buyer’s Quality Assurance Specification No. SSQ-2, Rev. A-6, dated March 8, 1984 attached hereto and made a part hereof, and subsequent revisions agreed to in writing by both parties hereto.
(b) Buyer’s Drawing Nos.:
-SSD001C02E, Model SS-33, Revision H, dated March 9, 1982,
-SSD001C91E, Model SS-39, Revision V, dated November 7, 1983,
-SSD001C09E, Modell SS-46, Revision F, dated March 3, 1984.
And subsequent revisions agreed to in writing by both parties hereto.
Plates
(c) Buyer’s Drawing Nos.:
-SSD002C11M, dated March 9, 1982, for Model SS-33 Stabilizer,
-SSDD02CO5M, Revision A dated March 26, 1982, for Model SS-39 Stabilizer,
-SSD002C15M, Revision B, dated December 19, 1983, for Model SS-46 stabilizers.”
Prices for tubes and plates were set out in cl 5 of the 1984 agreement, expressed to be “FREE CARRIER at Seller’s plant loaded on a vehicle operated by a carrier selected by Buyer”. By cl 6 -
“6.The sales prices set forth in Paragraph 5 are based on price indexes for material and wage rates in effect January 1, 1984. If appropriate, Seller may adjust the prices at the end of each six (6) month period, ending each June 30 and December 31, including the first six (6) month period using the following formula based on current price indexes and wage rates. After the prices have been adjusted they shall remain firm for the following six (6) months after which time Seller shall review such prices and have the right to adjust them again in accordance with the following formula. Seller will inform Buyer of each price increase at least thirty (30) days prior to the effective date of the price increase. Seller shall not increase prices on Products that are in inventory prior to the price increase of the Products. Buyer shall have the right to audit all Products and steel in inventory and steel on order on the date of the price increase.
(a)The following price adjustment formulas are used to adjust the prices listed in Paragraph 5:
[Here alternative formulae were stated for when Buyer supplied steel and when Seller supplied steel]
(b)The parties shall cooperate in continuously seeking alternative sources for material at lower cost in order to keep the cost of the Products as low as reasonably possible.
(c)As soon as possible Seller shall assume responsibility for supplying the steel for the Products.”
Clause 7 of the 1984 agreement provided for a percentage discount or discounts if particular numbers of Products were invoiced during a calendar year. There was provision for quarterly forecast by the respondent of its requirements, and the first appellant was required continuously to stock an inventory of Products sufficient to meet at least six weeks of orders placed with it (cl 8). The respondent was entitled to inspect Products prior to shipment or within a reasonable time after receipt of shipment, and could reject Products “for non-conformance to specifications or for failure to perform as indicated” (cl 9).
By cll 12 and 13 of the 1984 agreement -
“12.Buyer may mark as ‘confidential’ any data, designs, drawings, specifications or other written information it furnishes to Seller in connection with this Agreement. Buyer shall also disclose to Seller certain other confidential information as the natural result of doing business. Seller shall not make use of any confidential information except for the performance of an order issued by Buyer to Seller, and further shall not disclose such information to others except as authorized in writing by Buyer. However, Seller shall not be subject to the restrictive obligations set forth in this paragraph as to the use, disclosure or duplication of any such information with respect to information that (1) was already known to Seller prior to Seller obtaining it from Buyer, (2) is or becomes part of the public knowledge or literature without breach of this Agreement by Seller, or (3) otherwise lawfully becomes available to Seller on a nonconfidential basis from a third party who had not received the confidential information directly or indirectly from Buyer. The restrictive obligations set forth in this paragraph shall terminate at the end of five years from the termination of either this Agreement or any extension of this Agreement, whichever occurs last. Upon completion, cancellation or termination of this Agreement, Seller shall return to Buyer, on demand, all data designs, drawings, specifications and other confidential information including copies made by Seller. Seller may disclose such confidential information to subcontractors and vendors in order to obtain services and materials provided that such subcontractors and vendors sign a secrecy agreement with Seller containing the written conditions contained in Attachment A. Seller shall provide Buyer with a written list of all subcontractors and vendors and a description of the Products and/or services purchased from each. Buyer shall specify in writing to Seller those requiring the signing of a secrecy agreement.
13.All purchase orders issued by Buyer are confidential between the Buyer and Seller, including the details of the order in connection with Buyer’s design, the name and address of Buyer’s customer, and Seller’s manufacturing procedures relating to the Products or work covered by the order.”
The written conditions of the secrecy agreement described in cl 12 as contained in Attachment A were not in evidence.
Clause 15 of the 1984 agreement provided -
“15.During the term of this Agreement and for five (5) years following its termination, except as authorized by Buyer, Seller shall not make a mining roof support which is similar in design to the mining roof support covered by this Agreement.”
By cl 16 of the 1984 agreement either party could terminate the agreement “for its convenience upon one hundred and eighty (180) days prior written notice to the other party”. There was provision for completion of outstanding orders. By cl 17, in the event of breach of a material provision of the agreement by one party, the other party could promptly notify that party of the breach and if it was not corrected within ten days of such notice the other party could terminate the agreement.
An amending agreement in 1986 changed the sales prices, the new prices still being subject to adjustment in accordance with cl 6 of the 1984 agreement. The details are not material to the appeal.
Dispute over prices
The first appellant manufactured Split Sets for the respondent in Sydney, and the respondent supplied them to the mining industry throughout Australia. It was a commercially successful undertaking. Over the period 1988-91 there were price increases in accordance with cl 6 of the 1984 agreement as amended. The increases were for the six monthly periods from 1 July 1988 to 31 December 1990 and the six months from 1 July 1991 to 31 December 1991.
The price increases were made by the first appellant writing to the respondent saying that the prices were subject to review in accordance with cl 6 of the 1984 agreement, setting out the relevant formula and the figures for its application, and attaching a new price schedule; the respondent then sent to the first appellant a purchase order stating that the 1984 agreement was amended to incorporate the new prices and again setting out the formula and the figures for its application.
The commercial success enjoyed by the first appellant as manufacturer of Split Sets and the respondent as supplier of Split Sets to the mining industry was in no small measure attributable to the statutory monopoly enjoyed by Ingersoll-Rand Company as exclusive licensee under the patents relating to the friction bolt. The respondent could afford to allow a mutually acceptable profit margin to the first appellant, and therefore to charge more to its customers, because there was no competition.
Australian Patent No 497039 expired on 29 January 1990. Competition soon followed. In about January 1992 Australian National Industries Ltd (“ANI”) began manufacturing friction bolts in Newcastle, and Australian Ground Support Pty Ltd (“AGS”) began manufacturing friction bolts in Warrnambool. The first appellant requested a meeting with the respondent to discuss the development of strategies to compete with ANI and AGS.
The meeting was held on 10 February 1992. In December 1991 the first appellant had notified the respondent of price increases to take effect on 1 January 1992 for the six months from 1 January 1992 to 30 June 1992. In the course of the meeting Mr Ken Delahunty, the financial director of the respondent, said that he had done some calculations and that the first appellant was making too much money. When Mr Reg Young, the purchasing manager of the respondent, said that he had just approved the first appellant’s price increases in accordance with the formula in the agreement, being price increases for the six months from 1 January 1992 to 30 June 1992, Mr Delahunty said, “Well you can reverse that back to the 1991 pricing”. According to Mr James Fergusson, then managing director of the first appellant and later chairman of directors, he “conceded, under protest” the reversion to 1991 prices, but only as from 1 March 1992 and on it being said by Mr Ken Hall, the managing director of the respondent, that Mr Hall would call a meeting in six weeks time to review the situation. The February meeting ended in acrimony.
On 11 February 1992 the respondent sent a purchase order to the first appellant reading, “Amend abovementioned preferred supply agreement for Split Sets and Roof Plates to revert back to last half 1991 prices, effective as at 1st March ’92”. No meeting to review prices took place. There were later requests by the first appellant for price increases, but not for price increases pursuant to cl 6 of the 1984 agreement, and the first appellant did not purport to increase prices pursuant to cl 6 of the 1984 agreement until the end of 1999.
At about this time the first appellant was considering its position under the 1984 agreement. It sought advice from Mr R J Ellicott QC. It was advised that it could terminate the 1984 agreement under cl 16, and that provided it did not use confidential information it could thereafter manufacture and sell a mining roof support on its own account.
The second appellant and manufacture in Perth
Also in February 1992 Mr Peter Kraj-Krajowski of Western Minining Corporation (“WMC”), until then a customer of the respondent, approached the first appellant directly. WMC’s operations were in Western Australia. Mr Kraj-Krajowski said that all three manufacturers of friction bolts in Australia were on the east coast, and that WMC was disadvantaged in having to pay a premium for transporting the friction bolts to Western Australia. He asked Mr James Fergusson and his son Mr David Fergusson, also a director of the first appellant, to go to Western Australia to discuss setting up a manufacturing facility in that State.
In March 1992 the Messrs Fergusson met Mr Kraj-Krajowski in Western Australia. They were told that if they were prepared to set up a manufacturing operation for friction bolts in Western Australia, WMC would support them. Mr James Fergusson said that they were interested in such a project, and Mr David Fergusson said that they could be “up and running” in four to five months.
In April 1992 Mr David Fergusson resigned his directorship of and employment with the first appellant. The second appellant Strata Control Pty Ltd was incorporated, and Mr David Fergusson and his wife Miss Wendy Mahoney became its directors and shareholders. The second appellant obtained and constructed appropriate roll forming machinery and transported it to Western Australia. Steps were taken to find premises to set up a manufacturing plant.
In June 1992 WMC called for tenders for the provision of friction bolts, including Split Sets. It seems that the direct approach by WMC to the first appellant and the action taken to establish the second appellant as a manufacturer of friction bolts were not known to the respondent at this time. Mr Roger Moore, then the product manager for mining roof supports of the respondent, spoke to Mr James Fergusson. He was conscious of the pricing disadvantage of transport costs. He said that the respondent wanted to win the tender to WMC, but that “We don’t stand a chance unless Rollformers sets up operations in Western Australia”. He asked if Mr Fergusson was interested in doing so.
Mr Fergusson said that he would “consider it”, and a few days later told Mr Moore that he was prepared to go ahead and that he intended “to use a separate business in Perth so that I can reduce payroll tax”. In another conversation in August 1992 Mr James Fergusson told Mr Moore that the Perth plant would become “operational” in about a month. He said that he had “structured it for tax purposes so that the business is run under the name of Strata Control”, and that “My son will be heading up to Perth to assist setting up the plant”.
Mr James Fergusson did not clearly refer to the separate corporate status of the second appellant. However, also in August 1992 Mr David Fergusson telephoned Mr Hall, and said that he had “set up another company to make friction bolts in Perth” and that the respondent would be “dealing with Strata Control Pty Ltd”. Mr David Fergusson said that he would send prices to Mr Hall, and did so. Mr Hall then telephoned Mr David Fergusson and said that the respondent accepted his pricing for all Split Sets except one particular size, and a price was then negotiated and agreed for that size.

In the result Mr David Fergusson telephoned Mr Kraj-Krajowski and said, “We are still coming to set up in Perth but we are going to supply you through Ingersoll because I feel we could better service your needs that way”. The respondent was awarded WMC’s tender to supply friction bolts. A condition of the award was that a Split Set manufacturing plant be established in Perth.
A question of new agreements
In their initial conversation in June 1992, when Mr James Fergusson told Mr Moore that he was prepared to go ahead and intended to use a separate business in Perth, Mr Fergusson said, “I also want to enter into a new agreement which would get rid of the 5 year non-compete clause. The volume rebate should also go. I also want an agreement that the exclusivity goes both ways. I don’t want you contracting with any other manufacturer”. Mr Moore said, “I can’t accept any changes to the current agreement. It’s not my decision to make. If you want to put up a proposed agreement - send it to me and I will get it to my people”.
It is not clear whether Mr James Fergusson was speaking of, or was understood to refer to, an agreement relating to the Perth business or an entirely new agreement. From his conduct in November 1992 to which I will come, it seems he had the latter in mind. Nothing was done at the time.
However, presumably because Mr Hall was told by Mr David Fergusson that the respondent would be dealing with the second appellant, the respondent was caused to give thought to the second appellant’s separate corporate status. In a fax dated 9 September 1992 from Mr Dag Bronder of Ingersoll-Rand Company to Mr Moore, copy to Mr Hall, Mr Bronder referred to an earlier telephone conversation and confirmed his request to send -
“ … a copy of Jim Fergusson’s contract proposal for the Strata Control contract as soon as you have received it. Also please make sure that Strata Control completes a secrecy agreement immediately. The secrecy agreement can be executed before any contract and should be executed before IR confidential material like work drawings, quality assurance standards and similar information is released to them. Please advise as soon as Strata Control has executed the secrecy agreement.”
Mr Moore sent a copy of the fax to Mr James Fergusson with a note, “Jim, I will ring you tomorrow to discuss”. There was no evidence of a discussion.
In October 1992 Mr Hall telephoned Mr David Fergusson and said that he was sending “a copy of the contract that we have with Rollformers only its between Ingersoll and Strata. Can you sign it and send it back to me.” Mr David Fergusson declined, saying that cl 15 in the contract “would be punitive against us”. Mr Hall said, “That’s okay. How about you draft up your own agreement and we’ll have a look at it.”
Mr David Fergusson spoke to Mr James Fergusson, and two agreements were drafted. One draft agreement was between the respondent and the first appellant, expressed to be entered into and effective on 1 July 1992. It followed the form of the1984 agreement, but with important alterations. So far as presently material, it provided that the manufacture and supply of Split Sets would be “on an exclusive basis for the life of this contract”; it revised the prices; it deleted the provision for percentage discounts; it modified cl 12 (which was cl 11 in the draft agreement); and it deleted cl 15 (which was cl 14 in the draft agreement). The second draft agreement was an agreement between the respondent and the second appellant. It also followed the form of the 1984 agreement and so far as material was in essentially the same terms as the other draft agreement.
Mr James Fergusson sent the draft agreements to Mr Hall with a covering letter dated 6 November 1992, which letter included -
“Following our discussions during the past twelve months, I have reviewed the existing manufacturing agreement between Ingersoll-Rand (Australia) Ltd and Industrial Rollformers Pty Ltd to bring it into line with market and economic changes which have occurred during that period.
The changes, as they occur in the contract are marked with column asterisks and I comment as follows:
(1)Having provided a dedicated plant in Sydney and then provided the capital to establish the dedicated Perth Plant we consider that we have enhanced Ingersoll-Rand’s market image as a reliance supplier in both Eastern and Western regions of Australia and consequently ensured the survival of the Split Set in the Ingersoll Rand camp. We feel it just and reasonable that we have an ‘exclusive’ supply agreement while the contract is in force. Similarly we will honour the exclusivity of the product provided the exclusivity exists in both directions.
…
(3)The price lists have been updated to the date of this contract and should form the basis of future price variations.
We should consider using the prices included in the revised agreement and the escalation clauses, for general sales, however the Western Mining Company products will come out of Strata Control it is understood that Sydney will continue to supply 33 to 39 tubes plus some 46 tubes and should therefore have a special price list in place.
(4)I cannot continue to support the price discount arrangement and ask that you cancel all outstanding and future liability to you.
We have invested some $350,000.00 into assisting Strata Control to establish the Perth Company and in doing so have reduced our sales by 40%. This has in fact reduced our capacity to absorb our overheads and forecasts for Sydney are not encouraging. In addition our selling prices have been reverted to January 1991 after the February 1992 meeting at Dandenong where you requested we cancel the previous prices on the basis that you had calculated we were earning excessive profits.
In an effort to keep both Companies in the market we have gone to our limit and it is now your turn to be fair and reasonable.
(5)The confidentiality clause in Paragraph 11 has been modified to delete the obligation imposing a five year restriction on us to manufacture a similar product. We do not have any aspirations to become a marketing force in the mining industry but the technology has become public knowledge and we believe that Clause 11 is not enforceable under Australian law. As has happened in the USA we could see Ingersoll-Rand sell off the Australian rights to this product with catastrophic results to our company.
(6)Paragraph 14 has been removed since it repeats what paragraph 11 already stated.
In summary, we value and respect our relationship with Ingersoll-Rand and believe that we have both survived nearly ten years of successful trading, but time has drastically changed the market place and our manufacturing costs. I believe the new agreement is sufficient to guard Ingersoll-Rand’s interests but must be made more equitable towards our company.
I look forward to your comments and acceptance of this proposal.”
The letter was framed as if referring to, and a commentary on, an agreement between the respondent and the first appellant. It did not in terms refer to the draft agreement between the respondent and the second appellant, but the evidence indicated that the latter agreement was enclosed with this letter. It is otherwise apparent that Mr James Fergusson did not distinguish in his own thinking between the two corporate entities. The references to paragraphs 11 and 14 were to clauses being cll 12 and 15 in the 1984 agreement, the discrepancy in the draft agreements and the letter apparently being because the Messrs Ferguson were using a predecessor to the 1984 agreement in which the clauses bore different numbers.
Mr James Fergusson acknowledged in his evidence that the first appellant had not provided $350,000 or any sum to establish the Perth company or business, and that the amount spent was not $350,000. Whatever was spent was provided from family assets, and the letter of 6 November 1992 was untruthful in this respect.
On 10 November 1992 Mr Hall replied to Mr James Fergusson, acknowledging his letter of 6 November 1992 and its enclosures and saying, “Please be advised that the submitted documents are under review and we will revert to you in the shortest possible time frame”.
The respondent did not “revert to” either of the appellants on the subject of new agreements. Nor did either of the appellants press the respondent in relation to entry into new agreements.
The Perth plant was opened in late 1992. Mr Moore arranged for a large number of the respondent’s customers to visit the plant on an open day. The expenses for the open day were shared equally between the respondent and the first appellant. Mr Moore introduced Mr James Fergusson to the customers as the chairman of the first appellant and “owner of Strata Control”. He introduced Mr David Fergusson as a member of the Fergusson family who “own the manufacturing business”.
In May 1993 an arrangement was made between the appellants under which the second appellant paid to the first appellant a licence fee of $1.00 per Split Set (it seems meaning the tube) and $0.25 per bearing plate sold, payment to commence from 1 July 1993 and with the rates to be reviewed annually. It is unclear whether this became known to the respondent.
On 12 November 1993 the first appellant registered the business name Strata Control Systems. The business operating under that name was promoted in publications in the mining industry as a well established business with progressive research and development programmes and modern production plants in Sydney and Perth.
Initially the respondent was invoiced for Split Sets from the Perth plant by Strata Control. After 1 July 1994 the respondent placed its orders for those Split Sets with the first appellant and was invoiced by the first appellant. This followed a conversation between Mr Martin Crick, from some time in 1993 the managing director of the first appellant, and Mr Moore, in which Mr Crick said that thenceforth “Rollformers will invoice you for Strata Control Pty Ltd”.
In September 1995 the first appellant and the respondent agreed that the respondent would pay the first appellant $1,000 per month in respect of “product distribution from Strata Control Pty Ltd in Perth”, the payment to be reviewed after three months. In December 1995 the first appellant told the respondent that $1,000 per month was inadequate to recover its costs. It proposed an increase to $2,000 per month from 1 January 1996, and said that on that basis “Strata Control” would absorb various costs. The respondent agreed, and the first appellant wrote a confirming letter as to $2,000 per month “contribution for existing services out of Strata Control Pty Ltd warehouse for calendar year 1996”.
According to Mr David Fergusson, in February 1997 Mr Thomas Landsberg of Ingersoll-Rand Company said in the course of a conversation about other things that “A lot of people at Ingersoll have been concerned for some time that Strata is set up in Perth without a contract and it seems to be causing a lot of dissent within the ranks”, and he replied that he had sent an agreement in 1992 and “I never heard anything back”. Even then, nothing more was said or done about new agreements. Mr Landsberg had no recollection of the conversation. Bergin J expressed doubt about “whether the conversation occurred in the terms claimed”.
A return to pricing
At a meeting with representatives of the respondent on 19 November 1993, Mr James Fergusson referred to the lack of a price increase since 1991 and suggested that the first appellant market Split Sets under a royalty arrangement. There was some difference in the recollections of what was said.
According to Mr James Fergusson, he referred to the fact of no price increase and said that he was finding it increasingly difficult to survive “by your repeated refusal to allow us to increase our selling price on the Split Sets”, before going on to suggest the royalty arrangement. According to Mr Crick, Mr Fergusson said that he was finding it very difficult to survive with “your not allowing us to increase our selling price on the Split Sets”, and that he had had no price increase since 1991, and Mr Delahunty replied, “You can’t have any price increase because we are having difficulty keeping our profit margins since ANI and AGS came into the market“: there was then the suggestion of the royalty arrangement. Mr Moore denied that anything was said to the effect that the respondent would not allow price increases. Whatever was said, Mr Crick wrote to Mr Hall suggesting a meeting to pursue the question of a royalty arrangement, but there was no response.
On 16 February 1996 Mr Crick said to Mr Steven Drumheller of Ingersoll-Rand Company, then visiting Australia, “We need to talk to you about this question of pricing. Your company has not allowed us to increase our prices since 1991. We have come to the point now where we just have to have a price increase in order to keep producing these Split Sets for you.” Mr Drumheller asked Mr Crick to “put it in writing setting out the increase in your cost inputs which would justify the price increase”.
On 20 February 1996 Mr Crick wrote to Mr Drumheller. He noted that prices had been static “since June 1991 (approaching 5 years for Sydney and since the commencement of business in Western Australia in October 1992 3 years)”. He analysed cost increases and other matters said to support an increased cost base, and concluded -
“We would request a price increase of 10% in NSW and 7% in West Australia to be effective from 1st March 1996. We are prepared to hold these prices firm for 12 months.
Can you please give this request your urgent attention.”
Mr Drumheller replied on 29 February 1996, to the effect that market prices for the Split Set had fallen and it was not possible to have a price increase. He suggested that increased profitability should be sought through the introduction of new products, and undertook to review market pricing conditions on a regular basis in the future.
On 6 March 1996 Mr Crick raised pricing at a meeting attended by Mr Moore. He said that Mr Drumheller’s rejection of the requested price increase was “putting us in too tight a position”, and asked “Can you do something about it?” Mr Moore’s response amounted to a refusal.
Competition intensified with another company, Jennmar Pty Ltd (“Jennmar”), entering the Australian market in January 1999 as a manufacturer and supplier of friction bolts competing with the Split Set. The competition must have been particularly significant to the respondent, which was at a disadvantage because it did not manufacture the Split Set itself but paid the first appellant to manufacture the product. There were meetings at which Mr Moore, by now the respondent’s sales director, told Mr James Fergusson and Mr Crick that the prices to the respondent for Split Sets would have to be reduced. Mr Moore indicated that if the prices were not reduced then the respondent would look for another manufacturer who could make Split Sets more cheaply.
The appellants’ own product
On 23 June 1999 Mr Moore wrote to Mr Crick saying that “to remain price competitive in the market we understand that we need to reduce our margin expectation (we need to share the pain)”. He continued -
“Our continuance in this business is a commitment from corporate and they have insisted that we reach resolution with you before the end of the month. If this is not possible they will pressure us to actively explore all avenues for reducing cost such that we can remain in the business.”
Mr Moore said that it was his sincere hope that the first appellant could “achieve the cost levels that are necessary” and that they could continue in their relationship.
Mr Crick replied on behalf of the first appellant on 30 June 1999. He said that the first appellant had substantially reduced its margins over the years, and had “accepted the pain” even before the market experienced the present conditions. He said, “Our last price increase was in 1991 and we have absorbed every cost increase since then. We have discussed this with you many times over the years.” After detailing specific areas of cost reduction, Mr Crick said -
“For 16 years we have frequently been described by Ingersoll-Rand as a good quality low cost manufacturer. Holding costs for 8 years and providing excellent technical assistance at no extra cost justifies such a reputation. We cannot continue to provide this service by operating at a loss.
The increasing number of competitors in the market are manufacturers as well as marketers of product. With dwindling margins, it is extremely difficult to compete in a two company approach with two sets of corporate infrastructure etc. to recover.
We have discussed this many, many times in the past. We have always been led to believe that inevitably the Ground Support business will be franchised. We have waited patiently but to no avail. We believe it one of the few options available which would sensibly address the current market difficulties imposed from external conditions. We would be happy to dialogue once more on this issue.”
On 13 July 1999 Mr Moore telephoned Mr Crick and asked whether he could “give anything on manufacturing costs, otherwise I have to go to other manufacturers to get reduced costs”. Mr Crick said he could not give any price reduction.
This seems to have been the critical moment. On 15 July 1999 Mr Moore approached another manufacturer as a possible supplier of Split Sets. On 21 July 1999 Mr David Fergusson drafted drawings for a friction bolt, later called the Strata-Bolt, which drawings were used by the second appellant to manufacture friction bolts from September 1999. On 23 July 1999 the respondent submitted to WMC a tender for the supply of friction bolts to that company, and on 26 July 1999 the first appellant submitted to WMC its own tender for the supply of friction bolts.
On 4 August 1999 Mr Crick telephoned Mr Moore and told him that the first appellant intended to manufacture its own friction bolt. He confirmed this in writing on the next day. In the telephone conversation Mr Moore said, “This will mean you are testing the agreement and you will find yourselves in a legal battle”. Mr Crick replied, “Two QC’s are working on it and are confident”. Mr Moore asked whether Mr Crick would be terminating the agreement, and Mr Crick replied, “No need. It’s worthless.”
On 29 September 1999 there was disseminated “An Announcement from Strata Control Systems” on the letterhead “Strata Control Systems”, over the signature of Mr Crick as “Managing Director”. It began -
“Since 1983, Strata Control Systems (SCS) have been manufacturing Split Sets for Ingersoll Rand (Australia) Ltd. During the 1980’s SCS developed the 46mm Split Set which is now the most widely used friction bolt in Australia. SCS also manufacture split set drivers, combi plates, strata strap and strata plates. Of more recent years SCS re-engineered the CT Bolt for use in mining and are manufacturing the product in Australia.
SCS have now released its own friction bolt, the Strata-Bolt, manufactured to the same rigorous standards and specifications and can offer the benefits of “straight from the manufacturer to you”. Strata-Bolt is available in all diameters, 33mm, 39mm and 46mm - both black and galvanized with plates to match.
SCS can also offer you a full range of other bolts, resin bolts, rib bolts, hi-load plates, resins, cable bolts and an array of ancillary products such as barrel and wedge, flat plates, mesh, spanners, pull test kits and many more.”
The announcement went on to provide information about Strata Control Systems personnel.
On 17 November 1999 WMC (more correctly, WMC Resources Ltd - the significance of the precise identity will become apparent later in these reasons) awarded to the first appellant the contract for the supply of friction bolts for a period of three years from 1 January 2000.

Despite what Mr Crick had said to Mr Moore, on 29 November 1999 the first appellant gave notice pursuant to cl 16 of the 1984 agreement terminating it at the expiry of 180 days.
Also on 29 November 1999 the first appellant wrote to the respondent purporting to adjust the sales prices under the 1984 agreement; the letter relevantly said -
“We note that on previous occasions we have sought to raise with your company the issue of pricing for the manufacture of “SPLIT SET” units by our company and the supply of same to your company. In particular we remind you that we have not been granted a price increase since 1991.
We hereby formally give notice that, effective from 1st January 2000 and applicable for the following six-month period, the prices of the relevant products as supplied by our company to you are to be adjusted. The new prices which shall be applicable after 1st January 2000 are as indicated in the Price List, a copy of which is enclosed herewith.
In this regard we refer to the existing Agreement dated 18th April 1984 (together with the Amendment Agreement dated 8th August 1986) which continues to remain on foot and we place reliance upon the wording of Clause 6 of same.
The issuing of this letter to your company constitutes the giving of the thirty-day period of notice as required pursuant to Clause 6 of the Agreement.”
The decision of Bergin J
The respondent claimed extensive relief against the appellants, not confined to enforcement of the 1984 agreement so far as it imposed obligations of confidence and a restraint of trade. The relief included relief on the basis of an equitable duty of confidence. It is not necessary to detail the relief claimed.
Bergin J held that, except for the steel grade and type, the specifications and tolerances of the Split Set stated in the respondent’s drawings were trade secrets and confidential to the respondent. (I give more detail of this, which was contentious in the appeal, later in these reasons).
As to cl 12 of the 1984 agreement, her Honour held that -
(i)Without the respondent’s consent, the first appellant used the confidential information to create the drawings of, and to manufacture, the Strata-Bolt;
(ii)Without the respondent’s consent, the first appellant used the confidential information in preparing and submitting its tender to WMC;
(iii)The first appellant thereby breached cl 12 of the 1984 agreement during its currency.
Further as to cl 12 of the 1984 agreement, her Honour held that -
(i)The second appellant accepted and was bound by the terms of the 1984 agreement;
(ii)Without the respondent’s consent, the second appellant used the confidential information to assist the first appellant to create the drawings of, and to manufacture, the Strata-Bolt, and used the confidential information to assist the first appellant in preparing and submitting the tender to WMC; and
(iii)The second appellant thereby breached cl 12 of the 1984 agreement during its currency.
Further again as to cl 12 of the 1984 agreement, her Honour held that the restraint on using the confidential information for five years after the termination of the 1984 agreement was a reasonable restraint, and that it was not against public policy and was enforceable.
As to the equitable duty of confidence, her Honour held that by using the confidential information to create the drawings of and to manufacture the Strata-Bolt and to prepare and submit the tender to WMC (in the case of the first appellant), and by assisting in those endeavours (in the case of the second appellant), the appellants breached equitable duties of confidence owed to the respondent not to misuse the confidential information.
It was common ground that the Strata-Bolt was a mining roof support similar in design to the Split Set. As to cl 15 of the 1984 agreement, her Honour held that cl 15 was invalid and unenforceable because in unreasonable restraint of trade, but that pursuant to the Restraints of Trade Act 1976 (“the Act”) it was valid and enforceable to the extent of the breach found; her Honour also held that cl 15 should be read down to provide that during the term of the 1984 agreement and for a period of nine months from the date of the termination of the agreement the appellants should not, within Australia, make a mining roof support similar in design to the mining roof support covered by the agreement. (I will explain later in these reasons this summation of her Honour’s holdings.) Her Honour considered that both the first appellant and the second appellant had manufactured the Strata-Bolt, and held that each had breached cl 15 of the 1984 agreement in so doing during the currency of the agreement. In the case of the second appellant that must again have been on the basis that it accepted and was bound by the terms of the 1984 agreement.
A number of declarations and orders were made to give effect to these conclusions. They were prepared by the lawyers for the parties at her Honour’s request, in the form of short minutes. I will refer to the declarations so far as necessary at appropriate points in the reasons. The constraints on the appellants were in part via the noting of an undertaking, and as I later explain one of the purported orders was in truth another declaration. The undertaking and orders were -
“THE COURT NOTES THAT:
17. In accordance with an undertaking given by the Defendants on 14 February 2000, the Defendants undertake not to continue to supply Split Sets, Strata Bolts or any friction bolts similar thereto to WMC Resources Pty Ltd, WMC (Olympic Dam Operations) Pty Ltd and Central Norseman Gold Corporation Ltd up to and including 28 May 2005.
THE COURT ORDERS THAT:
18.Up to and including 28 February 2001 the First and Second Defendants, by themselves, their servants or agents, except as authorised by the Plaintiff, are restrained from making, within Australia, a mining roof support which is similar in design to the mining roof supports covered by the 1984 Manufacturing Agreement, those mining roof supports being more particularly described in drawings SSD001B09E, SSD001B01E, and SSD001B02E and revisions thereto, and which are known when marketed by the Plaintiff as Split Sets.
19.Up to and including 28 May 2005, the First and Second Defendants, by themselves, their servants or agents, remain subject to the restraints imposed by Clause 12 of the 1984 Manufacturing Agreement.”
The first appellant had cross-claimed against the respondent to recover as damages increases in sales prices to which it said it was entitled from 1 January 1992. The cross-claim was dismissed.
The appeal
There were numerous grounds of appeal, many overlapping and some obscure. It is better to address the issues raised in the arguments on appeal; even then, some obscurity remained.
Only some of the issues at the trial were issues on appeal. The issues on appeal were -
(a)Whether the specifications and tolerances of the Split Set were confidential information. (If they were not, then neither of the appellants could be in breach of cl 12 of the 1984 agreement or the 1984 agreement as accepted, or in breach of an equitable duty of confidence.)
(b)Whether cl 12 was valid and enforceable so far as it restrained use of confidential information for five years after the termination of the 1984 agreement. (If it was not, the relief in the purported order 19 set out above should not have been granted, and arguably the undertaking noted by Bergin J was undermined. This could still leave the appellants in breach of equitable duties of confidence, but they would be free from the fixed five year restraint.)
(c)Whether the second appellant accepted and was bound by the 1984 agreement. (If it did not and was not, then even if the first appellant was in breach of cl 12 of the 1984 agreement and cl 15 of the 1984 agreement the second appellant was not. This could still leave the second appellant in breach of an equitable duty of confidence, but it would be free from the fixed five year restraints in cll 12 and 15 of the 1984 agreement.)
(d)Whether Bergin J was in error in the effect she gave to cl 15 of the 1984 agreement -
(i)by holding that it was valid and enforceable to the extent of the breach found; and
(ii)by reading it down in the manner she did.
(If her Honour was in error as to (i), then neither of the appellants could have been in breach of cl 15 of the 1984 agreement, and arguably the relief in order 18 above should not have been granted; if she was in error as to (ii), the relief in order 18 set out above should not have been granted.)
(e)Whether the appellants should be released from the undertaking noted by Bergin J.
(f)Whether the first appellant was entitled to recover on its claim for damages.
Order 18, founded on cl 15 of the 1984 agreement as read down, expired shortly after the hearing of the appeal and prior to judgment in the appeal. The utility of a challenge to it is not obvious. A question could have arisen of disobedience to the order, but Bergin J granted a stay pending the determination of the appeal. I take issue (d) to be principally directed to the holding of breach of cl 15 of the 1984 agreement during the currency of the agreement.
Confidential information
The appellants made an initial submission which it is convenient to consider under this heading. It was summed up in the assertion that Bergin J’s reasons as to confidential information were “permeated with the vice of imprecision”. It was said that her Honour did not identify with precision the information held to be confidential, and that the appellants were therefore left unable to manufacture a friction bolt at all because they did not know what information they were unable to use and could not risk infringing the constraints upheld by the Court. Reference was made to Amway Corporation v Eurway International Ltd (1974) RPC 82 at 86-7 and O’Brien v Komesaroff (1982) 150 CLR 310 at 328, in which Brightman J and Mason J respectively emphasised that a plaintiff can not make a global claim for protection of information but had to identify the particular information deserving of protection.
The principle may readily be accepted: a plaintiff is not entitled to protection beyond that which is truly confidential information, and of more present significance a defendant must know what information he is not permitted to use and what information he can use without exposure to contempt of court. But I do not think the principle is relevantly offended in this case.
The specific declaration as to confidential information made by her Honou was -
“4.Except for the steel grade and type, the specifications and tolerances of the Plaintiff’s Split Set product which are stated in the Plaintiff’s drawings, being drawing numbers SSD001B02E, SSD001B01E and SSD001B09E and various revisions being Exhibit B Confidential RM 1, 2 And 3 and Annexure J to the affidavit of Tom Landsburg sworn 12 May 2000 are trade secrets and confidential to the Plaintiff.”
The respondent had claimed that a wider range of information was confidential information. It had claimed that the drawings bearing the three drawing numbers and their revisions were confidential, without the exception of steel grade and type, and that as well the confidential information extended to -
(i)quality assurance and inspection reports prepared by Inter-State Inspection Services Pty Ltd (“ISIS”) for the respondent relating to the manufacture of Split Sets by the appellants;
(ii)information as to the research, development, manufacture and use of the Split Set, including as to product testing elsewhere in the world and resolution of manufacturing problems;
(iii)the names and addresses of customers and the identity of the customers’ employees responsible for purchases from the respondent;
(iv)information as to the purchasing requirements, business plans and/or financial circumstances of the respondent’s customers;
(v)information as to the marketing of Split Sets by the respondent;
(vi)information as to the pricing and volume of orders placed by the respondent’s customers; and
(vii)information as to procedures for manufacturing Split Sets including methods of improvement.
The appellants denied receipt of some of these categories of information and some parts of other of the categories. While her Honour adverted to the receipt and confidentiality of most categories of information, in the end the declaration was confined to the specifications and tolerances stated in the drawings.
Early in her consideration of confidential information her Honour said -
“It seems to me that the ultimate decision on whether much of this material is confidential within the meaning of clause 12 of the 1984 Agreement, or generally, will depend upon the decision I make in relation to the plaintiff’s drawings, more particularly, the specifications and tolerances contained thereon. If that information is not confidential information then it seems to me that much of the plaintiff’s case in relation to these other matters will fall away. If however I am of the view that they are confidential then, at least, the ISIS material and the R & D information will probably fall within the same category.”
After an extended discussion of initial confidentiality and loss of confidentiality through entry into the public domain, her Honour expressed her conclusion in para [248] of her reasons -
“In all the circumstances I am satisfied that, with the exclusion of the steel, the specifications and tolerances within the plaintiff’s drawings remain confidential. I am also satisfied that the material received by the defendants from the plaintiff, including the R & D Information and the ISIS material which contained direct or indirect references to those specifications and tolerances, is confidential information.”
When summarising her findings to be reflected in short minutes, her Honour said -
“the specification and tolerances (excluding the type and grade of the steel) of the plaintiff’s Split Sets contained in the plaintiff’s drawings is confidential information;
the material received by the defendants from the plaintiff including the R & D information and the ISIS material which contained direct or indirect references to the specifications and tolerances of the Split Sets is confidential information;”
The appellants’ submission attributed more to these findings and the declara.tion than was warranted.
The findings did not extend confidentiality to everything within the R & D Information and ISIS material, still less to everything in the other categories of information. It is plain that para [248] of her Honour’s reasons should be read as if a comma followed the words “ISIS material”, and that the finding as to confidential information was that the specifications and tolerances for the Split Set, excluding the steel grade and type, was confidential. That information appeared in the drawings and the R & D information, the ISIS material, and perhaps other material received by the appellants from the respondent, but what was confidential was the specifications and tolerances, not all the materials. The findings as to confidential information went no further.
Declaration 4 was more limited, being confined to the particular information in the drawings, and other declarations referring to past use of the respondent’s confidential information were to be read accordingly: hence the manner in which I stated Bergin J’s holding as to confidential information when outlining her Honour’s decision. It should be recorded that the respondent accepted that this was the position. There was no cross-appeal in which the respondent sought to have findings or a declaration of more extensive confidentiality.
Specifications and tolerances are well understood notions in the manufacture of products, and their appearance in the drawings and other materials would be sufficiently clear. We were taken by the appellants to a great deal of the other materials in the hearing of the appeal. So far as the materials to which we were taken went beyond the specifications and tolerances, when the findings and declaration 4 are properly understood the complaint of uncertainty is misconceived, and so far as those materials revealed specifications and tolerances I am not persuaded that there is vitiating uncertainty. In any event, declaration 4 is confined to the specifications and tolerances stated in the drawings, and there is no difficulty in ascertaining the information declared to be confidential from perusal of the drawings.
Further, there is in fact no express order restraining the appellants from using the information declared to be confidential. As I have indicated, other declarations referring to past use of the respondent’s confidential information were clearly tied back to the confidential information identified in declaration 4. I have earlier set out the orders constraining the appellants. That via the noting of an undertaking was the subject of issue (e) in the appeal, but for the moment treating it as intact the constraint was by reference to a kind of friction bolt rather than confidential information concerning the Split Set. Order 18 operating until 28 February 2001 was founded on cl 15 of the 1984 agreement as read down, and again was by reference to a kind of friction bolt (although using different words to describe the kind of friction bolt). Order 19 operating until 28 May 2005 was founded on cl 12 of the 1984 agreement, but was not in truth an order that the appellants do or refrain from doing anything.
It is appropriate to say more about order 19. Although nominally an order, it was really a declaration. One of the other declarations, declaration 3, was that “The restraint in clause 12 of the 1984 Manufacturing Agreement is not against public policy and is enforceable”. In the light of the appellants’ case at the trial and on appeal, and of her Honour’s reasons, this was directed to the validity and enforceability of the restraint on using the confidential information for five years after the termination of the 1984 agreement. In my view order 19 was no more than a declaration intended to underline declaration 3 by expressly stating that cl 12 had effect in accordance with its terms.
It follows that the appellants’ complaint that order 19 did not allow for confidential information losing its confidentiality at some time before 28 May 2005 is not in point. That is accommodated by cl 12 of the 1984 agreement.
The appellants’ submission as to imprecision was also put in a different way, in that it was said that the appellants did not know what of the information and categories of information other than the specifications and tolerances for the Split Set was confidential information, and again were left unable to manufacture a friction bolt at all because it could be alleged that they were making use of information within the scope of cl 12 of the 1984 agreement and contrary to its restraints.
Bergin J did not expressly find that the information other than the specifications and tolerances which the respondent had claimed to be confidential information was not confidential information within the scope of cl 12 of the 1984 agreement, although it is clear enough that her Honour doubted the full extent of the respondent’s claim. But I do not think that matters. It was enough for the declarations and orders that her Honour found that the specifications and tolerances for the Split Set were confidential information. The exposure to an allegation of misuse of other confidential information is a consequence of entry into the 1984 agreement, not of order 19. Order 19 did not add to the exposure, and it did not by order of the Court restrain the appellants in impermissibly imprecise language.

It follows from what I have said that the relief granted was not as complete as might have been expected. On the basis of the findings and declarations, it would have been open to her Honour to have made an order to the effect that the appellants be restrained up to and including 28 May 2005 from making use of the respondent’s confidential information being the specifications and tolerances as described in declaration 4. That was not done. When the declarations and orders were prepared by the parties and submitted to her Honour in the form of short minutes, presumably the parties considered that, in the light of the declarations, affirmation of the validity of the fixed five year restraint in cl 12 of the 1984 agreement would sufficiently constrain use of the respondent’s confidential information.
I can now go to the substance of the appellants’ challenge to her Honour’s findings as to confidential information. In short, it was submitted that -
(a) the specifications and tolerances of the Split Set were not initially confidential because they were of insufficient significance in the design and/or manufacture of an efficacious product; and
(b) any initial confidentiality was soon lost because the information came to be in the public domain.
In the way the argument was presented, the two matters ran together.
Bergin J correctly approached this issue with regard to what was said in Saltman Engineering Co Ltd v Campbell Engineering Co (1948) 65 RPC 203 at 215 -
“The information, to be confidential, must, I apprehend, apart from contract, have the necessary quality of confidence about it, namely it must not be something which is public property and public knowledge. On the other hand it is perfectly possible to have a confidential document, be it a formula, a plan, a sketch, or something of that kind, which is the result of work done by the maker upon materials which may be available for the use of anybody; but what makes it confidential is the fact that the maker of the document has used his brain and thus produced a result which can only be produced by somebody who goes through the same process.”
Her Honour also cited from the judgment of Gowans J in Ansell Rubber Co Pty Ltd v Allied Rubber Industries Pty Ltd (1967) VR 37 at 49, where after consideration of many earlier cases his Honour said -
“There is very little in these English cases to enable one to identify a ‘trade secret’. But some collation of the characteristics may be attempted, without trying to make it an exhaustive statement. Its subject-matter may not be a process in common use, or something which is public property and public knowledge, but if it is the result of work done by the maker upon materials which may be available for the use of anybody, so as to achieve a result which can only be produced by somebody who goes through the same process, it will be sufficient. All of its separate features may have been published, or capable of being ascertained by actual inspection of any member of the public, but if the whole result has not been achieved, and could not be achieved, it will not fail to qualify by reason of the publication. It may derive from a maker in another country without losing its character, if it is used, or entitled to be used, by the owner alone in the country in which the owner operates. There is no suggestion of the need for invention. Little can be gathered of the degree of secrecy required beyond what is implied in what is said. But it is a fair inference from what is said that the employer must have kept the matter to himself and from his competitors. The emphasis in the cases is on the confidence.”
We were referred to a number of other cases, but I do not think it necessary to go to them. The thrust of the appellants’ primary argument as to initial confidentiality was that the specifications and tolerances of the Split Set were at best trivial matters in the efficacious operation of the product, so that it could not be said that they were deserving of confidence because they provided a result which could only be produced by someone else who exercised brain power and expended effort. It is sufficient to state the appellants’ argument in that way, because the answer to it lies in the facts of this case rather than the law.

100 The drawings and revisions furnished by the respondent were marked as confidential. The respondent did not contend that information marked as confidential and furnished by it was by force of cl 12 of the 1984 agreement confidential information, even though it would not otherwise have had the necessary quality of confidence.

101 Her Honour concluded that the specifications and tolerances for the Split Set in the respondent’s drawings resulted not only from the use of Ingersoll-Rand Company’s representatives’ brains in reaching and applying “engineering judgments”, but also from a great deal of testing in both the laboratory and in the field at quite a deal of cost. She considered that the tolerances achieved for the Split Set could only be achieved by someone going through the same processes, and so thought that the specifications and tolerances had the necessary quality of confidence even though competitors had produced mining roof supports “similar in presentation”. Importantly to the appellants’ argument, she said -

“The thrust of the detailed cross-examination of Mr Landsberg was to prove that many of the specifications and tolerances were not essential to the workings of the plaintiff’s Split Set. In each category Mr Landsberg resisted those suggestions. It has been suggested that the Split Set is a simple product. I am satisfied that, although to the naked eye it may present as simple, it is a complex system with specifications and tolerances that are important to its particular efficiency.”

102 Mr Landsberg had Bachelors and Masters degrees in mechanical engineering, and had worked as an engineer since 1961. He had been manufacturing manager of the Split Set Division of Ingersoll-Rand Company since a date in 1979, and manufacturing and engineering manager since 1982. He had been responsible for all technical and world wide manufacturing aspects of the Split Set and associated products, and Ingersoll-Rand Company’s development and modification of the Split Set had proceeded under his supervision.

103 Mr Landsberg gave evidence in an affidavit that the Split Set had at least four key design elements critical to its successful operation, the elements having been developed by Ingersoll-Rand Company “at its costs [sic] through extensive analysis, laboratory testing, field testing and underground testing in different mines and under different conditions”. The key elements were the steel type and grade, the thickness and strip width of the steel, the dimensions and tolerances of the Split Set, and the welded flange design. As to the dimensions and tolerances, Mr Landsberg said -

“These are important because Split Sets are hammered into a hole which is smaller than the diameter of the Split Set. The ‘squeeze’ between the Split Set and the hole determines the holding strength. The tolerances and dimensions determine the friction force created by this squeeze.”

104 Concentrating in these reasons on the specifications and tolerances, Mr Landsberg also said in his affidavit -

“In my opinion, it would also be extremely difficult for a person seeking to reverse-engineer the Split Set to determine the tolerances of the product. The ‘tolerance’ is a reference to the variation allowed by Ingersoll-Rand in the dimensions of the Split Set. Ingersoll-Rand sets out these tolerances in the confidential designs of the Split Set provided to its manufacturers. These tolerances directly affect the performance of the Split Set and, if they are incorrect, the Split Set may not work properly. For example, a Split Set with an inappropriate tolerances may not create sufficient friction forces when inserted to effectively support a mining roof. Alternatively, a Split Set which does not have the appropriate tolerances may require greater force or impact to properly drive it into the hole. The standard hand-held ‘jackdrill’ used to install a Split Set is only capable of applying a ten-tonne impact.
To have any chance at all of ‘reverse engineering’ these tolerances, a manufacturer would need to measure numerous samples of Split Sets manufactured by Ingersoll-Rand over a long period of time. Even then, the attempt at reverse engineering may fail.”

105 In another affidavit Mr Landsberg said -

“Although it may be simple to construct an open seam tube with a ring on one end and taper on the other, this is a superficial analysis of the product. A person with experience in rollforming may be able to construct a product which looks like a Split Set. The difficulty is to ensure that it operates like a Split Set. The factors that contribute to the safe operation of a Split Set cannot be observed by a simple examination of the product. The product is not unsophisticated, and both during and after its development undergoes a rigorous testing and quality control program.”

106 Referring to testing of a friction bolt, Mr Landsberg went on -

“It is not simply a matter of conducting one set of tests in respect of one set of dimensions and tolerances. Tests are required to determine the performance of each set of dimensions and tolerances and also different combinations of tolerances to determine how they interact. Only in this way can a manufacturer determine the optimum range of tolerances. Further tests are also required of these dimensions and their tolerances against different combinations of steel grades, steel thickness and other design elements under different conditions to determine how they interact with each other. The Split Set is a system.”

107 As Bergin J observed, Mr Landsberg was subjected to a detailed cross-examination the thrust of which was to prove that many of the specifications and tolerances were not essential to the workings of the Split Set. The principal matters taken up, in the order in which they appear in the passage from her Honour’s reasons which I next set out, were the ring stand off, the outer ring gap, the ring wire, the taper tip diameter, the length tolerance, and the outer diameter. Her Honour noted that of these matters the appellants’ expert, Dr Peter Fuller, referred in his evidence only to the length tolerance and the outer diameter, and that Dr Fuller agreed that the way in which the Split Set performed, both in terms of its ability to be easily installed and its performance when installed, depended upon adherence to specifications which would achieve maximum results.

108 It is convenient to set out her Honour’s summary of the evidence of Mr Landsberg in cross-examination and the evidence of Dr Fuller, and her Honour’s conclusion -

“Ring Stand Off
The ring stand off was designed by Dr Scott to accommodate the deforming forces which are impacted upon the bottom end of the friction bolt when the shoulder of the driver makes contact with it in order to drive the tube into the pre-drilled bore hole.
Mr Landsberg gave evidence that the tolerance for the ring stand off specified in the plaintiff's drawings is critical to the functionality of the Split Set. He said that the purpose of the ring stand off is to have the impact occur on the end of the tube and not on the weld. It is designed to avoid the ring stand off being crushed to the point which creates a flat spot on the ring.
If the ring stand off were to be crushed on the shallow side the driver tool would be impacting on the weld, which is a relatively brittle component, and in those circumstances the weld may be vulnerable to failure.
At the longer side the concern is to ensure buckling does not occur to the point where the tube will be deformed so as to protrude inside the hole. This could cause the driver tool to be permanently lodged inside the tube.
If the plaintiff's specified tolerances for the ring stand off are not complied with the chances of such problems are greater. Mr Landsberg could not put a figure or percentage on these chances and stated that it was an "engineering judgment". He said that such dimensions and tolerances were reached based on much laboratory and field testing. For this reason Mr Landsberg rejected the suggestion that any worker skilled in the art could perform tests over a number of days to determine the likelihood of deformation.
Outer Ring Gap
The outer ring gap is at the outer diameter of the ring. There is what is known as a "sliding requirement" during the manufacturing process. The process of inserting the ring on the tube is achieved using a slide on which fifty rings are placed. The slide is a thin piece of metal over which the ring gap slides and is pressed onto the tube. The tolerances have to be such as to allow it to slide easily.
The aim is to have the weld attached to as much of the ring wire as possible. If there is a very large gap it could jeopardise the overall strength of the flange. It is the inner ring gap, rather than the outer ring gap, that is critical and when the outer ring gap is at the required tolerance the inner ring gap meets the sliding requirement as well as limiting the gap to a minimum. Mr Landsberg said that this protects the strength and integrity of the flange.
Ring Wire
Mr Landsberg used this item to make the point that it is important to consider the Split Set as a system in which there is an interaction between different components of different elements of the design. He said that it was not appropriate to analyse one aspect of the Split Set in a vacuum.
He claimed "absolutely" that the precise location of the ring and therefore the ring wire specification, within a fraction of a millimetre had an impact upon the "functionality" of the Split Set.
Taper Tip Diameter
The end of the tube of the Split Set is tapered to enable the operator inserting the bolt into the bore hole to see the top end of the tube entering the bore hole thereby assisting its installation.
If the tapered tip is too small it becomes vulnerable as the bolt is being installed. Mr Landsberg gave the example of pushing hard on a pencil to the point that it breaks. He said it is an important dimension and the tolerances are essential to the proper functioning of the bolt and rejected the suggestion that this was not so.
The Length Tolerance
Dr Fuller expressed the opinion that the tolerances on the length of the friction bolt can be broad but that a maximum limit must be known. He was of the view that as long as the miner bores a hole longer than the tube, the friction bolt length is not crucial. In his opinion tolerances in relation to length are not important.
Mr Landsberg disagreed and gave evidence that the length of the bolt has a direct application on the holding force that the bolt will exert on a given rock face. The tolerances are therefore significant. A circumstance in which the length of the bolt becomes increasingly important is if the ground immediately above the roof is not well-structured.
Outer Diameter
Dr Fuller expressed the opinion that the diameter must have a small tolerance. Such a small tolerance assisted in developing maximum friction and "in the ground performance". He was of the view that so long as the miner knows what the diameter of the friction bolt is and each friction bolt has a consistent diameter, consistent in the ground performance can be achieved. He was of the view that consistency is achieved in the manufacturing process and has nothing to do with the diameter of the friction bolt. He concluded that the actual diameter is not as important as the consistency in manufacture of a specified diameter.
Mr Landsberg gave evidence that the outer diameter of the product will vary from day to day, even from hour to hour in the manufacturing process. It will vary in its stiffness and thickness and vibrations in the plant will cause the adjustments of rolls to vary. The common practice would be to measure the product about every hour so as to be sure that it does not stray from the specification.
The product is manufactured to a diameter larger than that of the hole into which it must be inserted. It is that difference between the two diameters that establishes the friction holding force in the rock and that is critical to its performance.
Mr Landsberg was at pains on a number of occasions to stress in his evidence the importance of considering that the dimensions, specifications and tolerances of the Split Set had to be viewed as a system rather than analysing each in a vacuum. Dr Fuller conceded that the Split Set operates as a system of many parameters acting together and is not solely dependent on outside diameter (Tr. 580).
Ultimately the differences between Dr Fuller and Mr Landsberg in relation to the attributes of the Split Set were few. Dr Fuller's opinion in relation to the outer diameter was ultimately qualified in his evidence by his concession that the Split Set operates as a system. So far as the other matters upon which Mr Landsberg expressed an opinion and Dr Fuller did not, I am of the view that I should accept Mr Landsberg's evidence. This is so notwithstanding the careful cross examination of him by Mr Grieve QC and the submissions put to suggest that some of those opinions should be rejected.”

109 The appellants submitted on appeal that some of Mr Landsberg’s evidence “bordered on the absurd”, and that the specifications and tolerances for the Split Set were really of no significance to its utility. They said that the fact that competitors had produced a successful friction bolt demonstrated that the particular specifications and tolerances of the Split Set were not crucial to its performance, an element in their argument which they distinguished from the argument that the specifications and tolerances were in the public domain because the Split Set could be replicated by reverse engineering.

110 The argument for absurdity was for the most part without the benefit of evidence. Mr Landsberg was ridiculed for claiming that the ring stand off to a tolerance of a fraction of a millimetre could have an impact on the “functionality” of the Split Set. He had in fact explained that there was no “change from black to white”, but that the chances of problems would be greater if the tolerance were not adhered to; he also pointed to the importance of avoiding problems because of the possible drastic consequences of failure of a friction bolt. It was said that the length tolerance was of no moment so long as the hole into which the tube was forced was longer than the tube, in this respect with the support of Dr Fuller. But Mr Landsberg’s point was firstly that a slightly shorter friction bolt would have a slightly less holding force, and secondly that sometimes the structure of the material would make the length of the bolt particularly important (at one point he said that in some situations “it is only the very end of the bolt that is anchored, and its length is critical”).

111 I do not think it necessary to go to every respect in which the appellants argued that the specifications and tolerances of the Split Set were not of significance. In my opinion Bergin J was entitled to accept, and correctly accepted, that the Split Set operated as a system, and that the specifications and tolerances all contributed to its successful operation. As her Honour indicated, Dr Fuller agreed that the Split Set operated as a system of many parameters acting together, not dependent solely on outside diameter, and that installation and performance depended on adherence to specifications which would achieve maximum results; he also agreed that tolerances and specifications which had been devised over a period of time to ensure that the product could be readily installed and would perform well once installed were useful and valuable to a manufacturer of the product. In the end, as Bergin J said, there was not a great difference between Mr Landsberg and Dr Fuller.

173 The manifest failure appeared in s 4(3) of the Act, but that sub-section did not provide for refusal of relief, or grant of only limited relief, to a promisee bringing proceedings. It provided for an order of invalidity, or only limited validity, where there was application by a promisor. Notwithstanding this rather radical change, in the second reading speech in the Legislative Assembly the Attorney-General said (New South Wales Parliamentary Debates, Vol CXXXV p 1181, 29 September 1976) -

“Clause 4(3) envisages the circumstances that a person receiving the benefit of a restraint may be disadvantaged by the prospective loss of benefits that might flow from an otherwise valid aspect of the restraint, if the court in determining the relevant part of the restraint was invalid. The prospect of losing these benefits will, it is anticipated, discourage the making of recklessly wide restraints in the first instance. As a result the incidence of cases where the court is required to intervene to read down unduly wide restraints will be reduced.
The vesting of power in the court to make an order declaring a restraint invalid wholly or in part from a specified date will also bring certainty to the future relationship and conduct of the parties. It is important to note that the court’s power to order a restraint wholly or partially invalid depends upon its being satisfied that there was a manifest failure to make the restraint reasonable.”

174 In the Legislative Council the Minister for Planning and Environment said (New South Wales Parliamentary Debates, Vol CXXVI p 2298, 3 November 1976) -

“Clause 4(3) provides that the Supreme court, on an application made by a person subject to a restraint of trade, may order the restraint to be wholly or partially invalid from a specified date. The court in making such an order must be satisfied such an order must be satisfied [sic] that the restraint is against public policy because of a manifest failure to make it reasonable.
The application is available only to the person who is subject to restraint - in simple terms, the person who makes the promise. It has always been open to the person to whom the promise is made to see relief by way of damages or injunction against the promisor for breaches of the promise. Clause 4(3) does not disturb that entitlement but gives the person subject to the restraint the right to apply to the court for an order that the restraint is wholly or partly invalid. The court in having the power to make the order effective from a specified date is able to make a determination of the future conduct of the parties under the restraint.
The availability of such an application will have the result that at the initial contractual stage persons will be deterred from seeking unduly wide promises or restraints in the expectation of the court being asked to order that the restraint is wholly invalid or read down to be only partially invalid, with the consequent possibility of loss of prospective benefits. A further effect of the subclause is that the court in considering an application will have the power to make an order that determines the future conduct of the parties and thus give certainty to their relationship under the restraint.”

175 It seems that the rationale in the Report of the Law Reform Commission continued, but in modified form. The draftsman of the covenant (still presumably the promisee) was to be encouraged to apply his mind to what would be a restraint within the bounds of reason by the prospect that the promisor would apply to have the covenant found invalid or of only limited validity, but this would still depend upon a finding of manifest failure. Application by the promisee was envisaged, and a finding of manifest failure was regarded as and has been said to be a condition precedent to the grant of relief under s 4(3) (see Orton v Melman at 589; Douglass Automated Laboratories & Allied Services Pty Ltd v Sonic Technology Australia Ltd at 53,625; Greenhalgh v Composite Buyers Ltd at 53,162).

176 Section 4(3) of the Act is in a sense complementary to s 4(1). Section 4(1) enables limited enforcement of the restraint to the extent to which it applies to the particular breach, on the application of the promisee and looking to the past and present. (Framing injunctive relief for the future may require regard to the outer limits of validity, but will turn on the validity of the restraint as it operates in the circumstances of the proved breach and not on other conceivable circumstances: see Orton v Melman at 587-8.) Section 4(3) enables a reading down of the restraint in the abstract, on the application of the promisor and looking to the future. The express provision that any order is to have only future effect should be noted.

177 The complementary operations of s 4(1) and s 4(3) are, however, not complete. Because the promisee’s application focuses on the particular breach, invocation of s 4(1) does not define the extent of validity and enforceability of the restraint - it may have validity wider than that necessary for enforcement in the face of the particular breach. Because the promisor’s application requires a finding of manifest failure, a promisor may be able to resist the promisee’s proceedings to enforce the restraint in the face of his breach on the ground that the restraint would to that extent be against public policy, even though the promisor could not successfully invoke s 4(3) to have the restraint found invalid or read down. There are other problems. It may be some time before the operation of s 4(3) of the Act is settled.

178 In the present case the first appellant did not expressly claim an order that the restraint in cl 15 of the 1984 agreement be read down (in the words of s 4(3) of the Act, that it be valid only to such extent as the Court thinks fit). It contended in its defence that cl 15 was void, including (rather obscurely) “as a restraint of trade pursuant to s 4 of the Act 1976 (NSW)”, and it cross-claimed for an order pursuant to s 4(3) of the Restraints of Trade Act that the restraint was wholly invalid. The defence may not have amounted to an application by the first appellant, but the cross-claim was an application by it.

179 In my opinion, although the first appellant’s claim was not expressly for an order that the restraint in cl 15 of the 1984 agreement be read down, there was an application by the first appellant which enlivened the Court’s powers under s 4(3) of the Act. The introductory words of s 4(3) called for an application by the promisor, on which application it appears (in short form) that the restraint is against public policy because of manifest failure. That was what the first appellant alleged in para 3 of the cross-claim. The application to which s 4(3) referred was for a finding of the Court to that effect, not a finding of complete offence to public policy but of offence to public policy “to any extent”. The Court was then empowered to order that the restraint be altogether invalid or valid only to such extent as the Court thinks fit, not to such extent as the promisor claimed.

180 Bergin J found the restraint in cl 15 of the 1984 agreement against public policy: this, of course, was as the first appellant had contended. Her Honour found that “Although there was ample opportunity for the plaintiff to create or join in creating a reasonable restraint it did not do so”. In the following sentences she appears to have had in mind the early 1990’s. The manifest failure to which s 4(3) of the Act refers seems to me to be manifest failure at the time the restraint was created, not some later time, in this case in 1984 not in the early 1990’s. However, her Honour’s initial statement was not limited in time, and from the first appellant’s submissions as reflected in the reasons the first appellant was contending for stark unreasonableness of the restraint in 1984. The first appellant did not submit on appeal that a finding of manifest failure was erroneous. I consider that what her Honour said amounted to a finding of manifest failure in 1984.

181 As to the reading down itself, by the terms of s 4(3) of the Act the restraint must be read down so that it is valid to no greater extent than “the extent to which the restraint is not against public policy”. At the time she referred to exercise of her discretion Bergin J did not spell out her reasoning to cl 15 of the 1984 agreement as read down, save for saying that the fact that the Split Set was a safety product with a need for competent and safe manufacturers in the market “also featured prominently in my mind in reaching this conclusion”. It is evident from her Honour’s earlier reasons, however, that she considered that it was necessary that there be an adequate time for “tooling up” any manufacturer of friction bolts in order to ensure that the product was a safe one; that it would take the respondent about nine months after the termination of the 1984 agreement to “tool up” a manufacturer in substitution for the first appellant; and that the respondent should be protected for that period against the springboard advantage which the first appellant would otherwise enjoy.

182 Protection against a headstart or springboard advantage is a recognised ground for a restraint. In Terrapin Ltd v Builders’ Supply Co (Hayes) Ltd, a confidential information case, it was said (at 391-2) -

“As I understand it, the essence of this branch of the law, whatever the origin of it may be, is that a person who has obtained information in confidence is not allowed to use it as a spring-board for activities detrimental to the person who made the confidential communication, and spring-board it remains even when all the features have been published or can be ascertained by actual inspection by any member of the public. The brochures are certainly not equivalent to the publication of the plans, specifications, other technical information and know-how. The dismantling of a unit might enable a person to proceed without plans or specifications, or other technical information, but not, I think, without some of the know-how, and certainly not without taking the trouble to dismantle. I think it is broadly true to say that a member of the public to whom the confidential information had not been imparted would still have to prepare plans and specifications. He would probably have to construct a prototype, and he would certainly have to conduct tests. Therefore, the possessor of the confidential information still has a long start over any member of the public. The design may be as important as the features. It is, in my view, inherent in the principle upon which the Saltman case rests that the possessor of such information must be placed under a special disability in the field of competition in order to ensure that he does not get an unfair start; or, in other words, to preclude the tactics which the first defendants and the third defendants and the managing director of both of those companies employed in this case.”

183 Many headstart or springboard cases are considered in United States Surgical Corporation v Hospital Products International Pty Ltd (1983) 2 NSWLR 157 at 228-33. It was there accepted that, if the person misusing confidential information gained from the headstart, injunctive relief or damages would be moulded or assessed accordingly, although it was considered that in that case the gain was not a headstart. More recent cases recognising a headstart or springboard advantage are Wright v Gasweld Pty Ltd at 338 and Stokely-Van Camp Inc v New Generation Beverages Pty Ltd (1998) 44 NSWLR 607 at 615.

184 In the present case the restraint in cl 15 of the 1984 agreement was not against the use of confidential information. It was against manufacture of friction bolts similar in design to the Split Set. Further, and as a result, the springboard advantage recognised by her Honour was not measured by the time it would have taken the defendant legitimately to place itself on equal terms with the plaintiff, but by the time it would take the plaintiff to place itself on equal terms with the defendant.

185 It was not clear that the first appellant submitted on appeal that this made her Honour’s approach erroneous. One of the grounds of appeal was that “the ‘spring board’ principle first propounded in Terrapin Ltd v Builders’ Supply Company (Hayes) Ltd 84 RPC is of limited application and in the circumstances of the instant proceedings of none to them”. But the argument in the appellants’ written submissions under that ground of appeal came down to the argument that the confidential information was not confidential and that, because ANI, AGS and Jennmar manufactured competing friction bolts, the appellants enjoyed no advantage from “their supposed possession of the ‘confidential information’.” In the light of what I have earlier said, the argument loses its foundation.

186 In any event, I consider that analogous recognition of a springboard advantage entitled her Honour to reason as she did. It is true, as the appellants at one point said, that the 1984 agreement was non-exclusive, so that the respondent could have “tooled up” another manufacturer of Split Sets at any time; it could also have terminated the 1984 agreement on 180 days notice. But it did not have to do so, and there was no reason for it to do so while the 1984 agreement was current and it was receiving a satisfactory supply of Splits Sets from the first appellant. If the first appellant chose to terminate the 1984 agreement, in the absence of cl 15 (and subject to cl 12) the first appellant would be able to make friction bolts similar in design to the Split Set. It would only make them to sell, in competition with the respondent. It would gain from being placed, through being the respondent’s manufacturer under the 1984 agreement, in a position in which it was “tooled up” and with knowledge and experience equipping it immediately to make and sell competing products. That gain was a headstart or a springboard advantage.

187 So far as the first appellant’s submissions otherwise addressed the reading down of cl 15 of the 1984 agreement, it was said that cl 15 as read down was still against public policy because it would reduce competition by requiring the first appellant to supply friction bolts exclusively to the respondent and preventing it from supplying friction bolts directly to end users.

188 Any restraint of trade is apt to reduce competition. A restraint is not against public policy if it is reasonable in the interests of the parties and reasonable in the interests of the public (the classic statement in Nordenfeldt v Maxim Nordenfeldt Guns and Ammunition Co Ltd (1894) AC 535 at 565). As between the parties protection to the party contracting for the restraint is valid if it affords no more than adequate protection (Herbert Morris Ltd v Saxelby (1916) 1 AC 688 at 707; Buckley v Tutty (1971) 125 CLR 353 at 376). A restraint is not unreasonable in the interests of the public simply because part of its operation protects the promisee against competition, although a restraint which does no more than protect against competition will not be upheld (Queensland Co-operative Milling Association v Pamag Pty Ltd (1973) 133 CLR 260 at 265, 268, 277-9; ICI Pty Ltd v Sea Containers Ltd (1995) 39 NSWLR 640 at 671), and one aspect of public policy is promotion of commercial agreements by allowing appropriate protection to their parties.

189 A variety of interests have been held to warrant protection, extending to interests such as the maintenance of a stable system of distribution and preservation of secure outlets (Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd (1968) AC 269), and preservation of a source of supply (McEllistrim v Ballymacelligot Co-operative (1919) AC 548) and of a customer base and pricing structure (Peters American Delicacy Co Ltd v Patricia’s Chocolates and Candies Pty Ltd (1947) 77 CLR 574). Capital expenditure unrelated to the transaction between the parties does not warrant protection (ICI Pty Ltd v Sea Containers Ltd at 671-2), but capital expenditure as part of the transaction may warrant protection, as in the expenditure on service station equipment which became the property of the other party in Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288 at 290, 308, 318-9. In modern times a narrow view of interests warranting protection should not be taken.

190 The respondent had a monopoly right in 1984, which it shared with the first appellant and from which the first appellant initially greatly benefited. In the performance of the 1984 agreement, and repeating what I have earlier said, the first appellant was placed in a position in which, after the monopoly right ended and the 1984 agreement came to an end, in the absence of cl 15 (and subject to cl 12) it would be able to make friction bolts similar in design to the Split Set. The first appellant was “tooled up” and with knowledge and experience - in part the confidential information but going beyond that information - equipping it immediately to make and sell those products. The respondents had “invested” in the first appellant, and was entitled to be protected from the disadvantage to which it subjected itself by entering into the 1984 agreement, namely that on termination of the agreement the first appellant would immediately be able to make and sell the similar products.

191 The respondent bargained for protection which included cl 15 of the 1984 agreement. That was too wide, but the more limited protection at which Bergain J arrived, sufficient to neutralise the first appellant’s springboard advantage, is in my view reasonable between the parties and has not been shown to be unreasonable in the public interest. In my opinion it was open to Bergin J to read down cl 15 of the 1984 agreement in the manner she did, and there was no error in this respect.

The undertaking

192 To repeat the undertaking noted by Bergin J in para 17 of the declarations and orders, it was -

“THE COURT NOTES THAT:
17.In accordance with an undertaking given by the Defendants on 14 February 2000, the Defendants undertake not to continue to supply Split Sets, Strata Bolts or any friction bolts similar thereto to WMC Resources Pty Ltd, WMC (Olympic Dam Operations) Pty Ltd and Central Norseman Gold Corporation Ltd up to and including 28 May 2005.”

193 The appellants submitted that the undertaking should not have been given and that they should be released from it. The undertaking was clearly enough consequential on the findings of breaches of cl 12 of the 1984 agreement and the equitable duty of confidence, intended to deprive the appellants of the benefit of their breaches. On the basis on which the appellants put their submission, if they were released from the undertaking it would seem to be necessary to consider what relief should be given in its place. No submissions were received from any party as to this.

194 An application by the respondent for interlocutory relief was heard in February 2000. In the result, on 14 February 2000 undertakings by the respondent and by the appellants were noted and orders were made. All were without admissions, and in force until the date fixed for the final hearing which was in due course undertaken by Bergin J or the determination of the proceedings at first instance, whichever first occurred. Presumably the interlocutory undertakings and orders were continued until her Honour gave judgment and made final orders.

195 The undertakings included an undertaking by the appellants -

“ … not to continue to supply Split Sets, Strata Bolts or any friction bolts similar thereto (hereafter referred to as ‘the relevant Mining Roof Supports’) to the corporations referred to in Order 2(c) of these Orders during the period of any permanent injunction granted by the Court if the Plaintiff is ultimately successful in these proceedings in establishing that the entering into the contract referred to in Order 2(c) of these Orders was a breach of the obligations owed by the Defendants or either of them to the Plaintiff (whether or not the supply of such relevant Mining Roof Supports is restricted by that injunction.”

196 The “corporations referred to in Order 2(c) of these Orders” were WMC Resources Pty Ltd, WMC (Olympic Dam Operations) Pty Ltd and Central Norseman Gold Corporation Ltd. The “contract referred to in Order 2(c) of these Orders” was any contract entered into with those companies “pursuant to Tender Number GS-WA-GRP-TC-0175”. The parties must have prepared the short minutes in the belief that the respondent had established that the entry into the contract was a breach of the obligations owed by one of the appellants to the respondent. They therefore repeated the undertakings, with identification of the companies and without the condition.

197 No point was taken that the correct name of the company WMC Resources Pty Ltd was WMC Resources Ltd. The appellants submitted, however, that Bergin J did not find that entry into the contract was a breach of the obligations owed by one or both of the appellants to the respondent. Their counsel said in oral submissions -

“In fact the Court did not find that the entering into the contract by the first appellant, with Western Mining, was a breach of any of its obligations to Ingersoll. That contract provided for the supply by the first appellant to Western Mining of a number of mining products, included among which were friction bolts. No doubt, and indeed it is the case, that the contract between the first appellant and Western Mining contemplated on the part of both parties that the first appellant would manufacture all of those various products. But while the parties may have contemplated it, the contract didn’t require it. In fact since the conclusion of the proceedings at first instance the appellants have complied with certain contractual obligations which they had undertaken prior to the determination of those proceedings. Two companies other than the Western Mining Companies, calling for the supply of friction bolts by purchasing those bolts from ANI, one of the competitive suppliers and on-selling them to the end consumers. That Rollformers is indubitably permitted to do, having regard to her Honour’s rejection of the implied argument, that the contract also restrained Rollformers from supplying, as distinct from literally making the bolts.”

198 The respondent was taken unawares by this, understandably enough when no notice of motion claiming to be released from the undertaking had been filed, no affidavit explaining how the undertaking had come about or otherwise supporting release from the undertaking had been served, and the matter had not been raised in the appellants’ written submissions. It was given the opportunity to file a supplementary submission, to which the appellants then responded.

199 I have earlier recorded that on 17 November 1999 WMC Resources Ltd awarded to the first appellant the contract for the supply of mine supports for a period of three years from 1 January 2000. The tender number for the contract was GS-WA-GRP-TC-0175. The question under the interlocutory undertaking was whether the entry into the contract was in breach of the obligations owed by the appellants or either of them to the respondent.

200 As I understand the appellants’ submission, it was that the answer to the question was no, because the first appellant could supply to WMC Resources Ltd friction bolts obtained by it from ANI, AGS or Jennmar, being friction bolts for which it had not made use of any confidential information contrary to cl 12 of the 1984 agreement and which it had not made contrary to cl 15 of the 1984 agreement.

201 The underlying assumption in the submission was that the contract with WMC Resources Ltd did not require a supply of friction bolts which only Split Sets could satisfy. In fact, the tender was for the supply of, amongst other friction bolts, Split Sets by name. The appellants’ submission therefore falls to the ground. In any event, and putting aside procedural considerations, in my view the appellants’ submission can not be accepted.

202 The question under the interlocutory undertaking was whether the entry into the contract was in breach of the obligations owed by the appellants or either of them to the respondent. It was not whether performance of the contract once entered into would be in breach of those obligations. Bergin J held that the first appellant used the respondent’s confidential information in preparing and submitting its tender, in breach of cl 12 of the 1984 agreement. The appellants’ lawyers must have been satisfied that this was entry into the contract within the proviso in the interlocutory undertaking. So must Bergin J. I consider they were correct. The use of the respondent’s confidential information in preparing and submitting the tender was entry into the contract within the intent of the language of the proviso. The 1984 agreement did not prohibit entry into a contract as such, but use of confidential information, and in the circumstances of the litigation the parties must have intended by the phrase “entry into the contract” to mean use of confidential information in bringing about the contract.

203 No evidence was put before us explaining a mistaken appreciation of the intent of the parties at the time the interlocutory undertaking was given. I would refuse the oral application to be released from the undertaking.

The first appellant’s damages claim

204 Bergin J said as to the first appellant’s cross-claim -

“Price increases were agreed to between 1984 and 1991. These were in accordance with the formulae in the 1984 and 1986 Agreements. The plaintiff informed the first defendant on 10 February 1992 at the meeting in Victoria that the 1991 prices would apply. No further price increases were agreed.
The defendants claim that this amounted to a repudiation of the contract and they are entitled to damages in the amount claimed. The evidence does not support this claim.
J.V. Fergusson gave evidence that no further notifications were given under the contract after 1992. He said the reasons included a fear that the Agreement may be terminated. He also gave evidence that the five percent volume discount that had been provided to the plaintiff was waived as a quid pro quo for the lack of price increases. This evidence was damning for the cross claim.
Mr Crick did not agree that it was a quid pro quo. He took the view that he would remove the discount in the light of the lack of price increases and see what happened. There was a further request to Mr Drumheller in the letter in 1996 to which reference has been made earlier in this judgment
I am satisfied that the defendants agreed to the price freezes from 1992 and in return removed the plaintiff's volume discount. I am satisfied that the cross claim is without merit and should be dismissed.”

205 The first appellant maintained on appeal the case which had not found favour with her Honour. It submitted that cl 6 of the 1984 agreement entitled it to annual price increases in accordance with the formulae; that the respondent told it on 10 February 1992 “that no such increases would thereafter be allowed”; and that this was a breach of contract entitling the first appellant to damages. They said that “It was not necessary for Rollformers to repeat its claim by way of formal notice under cl 6. Ingersoll had plainly manifested an intention not to be bound by that clause.”

206 I will assume that what Mr Delahunty said on 10 February 1992, and the purchase order sent on 11 February 1992, amounted to the respondent saying that no price increases would thereafter be allowed, although I do not think it did.

207 Had that been repudiatory conduct, the first appellant could have terminated the 1984 agreement. It did not do so. Whatever was said and done in February 1992, the 1984 agreement remained on foot until terminated by the first appellant on 29 November 1999. It was therefore necessary that the first appellant “adjust the prices” and inform the respondent of each price increase, in accordance with cl 6 of the 1984 agreement. If it did not do so, it was not entitled to be paid more.

208 In the letter of 6 November 1992, at the meeting of 19 November 1993, and at various times thereafter the first appellant asked to be paid more, although not by application of a formula in cl 6 in the 1984 agreement. Rather, it made requests outside the 1984 agreement - in effect, it sought renegotiation of the prices payable by the respondent. Whether or not there was, as Bergin J found, agreement to price freezes from 1992 in return for removal of the respondent’s volume discount, if the first appellant did not follow the machinery of cl 6 of the 1984 agreement it was not entitled to any price increases. The requests it made did not entitle it to price increases.

209 The first appellant did follow the machinery of cl 6 of the 1984 agreement for price increases for the six months from 1 January 1992 to 30 June 1992. The respondent took the point that any claim for damages for failure to pay the increased prices for that period was statute barred, the first appellant’s cross-claim having been filed on 13 April 2000. The first appellant did not submit to the contrary.

210 By its letter of 29 November 1999 the first appellant purported to adjust the prices under the 1984 agreement for the six months from 1 January 2000. But it did not prove the components of the formula or calculate an amount, and seems not to have claimed any damages in respect of that period. Mr James Fergusson’s affidavit providing evidence of and calculating the claim went only to the end of 1999, and we were not referred to any further evidence.

211 The cross-claim was properly dismissed.

Conclusion

212 Although I consider that the second appellant did not accept and become bound by the 1984 agreement, the appellants did not dispute that, if the findings as to confidential information were upheld, they were under equitable duties of confidence. The appeal should be allowed to the extent that those parts of the declarations of breach by the second appellant involving breach of cl 12 of the 1984 agreement and the inclusion of the second appellant in orders 18 and 19 should be set aside. Subject to any adjustment of her Honour’s order that the appellants pay the respondent’s costs of the proceedings, the declarations and orders made by Bergin J should otherwise stand. My understanding is that the stay granted by her Honour will come to an end upon this Court determining the appeal, but liberty to apply on two days notice should be granted if the parties or either of them consider consequential orders are necessary in that respect.

213 It would not be realistic to treat the appellants separately in making orders as to costs. The second appellant had some success in the appeal, but with doubtful practical advantage. Although not subject to the fixed five year restraint in cl 12 of the 1984 agreement, it remains under the constraint of the equitable duty of confidence, and public disclosure of the confidential information such as to discharge it from that obligation in the next four years is unlikely. In substance the appellants were unsuccessful in the appeal. They should pay the respondent’s costs of the appeal, and the costs order made by Bergin J should not be adjusted.

Orders

214 I propose the following orders -

1. Appeal allowed in part.
2.Set aside the declarations and orders made by Bergin J to the extent of -
(a)deleting subparagraph (a) from each of declarations 12 and 14;
(b)deleting the references to the second appellant from each of orders 18 and 19;
(c)making consequential grammatical and punctuation alterations.

3. Order the appellants to pay the respondent’s costs of the appeal.
4. Liberty to apply on two days notice.

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LAST UPDATED: 27/04/2001