Manderson M and F Consulting v Incitec Pivot Ltd (No 2)

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL & EQUITY DIVISION

COMMERCIAL COURT

LIST C

No. 2034 of 2008

MANDERSON M & F CONSULTING (A FIRM)	Plaintiff
v
INCITEC PIVOT LIMITED (ACN 004 080 264)	Defendant

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JUDGE:	CROFT J
WHERE HELD:	Melbourne
DATE OF HEARING:	18 March 2011
DATE OF JUDGMENT:	16 May 2011
CASE MAY BE CITED AS:	Manderson M & F Consulting v Incitec Pivot Ltd (No 2)
MEDIUM NEUTRAL CITATION:	[2011] VSC 205

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PRACTICE AND PROCEDURE – Application for summary judgment in favour of the defendant – Application for permanent stay of the proceedings, in the alternative – Application to file fourth further amended statement of claim – Breach of confidence – Identifying information capable of protection – Civil Procedure Act 2010, s 63 – Supreme Court (General Civil Procedure) Rules2005, Rule 23.01 – O’Brien v Komesaroff [1982] 150 CLR 310.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr D. Shavin QC with Mr P. Wallis	EKM Legal
For the Defendant	Mr C. Scerri QC with Mr G. Dalton	Mallesons Stephen Jaques

HIS HONOUR:

Application

This is an application by the plaintiff (“MMFC”) to file and serve a proposed Fourth Further Amended Statement of Claim (“the proposed Statement of Claim”).

The defendant (“IPL”) seeks an order that the proceeding be dismissed with summary judgment in favour of IPL or that the proceeding be permanently stayed, in circumstances where, it submitted:[1]
[1]Incitec Pivot’s Outline of Submissions: Plaintiff’s application for leave to file (12 October 2010); Defendant’s summary judgment application (19 January 2011) (“IPL’s Outline of Submissions”), [37].

(a) MMFC commenced these proceedings almost three years ago;

(b) it should be simple for MMFC to precisely define the MMFC LTAL Model[2] given that the claimed joint creators have been responsible for providing instructions to the plaintiff’s lawyers throughout this proceeding;[3]
[2]See paragraph 34 of the proposed Statement of Claim (which is set out below, paragraph 13).
[3]For example, EKM Legal sent a letter to Mallesons on 24 February 2010 stating that MMFC could not properly respond to Incitec Pivot’s security for costs application because Mr Manderson was unwell and EKM Legal “require[d] instructions from Mr Manderson in order to respond properly to your client’s application.”

(c) the MMFC LTAL Model was claimed to have been utilised over five years ago for the Orica SLB Project which achieved the claimed desirable result;

(d) MMFC has never pleaded that it disclosed to IPL (or any relevant third party) the calculation formula required to be used to achieve the claimed desirable result, because it never did so; and

(e) MMFC has never defined a body of information capable of protection, because what it disclosed to IPL (and relevant third parties) is not capable of such protection.

In this respect, reliance was placed on rule 23.01 of the Supreme Court (General Civil Procedure) Rules 2005 (“the Rules”), s 63 of the Civil Procedure Act 2010 (“the Act”) and the Court’s inherent jurisdiction.

IPL also seeks orders in respect of costs in terms of paragraph 3 of its summons dated 19 January 2011, for the reasons set out in its written outline of submissions dated 28 January 2011. As indicated below, I have reserved the question of costs to enable the parties to address this issue in light of the position I have reached on the basis of these reasons.

Background

The pleadings history of this matter commenced with a statement of claim dated 2 July 2008. This history is conveniently summarised in Annexure A. Critically, the first statement of claim was struck out by Hargrave J on 24 October 2008, the second by Efthim AsJ on 12 October 2009 (confirmed by Davies J on appeal) and as a result of a hearing on 4 March 2010 I refused leave to file a draft third further amended statement of claim. My judgment in this respect was delivered on 9 March 2010[4] and is referred to as “my previous judgment”.
[4]Manderson M & F Consulting v Incitec Pivot Ltd [2010] VSC 63.

In my previous judgment I set out the relevant principles with respect to the pleading of a claim in a confidential information case[5] and then dealt with issues raised in the then proposed pleading on the basis of these principles.
[5]Ibid [8]-[10].

Subsequently, a further proposed version of the Third Further Amended Statement of Claim, the third revision of this draft following my previous judgment, was the subject of an application for leave to file which was heard, in part, on 29 November 2010. As a result of my observations on the deficiencies in that draft pleading, on the basis of the relevant principles as set out in my previous judgment, that hearing was adjourned until 4 February 2011. The principal and critical deficiency in that draft was MMFC’s failure to identify with any specificity, or at all, the confidential information it seeks to protect; in accordance with the relevant principles as set out in my previous judgment.

At the 4 February 2011 hearing, newly retained Senior Counsel assured me that the draft pleading would be revised, “root and branch” so to speak, and simplified so that the critical elements as required by the relevant principles would be clearly and fully set out.

Issues

As indicated at previous hearings, the absolutely critical element in the pleading of a claim of this kind is the identification or definition in specific, and not merely general, global terms, or on some inferential basis, of that which it is said to be the confidential information in question.[6] MMFC made reference to a number of authorities in support of its submissions in relation to the nature of confidential information capable of protection under the doctrine of breach of confidence. These authorities are considered further below. MMFC did not, however, suggest that the relevant principles to be applied with respect to the pleading of a claim in a confidential information case were other than those set out in my previous judgment. Further, it was common ground that for the purposes of this application, it should be assumed that the facts alleged in the proposed Statement of Claim would be proved.[7] No evidence was led by either party – though it might be said that some attempt was made, though not pressed over objection. Consequently, the application proceeded on the basis of this common ground.
[6]See my previous judgment, particularly at [8] and the references to passages, set out, from various judgments of Gummow J and Harper J, in a variety of cases.
[7]MMFC submitted that, assuming the facts pleaded [see, for example, Opat Decorating Services (Vic) Pty Ltd v Jennings Group Ltd (Unreported, Supreme Court of Victoria, Byrne J, 16 September 1994) are established at trial, MMFC has a real rather than “fanciful” or “merely arguable” prospect of success [White Industries Aust Ltd and anor v FCT and anor (2007) 160 FCR 298 at [59] and the cases there cited].

All the other elements of the cause of action required, according to the relevant principles, to be pleaded are entirely dependent upon the identification of the confidential information to be protected. Unless the “thing” sought to be protected is clearly and specifically identified or defined, it is not possible to even consider, let alone plead, that the information has the necessary quality of confidentiality, whether it was received by the defendant in such circumstances as to import an obligations of confidence, whether there is an actual or threatened misuse of that information or whether the plaintiff is the party entitled to seek to protect such information.

Against this background, IPL submitted that MMFC should not be granted leave to file the proposed Statement of Claim because it failed:

(a) to properly identify confidential information which is capable of protection;

(b) to identify how MMFC disclosed the allegedly confidential information in circumstances imposing an obligation of confidence on IPL;

(c) to identify any alleged unauthorised use, or alleged unauthorised disclosure, of the confidential information by IPL; and

(d)to establish MMFC’s rights to the allegedly confidential information, and thus the basis upon which MMFC is entitled to enforce against IPL rights in respect of that information.

It is to these issues that I now turn.
Failure to identify information capable of protection

The proposed Statement of Claim seeks to identify the confidential information, having pleaded in narrative form the advantages of entering into long term asset leases which would be classified as “operating leases”, rather than “finance” leases for the purposes of Australian Accounting Standards Board, Accounting Standard AASB 117 – Leases (IAS17). IAS 17 prescribes differing accounting treatment of these leases, with finance leases being recognised as assets and liabilities in the balance sheet of the lessee and operating leases, on the other hand, being treated as an expense in terms of lessee’s lease payments, rather than as a balance sheet item.

Having described the nature of these leases, the proposed pleadings then turn to the problem faced by lessees under long term asset leases (paragraphs 26 and 27), IPL’s attempt to overcome the problem (paragraphs 28 to 32) and then the proposed pleadings recount how it is said that “the MMFC LTAL Model” (“the Model”) solved the problem (paragraphs 33 to 39).

The Model is apparently the confidential information that MMFC seeks to protect. It is sought to be identified or defined in paragraph 34 of the proposed Statement of Claim as follows:

“Between or about January 2005 and December 2005, Manderson and Karis conceived of and developed a model for overcoming the problem described in paragraph 26 above by enabling an overall leasing arrangement to be extended for the entire useful life of a long term asset whilst facilitating the satisfaction of the remaining life and present value tests and enabling each lease to be classified as an operating lease pursuant to IAS 17 (“MMFC LTAL Model”).
PARTICULARS
(a)The MMFC LTAL Model is described and illustrated in paragraphs 35 to 38 below and the particulars thereto.
(b)Particulars of the conception and development of the MMFC LTAL Model are set out in Annexure B.”

As appears from paragraph 34 and the particulars thereto, the Model is sought to be defined by reference to the problem described previously in the proposed pleadings and by reference to its “illustration” in subsequent paragraphs of the proposed pleadings and, particularly, by reference to Annexure B of the proposed Statement of Claim.

MMFC submitted that it had clearly identified or defined the confidential information sought to be protected in paragraphs 35 to 38 of the proposed Statement of Claim, being the confidential information which it described as the “MMFC LTAL Model” in paragraph 34 of the proposed Statement of Claim. It was submitted that this proposed pleading now better reflected the language used in the PowerPoint presentations made by MMFC to IPL (copies of which were exhibited to the affidavit of Kevin Elkington dated 12 October 2010 (“the PowerPoint presentations”)). Thus, MMFC submitted that paragraphs 35 to 38 of the proposed Statement of Claim, together with the illustration of the Model in Annexure C to the draft pleading clearly discloses a body of information capable of protection under the doctrine of breach of confidence.

MMFC also submitted that when paragraphs 35 to 38 of the proposed Statement of Claim are read with the explanation of the objectives and problems of lessees of long term assets, IPL’s unsuccessful attempts to overcome those problems and the fact that the Model overcame those problems (which it said is pleaded in paragraphs 4 to 34 of the proposed Statement of Claim), it cannot be contended that the elements of the Model are too general and lacking in detail and specificity to convey meaning. It was submitted that, to the contrary, given that the Model involves principles that can be applied to a wide range of transactions with their own specific input parameters, the Model is expressed as precisely and specifically as the nature of the Model allows.

It was submitted by MMFC that the authorities establish that an industrial method or process may constitute confidential information that is capable of protection under the doctrine of breach of confidence. A number of examples were given in this respect:

(a)Cranleigh Precision Engineering Ltd v Bryant[8] (a method for constructing above ground swimming pools using a clamping strip and overlapping interfit device for keeping the flexible pool lining in place);
(b)Ansell Rubber Co Pty Ltd v Allied Rubber Industries Pty Ltd[9] (information concerning the design, construction and operation of machines for producing rubber gloves);
(c)Deta Nominees Pty Ltd v Viscount Plastics Pty Ltd[10] (method for manufacturing an injection moulded plastic drawer).

It was also submitted that there is no difference in principle between an industrial method and a business method. It was pointed out, with reference to Cranleigh Precision Engineering Ltd v Bryant,[11] that complexity in any industrial method or process is not a prerequisite to the right to protection under the doctrine of breach of confidence. It was also said that there is no barrier to the protection of an idea contained in confidential information on the basis that it is “too obvious”. In relation to both these elements, lack of complexity and obviousness, which one might think are likely to be, but not necessarily, elements to be found together, reference was made to the judgment of Roskill J in Cranleigh:[12]
“The plaintiff’s answer to the argument that any sheet metal worker would be able to devise an inter fit of the type in question was that the ordinary sheet metal worker would not know that it was this particular interlock of this size and shape which was suitable for this type pool. The secrecy lay in the method and purpose of the interlock, and the fact that the underlying idea was simple did not affect the confidential nature of the information in question.”

[8][1965] 1 WLR 1293; [1966] RPC 81.

[9][1967] VR 37.

[10][1979] VR 167.

[11][1965] 1 WLR 1293; [1966] RPC 81.

[12][1965] 1 WLR 1293, 1310; [1966] RPC 81, 90.

The relevance of novelty was considered by Gowans J in Ansell Rubber Co Pty Ltd v Allied Rubber Industries Pty Ltd.[13] Gowans J referred with approval to the American Restatement of the Law of Torts in support of the proposition that confidential information need not be novel or inventive in a sense essential to patentability to warrant protection:[14]

“Novelty and prior art. A trade secret may be a device or process which is clearly anticipated in the prior art or one which is merely a mechanical improvement that a good mechanic can make. Novelty and invention are not requisite for a trade secret as they are for patentability. These requirements are essential to patentability because a patent protects against unlicensed use of the patented device or process even by one who discovers it properly through independent research. The patent monopoly is a reward to the inventor. But such is not the case with a trade secret. Its protection is not based on a policy of rewarding or otherwise encouraging the development of secret processes or devices. The protection is merely against breach of faith and reprehensible means of learning another’s secret. For this limited protection it is not appropriate to require also the kind of novelty and invention which is a requisite of patentability.”

[13][1967] VR 37.

[14][1967] VR 37, 50; where the following quote from the American Restatement of the Law of Torts (1^st ed) Article 757 is set out.

MMFC also submitted that the fact that component parts of a body of confidential information may be public knowledge will not provide a basis for refusing protection to that confidential information unless the body of information as a whole has entered the public domain and therefore become public or common knowledge. In this respect, reliance was placed on the following passage from Ricketson, The Law of Intellectual Property: Copyright, Designs and Confidential Information:[15]

“… a trade secret may still be protectable where it consists of a collation of well-known steps, none of which on its own is secret but, which, in total, represents the application of effort and skill by the collator and which produces a result which could only be produced by somebody else who goes through the same process. In other words, the overall collation may still be regarded as being out of the public domain ...”

[15]Lawbook Co., Looseleaf, Vol 2 at [25.75].

In summary, in relation to this issue, MMFC submitted that the pleadings contained in the proposed Statement of Claim articulate the confidential information by reference to its structure (paragraph 35), its input parameters (paragraph 36) and the steps used to calculate the output parameters of the Model (paragraphs 37 and 38), followed by an articulation of the benefits of the Model (paragraph 39).

MMFC also placed particular store on the fact, as it submitted, that the confidential information, the Model, was not a simple algorithm but, rather, “an interrelationship of inputs, structures and steps”.[16]
[16]Transcript of Proceedings, 80.

Further, it was submitted that the Model, as expressed in the proposed pleadings, and as allegedly communicated to the Commonwealth Bank of Australia (“CBA”),[17] was something that could be understood and applied by persons having the requisite expertise, as was demonstrated by its successful application in the hands of CBA, following its communication by IPL to CBA. It was said that the “proof was in the pudding”. In this respect, MMFC relied on paragraphs 90 to 103 of the proposed Statement of Claim and, particularly, the critical particulars, as it was said, of the communications to and the application by CBA of the Model as set out in Annexure K to the proposed Statement of Claim.
[17]See paragraphs 86 to 107 of the proposed Statement of Claim.

IPL, on the other hand, submitted that the manner in which the Model is proposed to be pleaded in paragraph 34 of the proposed Statement of Claim does not amount to an identification or definition of the confidential information, the Model, sought to be protected. It was said that the particulars to paragraph 34 itself demonstrate this in that, in paragraph (a), reference is made to the Model being “described and illustrated in paragraphs 35 to 38 below and the particulars thereto”. It was submitted that this is not the same as identifying or defining the information, and it was said, further, that the allegedly confidential information is not defined or identified anywhere else in the proposed pleading. It was submitted that this is not a matter of semantics, but rather a critical issue in circumstances where the courts impose an obligation on a plaintiff in a confidential information case to identify the relevant information precisely and with specificity.[18] It was also submitted that the reference to Annexure B to the proposed Statement of Claim, in paragraph (b) of the particulars to paragraph 34, does not enhance MMFC’s position in any way. Rather, it was said that these particulars, which are headed “particulars of Conception and Development”, are merely descriptive and add nothing in terms of identifying or defining the information sought to be protected, namely the Model. Similarly, it was said that Annexure C to the proposed Statement of Claim adds nothing in terms of the identification or definition of the Model. Annexure C, as IPL submitted is, in my view, properly characterised as merely illustrative. As Mr Scerri QC noted, it is headed “Illustration” and then says, in paragraph 1 of that annexure: “The MMFC LTAL Model can be explained and illustrated by reference to the graph and corresponding table”. The material in Annexure C then contains references to, and examples of, “inputs” and “outputs”. On this basis, I cannot accept the characterisation by Mr Shavin QC on behalf of MMFC of the Annexure C material as a “working explanation” of the Model.
[18]Meridian Vat Reclaim Aust Pty Ltd v Agius [2006] VSC 503 (Harper J); GlaxoSmithKline Australia Pty Ltd v Ritchie [2008] VSC 164 (Harper J); CorrsPavey Whiting & Byrne V Collector of Customers (Vic) (1987) 14 FCR 434 at 443 (Gummow J); and see my previous judgment at [8]-[10].

In terms of the detailed criticism of the attempts made by MMFC to define or identify the claimed confidential information in paragraphs 35 to 38 of the proposed pleading, it is helpful to set out the following parts of the IPL submissions in this respect:[19]
[19]IPL’s Outline of Submissions, [6]-[9].

“6. The description or illustration in paragraphs 35 to 38 refers to four features of a leasing arrangement described in paragraph 35, eight ‘input parameters’ named in paragraph 36, a calculation in paragraph 37, and a further calculation in paragraph 38.[20] More particularly:
[20]Relevantly, although the description or illustration of the allegedly confidential information is now longer, it is primarily a combination of the five steps claimed to comprise the confidential information in the previous statement of claim dated 17 December 2010, and a number of the input parameters said in that previous statement of claim to be required to implement the Leasa LTAL Method (as it then was), but not forming part of the allegedly confidential information. Only minor changes have been made to the wording.

(a) paragraph 35 states that a longer leasing arrangement is broken up into a number of shorter ‘optional’ leases;

(i) paragraph 35(a) is trite;

(ii) paragraph 35(b) does not disclose how to calculate the length of the overall leasing arrangement (in the manner pleaded it could cover a period of time from around, say, 35% of an asset’s remaining useful life to 100% of the remaining useful life less three months);

(iii) paragraph 35(c) states that a ‘termination lease’ is required, but does not disclose how to structure the termination lease, for example, for what duration and with how many payments (paragraph 35(c)(i) refers to ‘[o]ne or more termination payments’); and

(iv) paragraph 35(d) is vague and meaningless in so far as it describes an end result of preparing the lease documentation (that there is ‘reasonable uncertainty’ about the exercise of options to renew the short term leases) but does not give any clarity as to, for example, what terms and conditions may or may not be included;

(b) paragraph 36 simply identifies eight input parameters required to structure a lease, which are essential characteristics that any such lease must have. For example, every lease requires an interest rate (paragraph 36(d)), and will be for some overall period of time (paragraph 36(g));

(c) paragraph 37 asserts that the payment amounts are calculated using a formula, but the formula is not disclosed. Without knowing the formula it is not possible to calculate the payment amounts in the manner described; and

(d) paragraph 38 states that three steps are followed to calculate the values to be ascribed to each parameter of the leases (eg to calculate the length of term of each lease, when payments are due, etc). Paragraphs 38(b) and 38(c) both require parameters to be iteratively adjusted to ensure that the present value and remaining life tests are simultaneously satisfied. However, neither paragraph discloses the formula or method used to perform the iterative adjustment. Without knowing the formula or method, it is not possible to follow MMFC’s iterative adjustment process, or to know whether the MMFC LTAL Model covers the use of every possible iterative adjustment process.

7. The net result of this vagueness and uncertainty is that there is no definition or boundary to the scope of information claimed to be confidential. What precisely is the Court being asked to protect?
8. Critically, paragraphs 35 to 38 inclusive do not plead allegedly confidential information which discloses, for example, how to structure a long term asset lease which extends for the entire useful life of the asset while simultaneously satisfying the remaining life and present value tests and meeting the other requirements of IAS 17 to guarantee classification as an operating lease. Rather, the matters in paragraphs 35 to 38 appear to describe a desirable result or end product, without a definition of how that result could be brought about by use of the allegedly confidential information.[21]
9. The pleading is in stark contrast to MMFC’s contemporaneously prepared patent application.[22] Many of the contemporaneous oral disclosures and documents upon which MMFC relies in the 4FASC state that MMFC is seeking to protect its ‘unique methodology protected by patent’ and ‘financial modelling’, or words to that effect, and that is what cannot be used without MMFC’s permission.[23] This shows exactly what MMFC considered at the time to be the information which other parties required MMFC’s permission to use. And that is the understanding MMFC conveyed to Incitec Pivot (and third parties).”

[21]See for example: De Maudsley v Palumbo [1996] FSR 447 at 456.

[22]Referred to in paragraph (b) of the particulars to paragraph 43 of the proposed Fourth Further Amended Statement of Claim (“4FASC”).

[23]Statements made by Manderson and/or Karis (4FASC, paragraphs 50(b), 55, 62, 68, 75), MMFC’s engagement and mandate letters (4FASC, paragraphs 56(f) and 58), PowerPoint presentations (4FASC, paragraphs 49 particular (b), 61 particular (a)(i), 67 particular (a)(i), and 74 particular (c)(i)), tender requests (4FASC, paragraphs 63(c), (d) and (e)), and MMFC’s own “IP Protection” document (4FASC, paragraph 72).

IPL also reaffirmed submissions that had been made previously that the present situation is akin to that considered by the High Court in O’Brien v Komesaroff.[24] In that case, the claim to protect confidential information arose with respect to unit trust deeds and advice in relation to their operation. In relation to the breach of confidence claim, Mason J (with whom Murphy, Aiken, Wilson and Brennan JJ agreed) said:[25]
[24][1982] 150 CLR 310.
[25][1982] 150 CLR 310, 323.

“In relation to the unit trust deeds, the primary judge was not satisfied that any information of a confidential nature was imparted to the appellant by the respondent. His Honour held that there was much that was public property and common knowledge in the deeds and that, although the respondent’s skill and ingenuity went into producing them, the deeds ought not to be regarded as containing confidential information capable of founding an action for breach of confidence. His Honour said that he was not satisfied that a reasonable person in the position of the appellants would recognize that the documents contained information which was, apart from the question of copyright, the property of the respondent: Deta Nominees Pty Ltd v Viscount Plastic Products Pty Ltd.[26]”
[26][1979] VR 167, 191.

The Full Court had, as it stated, given the respondent (the party seeking to protect the allegedly confidential information) “every opportunity to define more specifically the information upon which he relied”.[27] Mason J continued:[28]
[27][1982] 150 CLR 310, 325 (Mason J).
[28]Ibid.
“In this court the respondent agreed to submit written submissions on the matter, after several requests to carefully define the confidential information upon which he relied. The respondent in his written submissions contends that he communicated to the appellant the effect and practical operation of his unit trust scheme. But this still begs the vital question. What did he communicate?”

Having reviewed the written submissions as to the nature and state of the claimed confidential information, Mason J said:[29]
“Plainly enough, in the light of the findings of the primary judge and the evidence, there is very little, if anything, in the documents mentioned in paras (1) and (2) above that can constitute confidential information. Generally speaking the contents of the unit trust deeds and the articles of association were matters of common knowledge. Information may be categorized as public knowledge though only notorious in a particular industry or profession: see Finn: Fiduciary Obligations (1977) at 146. Only those improvements evolved by the respondent could give rise to a claim for relief for breach of confidence: see generally Saltman Engineering Co, Ferotec Ltd and Monarch Engineering Co (Mitcham) Ltd v Campbell Engineering Co Ltd;[30] Seager v Copydex Ltd;[31] Coco v A N Clark (Engineers) Ltd.[32] It is at this point that the respondent has consistently failed to identify the particular contents of the documents which he asserts constitute information, the confidentiality of which he is entitled to protect. The consequence is that he has failed to formulate a basis on which the court could grant him relief on the assumption that some part or parts of the documents constitute confidential information.
It is a fundamental problem with the information which the respondent seeks to protect that it is information which, by way of advice to others, he regularly publishes to the world at large, albeit for a limited purpose. The nature of such information ill accords with the accepted conception of confidentiality, which in substance involves the person seeking to protect the information largely keeping it to himself: see Ansell Rubber Co Pty Ltd v Allied Rubber Industries Pty Ltd.[33] In the result, the respondent’s relief in respect of the documents should be confined to infringement of copyright.
The information mentioned in paras (3) and (5) above falls into the same category. To simply say that the information is as to the effect and practical operation of discretionary trusts and private unit trust schemes does not identify the information and enable the court to formulate an order. One needs to know not only what was the information conveyed, but also what part of that information was not common knowledge.
The description of the information referred to in para (4) suffers from the same defect. It consists of:— (a) advice (unspecified) as to the effect of three sections of the Income Tax Assessment Act and the Banking (Foreign Exchange) Regulations; (b) the form of resolutions for the issue of, and investment in, special units; (c) the provisions of the trust deed; and (d) minutes and resolutions giving effect to the proposal.
The description thus given invites the comment that the material would be more likely to lend itself to a claim for copyright than to a claim for confidential information. In particular I have some difficulty in perceiving how advice as to the general legal effect of statutory provisions can constitute confidential information. And the form of minutes, resolutions and the provisions of a trust deed seem unlikely repositories of confidential information. Again the problem is caused by the generality of the description which the respondent has chosen as a means of identifying the information which he seeks to protect. It is so general that we cannot satisfy ourselves, in the light of the findings of fact made by the primary judge, that the information so described was imparted by the respondent to the appellants, that it was imparted in circumstances which gave rise to an obligation of confidence and that it does not include material which is common knowledge.”

[29]Ibid 326-7.

[30](1948) 65 RPC 203, 215.

[31][1967] 1 WLR 923, 931.

[32][1969] RPC 41, 47.

[33][1967] VR 37, 49.

MMFC submitted that O’Brien v Komesaroff was not a relevantly analogous case in the present circumstances and, in any event, it was not an application of the kind presently before this Court but, rather, a final determination at trial and on appeal. In my view, MMFC’s submissions are not persuasive in this respect and I accept the position put by IPL, namely that the decision in O’Brien v Komesaroff is of particular relevance to the present circumstances and emphasises the deficiencies in the proposed Statement of Claim with respect to its lack of identification or definition of the confidential information sought to be protected. This is particularly clear from the passages from the judgment of Mason J which I have set out.

Another aspect stressed in the judgment of Mason J in O’Brien v Komesaroff is that it is essential that the confidential information sought to be protected is precisely identified or defined so that it is possible for a party (such as a party in IPL’s position) to know when it is at risk of a claim of wrongfully using such information.[34] Thus, IPL submitted that neither paragraphs 34 to 38 to the proposed Statement of Claim or Annexure K to the proposed pleading provide any basis upon which IPL could know what it is that either CBA or IPL was not permitted to use without paying MMFC a 1.5% fee for the use of its claimed confidential information. It was submitted by IPL that Mason J emphasised in O’Brien v Komesaroff[35] that a court needs to know what order it is to make and that, in the particular circumstances of that case, could not look at the unit trust deed and find an answer to this question. It was made clear by the High Court that the confidential information sought to be protected must be defined or identified if the court is to be able to make any orders. Further, IPL submitted that the fact that an injunction is not sought would not avoid the problem because, it was said, according to MMFC’s case, if IPL enters into another leasing transaction next week, it can be sued again. Consequently, it was submitted, the question is “What sort of leasing transaction will attract that suit and that fee? Is it one that has a long term? Is it one that has a number of short-term leases that, together, add up to the long term? Mr Shavin said we’re trivialising what they allege in paragraph 35(a). Well, all 35(a) says is you have a long term broken up into short terms and when you add the long terms together they add up to the total. That is what is always said and we’ve always trivialised it because it deserves to be trivialised. So going back to the analogy; what if next week IPL or CBA goes into a long term leasing arrangement, what are the parameters, what are the boundaries of MMFC’s rights?”.[36] In seeking to answer an objection of this nature, MMFC submitted that “what the terms of any injunction would be, if an injunction were to be sought, would clearly be a model comprising the structure, the input values and the steps in Paragraphs 35-38. It's a combination. And it has to be something that has the whole of the combination.”
[34]See O’Brien v Komesaroff [1982] 150 CLR 310, 327-8, where Mason J makes particular reference to Amway Corporation v Eurway International Ltd [1974] RPC 82 and to the decision in Deta Nominees Pty Ltd v Viscount Plastic Products Pty Ltd [1979] VR 167 at 189-190 (Fullagar J).
[35][1982] 150 CLR 310.
[36]Transcript of Proceedings, 59 (Mr Scerri QC).

Although the authorities indicate that there may be a degree of latitude in the precision expected of an order by way of injunction – particularly where there is no suggestion that its form created any “practical difficulty”[37] – the present position does, in my view, fall well outside any such parameters of tolerance. Having regard to the state of the proposed pleadings, the same difficulties face this Court, and IPL, in knowing the extent of any restraint that would need to be imposed, or is imposed, in formal court orders of any kind or in practical terms in protection of the claimed confidential information. Thus, in terms of these difficulties, IPL paints the picture accurately.
[37]See Curro v Beyond Productions Pty Ltd (1993) 30 NSWLR 337, 348-9 (Meagher, Handley and Cripps JJA); and see Young, Croft and Smith, On Equity (LBC, 2009), 1035-6 [16.270].

As became clear in the course of the hearing of these applications, the parties did not disagree that an industrial method or process may constitute confidential information capable of protection under the doctrine of breach of confidence. Neither were they at odds with the propositions advanced by MMFC, on the basis of the authorities discussed, that the same applied to a business method and also with respect to lack of complexity, obviousness, the lack of any requirement of novelty or inventiveness in the sense going to patentability or the extent to which parts of the information may be in the public domain. Rather, IPL’s complaint, was that all that was contained in the proposed pleading was a reference to inputs and outcomes. Nowhere was there identified anything which explained the “machinery” by which the critical inputs and their values determined to produce a range of desired outcomes. In spite of reference to the “grey box”[38] in the PowerPoint presentation claiming copyright in the Model and confidentiality, no piece of paper setting out the Model, or any software – such as an Excel spreadsheet which would respond to varying inputs, showing outputs - was identified.
[38]The “grey box” [Exhibit KJE-3 to the Affidavit of Kevin John Elkington sworn 12 October 2010, MMF.0004.6] : “The Long Term Asset Leasing Model principals and processes have been developed in Australia by MMFC. They are protected by worldwide copyright and patent including specific patent filings in Australia, USA and Canada. The information contained within this presentation is supplied on a confidential basis may not be made available to other parties without the written permission of MMFC’s principals. The benefits offered by MMFC are a unique combination available only through our approved finance providers.”

In my view, IPL in its submissions, to which reference has been made, correctly identified the deficiencies in the proposed Statement of Claim. In summary, in addition to the type of difficulties identified by the High Court in O’Brien v Komesaroff,[39] the fatal flaw in the proposed Statement of Claim is that it refers to the Model, discusses the problems it seeks to overcome, but never actually states what the Model is. The approach is rather like, by way of simple example, identifying the problem that people become thirsty and need a satisfying, sustaining drink. The problem is solved, the purported provider of confidential information says, by a brown-coloured, sugar-flavoured, carbonated drink, which is described as the model. This model is said to have various “input parameters” and attributes – which include water, sugar, colouring, carbon dioxide and others. There are various options with respect to these inputs and parameters and various results are specified for the ultimate product by reference to examples of a number of variations. But how do you make the drink, what is the formula, hence what is the model? As in the present case, the model is sought to be defined in terms of a description of inputs and outcomes – but the heart of it, the model itself, is not identified or defined.
[39][1982] 150 CLR 310.

The further question that arises, having reached this position, is whether there is any basis for accepting the submission by MMFC that any deficiencies that are said to exist in the proposed pleadings with respect to the identification or definition of the relevant confidential information are cured by the proposed pleadings to the effect that the Model was sufficiently identified, defined and understood to be communicated by IPL to CBA, which was then able to apply and utilise it in a particular transaction or transactions. In my view, the submissions by IPL that the pleading of these matters does not save the proposed pleadings is correct, and on the basis submitted; both with respect to the pleadings contained at paragraphs 86 to 103 and with respect to Annexure K.

IPL submitted that the dealings with CBA, as alleged in the proposed Statement of Claim, did not support MMFC’s position. First, it was pointed out that MMFC has not joined CBA as a party to these proceedings, nor sued it separately, in relation to the alleged wrongful use of the claimed confidential information. Neither has it been alleged that the CBA was an agent of IPL in the context of these dealings. Secondly, it was emphasised that it is not possible for either IPL or CBA to know what information it was permitted to use without “trespassing” on the information MMFC claims is confidential – from a reading of the proposed Statement of Claim, the more contemporaneous documents referred to in particulars to the proposed pleadings, including Annexure K, or otherwise.

In the context of the dealings with CBA it is important to keep in mind that the proposed Statement of Claim does no more than alleged that IPL knew or ought to have known that “the lease variation letters and pricing spreadsheets” had been prepared using the Model and in circumstances where confidential information had been communicated.[40] Significantly, there is no proposed pleading that the Model. was actually used or disclosed by IPL. This, combined with the position that MMFC has never been able to properly identify or define the Model – or to identify or define it at all – in the proposed pleadings (or earlier attempts) means that the inference cannot be drawn that, assuming CBA did in fact use the Model, it must be sufficiently identified or defined so that a person who understands the nature of the transactions to which the Model is directed would be able to utilise it. Even if CBA did use the Model, there is no pleading that, or to the effect that, the Model as used was identified or defined in the manner in which it is sought to be identified or defined in the proposed Statement of Claim. Absent this pleading in the proposed Statement of Claim, there is no basis for concluding, on the basis of the CBA transaction(s), that the Model is adequately identified or defined - or at all - in the proposed pleadings. Even if the position put by MMFC in this respect is accepted, the highest point reached is that the allegedly relevant confidential information is capable of identification or definition. It does not follow that this means that it is adequately identified or defined in the proposed pleadings – or is identified or defined it all.
[40]See the proposed Statement of Claim, paragraph 103.

As the proposed Statement of Claim fails, for the reasons indicated, to identify or define the confidential information which is said to be capable of protection, the other issues raised fall away. Nevertheless, as the other issues were fully argued, it is desirable to express my views on the remaining issues identified, though more briefly.

Whether IPL subject to obligations of confidence

MMFC submitted that IPL knew or ought to have known that it was receiving the Model subject to the obligations of confidence on the basis of the matters pleaded in paragraphs 46 to 85 of the proposed statement of claim. It was submitted that these paragraphs identify that the initial disclosures of the Model were made to IPL and its agents by reference to the PowerPoint presentations containing a small number of slides in which the Model was explained and illustrated. Additionally, it was said that it is emphasised, in paragraph 60 of the proposed pleading, that these slides were further explained by Mr Manderson and Mr Karis on 11 September 2006 at a further “confidential presentation”. It was submitted that in each of the PowerPoint presentations, the structure, input and output parameters of the Model were identified in such a way as to disclose its substance, as pleaded in paragraphs 35 to 38 of the proposed statement of claim. It was said that in each of these presentations, examples of the operation of the Model were also provided. The point was also made in the submissions of MMFC that this is not a case “… in which the plaintiff is simply pointed to a vast body of documents and allege that its confidential information was contained in the documents”.[41]
[41]Plaintiff’s Submissions (16 March 2011) (“Plaintiff’s Submissions”), [44].

MMFC also submitted that once the Model was disclosed to IPL in the course of the presentations to which reference has been made, MMFC then worked closely with IPL’s solicitors, accountants and auditors to implement a specific transaction that used the Model, namely, the “Big N Transaction”, to ensure that it achieved the objectives of the Model.[42] It was submitted that the records of IPL which are referred to in paragraphs 92, 97 and 99 of the proposed Statement of Claim provide “a very strong basis for MMFC to allege that IPL well knew and understood the Model that MMFC had communicated to it”.[43] It was said that by the time the Big N Transaction was completed, “IPL well knew that MMFC had communicated a particular and identifiable model or ‘structure’ to it”.[44] Further, it was submitted that paragraphs 46 to 85 of the proposed Statement of Claim set out the “numerous steps that MMFC took to inform IPL that the Model was confidential to MMFC and not to be used beyond the Big N Transaction without the approval or authorisation of MMFC”.[45] It was said that, as set out in paragraphs 47, 56 to 58 and 65 of the proposed Statement of Claim, these steps included the execution of engagement letters and mutual non-disclosure agreements prior to disclosure of the Model and, in paragraphs 49, 54, 61, 63, 67, 72 and 74 of the proposed Statement of Claim, written confidentiality notices on the PowerPoint presentations and other documents provided to both IPL and its agents. Further, it was said that there were “express oral statements” to IPL personnel and its agents, as set out in paragraphs 50, 55, 62, 68 and 75 of the proposed pleadings.
[42]See paragraphs 64, 73, 76, 77 and 81 of the proposed Statement of Claim.
[43]Plaintiff’s Submissions, [46].
[44]Plaintiff’s Submissions, [46].
[45]Plaintiff’s Submissions, [47].

In conclusion on this issue, MMFC submitted that it could not reasonably be contended by IPL that it did not know or ought to have known that it was receiving the Model subject to obligations of confidence – and, procedurally, with sufficient detail to enable it to understand the case now alleged against it. Further, it was submitted that the adequacy of the proposed pleading on this issue can only be assessed on the basis of facts established at trial.

At the outset, IPL’s submission on this point was that the Model, as now sought to be identified or defined in the proposed Statement of Claim, was not disclosed to it. It said that the proposed pleading fails to identify “how or why the defendant knew or ought to have known that the documents referred to … contained any of the confidential elements referred to in paragraph 4 of the Confidential Annexure A”; and how “the [plaintiff’s] confidential information was provided to the defendant [IPL] in such a way that it knew or ought to have known the nature and extent and value of that confidential information”.[46] It was also noted that I described this, in my previous judgment, as “an essential bridge” which the pleading then considered did not provide.
[46]Referring to my previous judgment at [19] and [20].

In relation to this issue, IPL submitted that the proposed Statement of Claim was deficient and the proposed pleading was even more unsatisfactory than it was in previous drafts. More particularly, it submitted:[47]

“14. If anything, the allegations of disclosure have been made more imprecise than before. For example, in paragraph 52 of the 4FASC it is alleged that ‘MMFC disclosed the MMFC LTAL Model to IPL and its agents during a series of meetings…’ Does this mean that one has to piece together the disclosure of the whole model from statements made at some or all of the meetings?
15. Another example is annexure E to the 4FASC which says that Manderson ‘spoke to each slide’ of the First IPL Presentation without giving any indication of what he said, and then refers to ‘additional comments’ allegedly made by Manderson (but not alleged to be all that he said).[48]
16. Further, the particulars of disclosure set out in the annexures to the 4FASC do not even match the pleaded confidential information in paragraphs 35 to 38 inclusive. For example, nowhere in the annexures which particularise the alleged disclosure does MMFC plead that it told Incitec Pivot (or any other recipient) that the length of the overall leasing arrangement must be set to a substantial proportion of the remaining useful life of the asset, up to within three months of the economic life of the asset.[49] In addition, there is no allegation that MMFC ever disclosed to Incitec Pivot (or any other recipient) that it may be necessary for the parameters of the overall leasing arrangement (as opposed to the multiple short term leases) to be adjusted (in an undisclosed manner) to enable satisfaction of the present value and remaining life tests.[50]”

[47]IPL’s Outline of Submissions, [14]-[16].

[48]Each of the alleged disclosures in annexure D to annexure H inclusive is described in identical terms.

[49]Paragraph 35(b) of the 4FASC. In fact, this appears to be directly contradicted by Manderson’s statement set out at paragraph (c) of each of annexure D to annexure H about the benefits if “the lease arrangement spans the full expected useful life [of the asset]” (emphasis added).

[50]Paragraph 38(c) of the 4FASC.

The proposed pleadings in relation to this issue, and the submissions of the parties, demonstrate how crucially its determination depends upon MMFC pleading and establishing sufficient identification or definition of the confidential information for which protection is claimed, in accordance with the authorities to which reference has already been made. The force of the submissions by both parties and, of course, the contents of the proposed Statement of Claim relating to this issue, are difficult to assess in the absence of clear identification or definition of the relevant confidential information. If the position were adopted that the present proposed pleadings with respect to the identification or definition of the relevant confidential information, the Model, was sufficient, I would accept MMFC’s submission that it would be more appropriate to test its proposed pleadings on this issue at trial, having regard to the deficiencies with respect to these pleadings asserted by IPL, as raised in its submissions.

Extent of any unauthorised use and disclosure

MMFC submitted that the unauthorised use and disclosure of the Model is pleaded at paragraphs 86 to 105 of the proposed Statement of Claim and particularised in Annexure K to the proposed pleadings. It was said that these proposed pleadings show both unauthorised use of the Model and also a clear appreciation that this was what was occurring;[51] IPL having told MMFC that it was not going to proceed with its proposal.[52]
[51]See paragraphs 89 to 93 and 97 and 99 of the proposed Statement of Claim.
[52]See paragraph 94 of the proposed Statement of Claim.

IPL, on the other hand, submitted that the proposed pleading by MMFC as to breach is deficient in the following respects:

(a)it fails to disclose a cause of action, in that it pleads that Incitec Pivot’s obligation was not to use or disclose the MMFC LTAL Model, but does not then plead that Incitec Pivot either used or disclosed the MMFC LTAL Model in breach of that obligation;
(b)it is embarrassing, in that it is unclear what conduct by Incitec Pivot is alleged to constitute a breach of its obligations to MMFC; and
(c)it includes irrelevant and un-particularised allegations of knowledge.

More particularly, IPL submitted that paragraphs 84 and 85 of the proposed pleading contain allegations that it was under a contractual and/or an equitable duty not to disclose or use the Model without the authority, licence or permission of MMFC for any purpose other than the Big N Transaction. The conduct relied upon by MMFC is set out in paragraphs 86 to 103 of the proposed Statement of Claim. However, as submitted by IPL, nowhere in these paragraphs is it alleged that IPL either used or disclosed the Model. The highest point the proposed pleading reaches appears in paragraph 86 with the allegation that “[b]etween September 2006 and 10 May 2007, in the manner ascribed in paragraphs 87 to 101 below, … IPL engaged in negotiations with the CBA for the extension of the existing lease arrangements for [the SCF] equipment … utilising the MMFC LTAL Model”. Further, it was submitted that nowhere in paragraphs 87 to 101 of the proposed Statement of Claim, or elsewhere in the proposed pleading, is it alleged that IPL itself prepared the Initial SCF Extension Transaction documentation, that it disclosed the Model to CBA or that it asked CBA to use the Model in the Initial SCF Extension Transactions. In conclusion on this aspect of this issue, IPL submitted:[53]

“20. Notably, in paragraph 102 of the 4FASC MMFC does not, because it simply cannot, plead that Incitec Pivot used or disclosed the MMFC LTAL Model. MMFC attempts to avoid making this plain by pleading in the passive voice that, ‘[t]he Initial SCF Extension Transactions had been prepared by use of the MMFC LTAL Model as shown in Annexure K.’ MMFC then pleads in paragraph 103 that ‘Incitec Pivot knew or ought to have known’ a number of things, including that the Initial SCF Extension Transaction documents had been prepared using the MMFC LTAL Model, but none of which amount to allegations of actionable conduct by Incitec Pivot.
21. Given that the contractual and equitable obligation alleged against Incitec Pivot is that it must not use or disclose the MMFC LTAL Model without authorisation, the failure to plead that Incitec Pivot used or disclosed the MMFC LTAL Model means that the pleading clearly fails to disclose a cause of action.”

[53]IPL’s Outline of Submissions, [20] and [21].

Additionally, IPL submitted that the proposed pleading as to breach is embarrassing because it does not make clear which of the pleaded acts is alleged to be a breach. Paragraphs 104 and 105 of the proposed Statement of Claim assert breach “[b]y reason of the matters referred to in paragraphs 84 to 103”. IPL submitted that it is unclear whether each acts of IPL alleged in those paragraphs is claimed to be a separate breach, or whether there was a single breach comprised of one or more or all of those acts. It is also said to be unclear whether MMFC alleges that IPL breached the duty it owed MMFC by engaging in negotiations with CBA as alleged in paragraph 86 of the proposed pleading or whether the sole allegation of breach is the entering into of the Initial SCF Extension Transactions with the knowledge as pleaded in paragraph 103 of the proposed pleading.

Finally, it was submitted that the allegations contained paragraph 103 of the proposed Statement of Claim in relation to IPL’s alleged knowledge are both irrelevant and unparticularised. As to irrelevance, it is said that the knowledge that a third party had used the Model does not fall within the scope of the IPL obligations not to use or disclose the Model as pleaded in paragraphs 84 and 85 of the proposed pleading. Additionally, it submitted that even if such knowledge could be a material fact and relevant to the claimed breach of confidence, the failure to particularise the allegations as to IPL’s knowledge is contrary to the requirements of rule 13.10(3)(b) of the Rules that a pleading must contain particulars of any allegations as to knowledge of a party.

In my opinion, for the reasons submitted by IPL, MMFC’s pleading in relation to this issue does fail to disclose a cause of action, is embarrassing and includes irrelevant and unparticularised allegations of knowledge. It follows that, even if MMFC were able to identify or define the confidential information which it seeks to protect as required by the authorities to which reference has been made, the cause of action would fail on the basis of the pleadings with respect to breach as now contained in the proposed Statement of Claim.

MMFC’s capacity to bring the proceedings

As I indicated in the course of a previous hearing, the question of the capacity of MMFC to bring these proceedings is a matter of fundamental importance.[54]
[54]See Transcript of Proceedings (29 November 2010), 1.28-2.3.

Paragraph 34 of the proposed Statement of Claim alleges that between about January 2005 and December 2005, Manderson and Karis conceived of and developed “the Model”. Paragraph 1 of Annexure B to the proposed pleading adopts a similar formulation and both invite the submission which was made by IPL that the allegation is to be taken as being that Manderson and Karis conceived of and developed the information together. IPL also submitted that this is consistent with MMFC’s contemporaneously prepared patent application, which lists both Manderson and Karis as the inventors of the claimed invention. Reference was made in these submissions to paragraph (b) of the particulars to paragraph 43 of the proposed Statement of Claim which makes reference to a patent application in the name of MMFC (being Australian Patent Application No. AU 2006202163 A1 – filed on 22 May 2006). As no evidence was led, as indicated previously, in the course of the present hearing, I am not in a position to know whether this submission is correct. Nevertheless, it was not denied by MMFC, nor were submissions made that the position put or sought to be inferred by IPL in this respect was not correct.

In any event, it appears from the proposed Statement of Claim that the partnership between Manderson and Karis[55] is relied upon by MMFC as the vehicle through which it became entitled to use and exploit the Model, and to take action in respect of any wrongful use of it.[56] It was submitted by IPL that the effect of this claim or assertion must be that MMFC’s rights derive from Manderson and Karis individually agreeing to contribute or to make available to it, each on behalf of one of the partner companies as pleaded,[57] the information which they had the right to use.[58] On this basis, it is convenient to refer to the concluding submissions of IPL in relation to this issue:[59]
[55]The Partnership Agreement is referred to at paragraphs 40 and 41 of the proposed Statement of Claim.
[56]See paragraphs 43 and 44(a) and (b) of the proposed Statement of Claim.
[57]See paragraphs 40 and 41 of the proposed Statement of Claim.
[58]See IPL’s Outline of Submissions, [27] (emphasis added).
[59]See IPL’s Outline of Submissions, [28]-[32].

“28. Given that MMFC’s allegedly confidential information was developed in the course of an engagement by Orica for the Orica SLB Project (which took place during 2005 and was completed in September of that year), MMFC must rely on the alleged oral agreement between Manderson and Neil Hawker of Orica to overcome the presumption that anything developed in the course of that engagement would be owned by Orica.
29. Thus paragraph 4(a)(i) of annexure B to the 4FASC alleges that:
‘Manderson stated that it was a condition of Manderson acting as transaction manager for the Orica SLB Project that Manderson would be the owner of all intellectual property rights relating to the methodologies that he developed in completing the Orica SLB Project, and that Orica maintain the confidentiality of any such methodologies’ (emphasis added).

30. Putting aside the lack of any documents to support this critical agreement made by Orica, the alleged Manderson / Hawker oral agreement does not address ownership of anything developed by Karis individually, or by Manderson and Karis jointly. Accordingly, even if MMFC establishes at trial that:
(a)the conversation between Manderson and Hawker happened in the manner and was to the effect alleged; and

(b) the purported agreement was effective to transfer rights in the allegedly confidential information as developed in completing the Orica SLB Project from Orica to Manderson,

the conclusion must still be that Orica ‘owns’, or has the right to use, anything developed by Manderson and Karis jointly, or by Karis individually.
31. Given MMFC has always claimed (both at the time of lodging the patent application and over the entire course of this proceeding) that Manderson and Karis jointly developed the allegedly confidential information, it is clear that Manderson and Karis were not in fact entitled to contribute or make available to the partnership the allegedly confidential information as claimed.

32. While the extent of the information which was able to be transferred is unclear, it is not necessary for the Court to resolve that question. MMFC’s case quite simply has no prospect of success unless it can establish that it, as the plaintiff, has the right to take action in respect of the entirety of the information.[60] Even on its best case as pleaded in the present statement of claim, it cannot.”

[60]See Fraser v Evans [1969] 1 QB 349 at 361 per Lord Denning MR: "the party complaining must be the person who is entitled to the confidence and to have it respected." This proposition was cited with approval by Campbell J in Mid-City Skin Cancer and Laser Centre v Zahedi-Anarak [2006] 67 NSWLR 569 at [204].

The response of MMFC to this issue and the IPL submissions was twofold. First, it submitted that IPL is now estopped from contesting MMFC’s entitlement to protect the confidential information as a result of IPL’s conduct both in entering the contracts with MMFC alleged in paragraphs 47, 56 to 58 and 65 of the proposed Statement of Claim and receiving the information disclosed to it in the face of the oral and written assertions of its confidentiality. Without going into the detail of those alleged agreements, it is clear that even assuming they were all established at trial as pleaded, they are not agreements contained in a deed and there can be no argument that the principles applicable to estoppel by deed would apply in the present circumstances. This being the case, it is difficult to see how an estoppel arises, as no elements of an equitable estoppel, on any basis, have been included in the proposed pleadings. Additionally, I agree with the contention of IPL that were such an argument open to MMFC, the recipient of information claimed to be confidential but which is not properly identified or defined would not be able to challenge the “title” of the discloser.[61]
[61]As Mr Dalton said in this respect (Transcript of Proceedings, 77-8):
“The other matter that was raised in connection with the capacity is the issue of estoppel and in my submissions there’s no merit in that submission. First of all the agreement that’s referred to that is said to give rise to an estoppel is not by deed, it’s just an ordinary confidentiality agreement. If it were the case Your Honour, it would seem to apply to any confidentiality agreement so that the recipient could never be in a position to challenge the title, if you like, of the discloser. There’s no clear and unequivocal representation on the part of our client to accept that MMFC will be entitled at all events to enforce it.”

The second basis upon which MMFC responded was on the basis that IPL had misconceived the nature of confidential information and the basis of actions for breach of confidence. It was said, with reference to authorities that two propositions are established. The first is that an obligation of confidence arises when the circumstances of disclosure are such that the person to whom the information has been disclosed understands that he or she is bound to maintain the confidentiality of the information.[62] The second is that confidential information can be passed on from one person to another and the recipient can subsequently bring proceedings to protect that information, provided that the information still has the necessary quality of confidence.[63]
[62]See Plaintiff’s Submissions, [28]-[31] (referring to Moorgate Tobacco Co Ltd v Philip Morris Ltd (1984) 156 CLR 414 at 437–8 (Deane J); Breen v Williams (1995-1996) 186 CLR 71 at 126-9 (Gummow J); and Dean The Law of Trade Secrets and Personal Secrets (LBC (2^nd ed) 2002), pp 54-6 [2.140]-[2.150]).
[63]Plaintiff’s Submissions, [32]-[37] (referring to TS & B Retail Systems Pty Ltd v3Fold Resources Pty Ltd and Others (No. 3) [2007] FCA 151 at [75] (Finkelstein J); and Elecon Australia Pty Ltd v Brevini Australia Pty Ltd (2009) 263 ALR 1 at [261] and [262] (Buchanan JA).

On this basis, MMFC concluded its submissions in relation to this issue by reference to the particular facts and circumstances as pleaded in the proposed Statement of Claim, together with some submissions on the legal principles said to have been established by the authorities to which reference was made in its submissions. It is helpful to set those submissions out in full:[64]
[64]Plaintiff’s Submissions, [38]-[41].

“38. In the present case, the facts are much simpler than in TS & B Retail and Elecon. As alleged in the draft 4SOC:
(a) between January 2005 and December 2005, Mr Manderson and Mr Karis conceived of and developed the MMFC LTAL Model (para 34);
(b) on 12 December 2005, Mr Manderson on behalf of Kawam Pty Ltd and Mr Karis on behalf of KK Consolidated Pty Ltd entered into a partnership agreement for the purpose of establishing MMFC, a corporate partnership vehicle by which Mr Manderson and Mr Karis would conduct a business of providing management and financial consulting services with particular emphasis on asset management and leasing (para 40);
(c) Mr Manderson and Mr Karis agreed between each other that they would work for MMFC and make available the MMFC LTAL Model and all intellectual property rights associated therewith to MMFC (para 40);
(d)Mr Manderson and Mr Karis are directors and shareholders of Kawam and KK Consolidated respectively (paragraph 2).

(e) Mr Manderson and Mr Karis thereafter brought to MMFC their knowledge of the MMFC LTAL Model and worked for MMFC to commercialise it (para 41), were the natural persons who conducted the business of MMFC and provided the services of MMFC, including the confidential disclosure and application of the MMFC LTAL Model, to MMFC’s clients.
(f) MMFC and IPL subsequently entered into confidentiality agreements (paras 47, 56 to 58 and 65) and MMFC (through Mr Manderson and Mr Karis) then disclosed the MMFC LTAL Model to IPL (paras 46 to 83).

39. In accordance with the above principles, it is plain that the case pleaded is that MMFC has disclosed the MMFC LTAL Model to IPL in circumstances in which IPL was under an obligation of conscience to maintain the confidentiality of the MMFC LTAL Model. It is also plain that MMFC has alleged that the MMFC LTAL Model has the necessary quality of confidence and that its protection is of substantial concern to MMFC.
40. This is sufficient in law, assuming that the facts will be established at trial, to impose on IPL an obligation in equity to keep the MMFC LTAL Model confidential to MMFC.
41. It is also plain that the confidential information in the MMFC LTAL Model has ‘passed’ from Mr Manderson and Mr Karis under the approach in TS & B Retail. Given that the confidential information was known by Mr Manderson and Mr Karis immediately before the formation of the partnership, no further acts were necessary in order for the confidential information to be ‘passed’ to MMFC when Mr Manderson and Mr Karis commenced to work for MMFC to commercialize the MMFC LTAL Model. The mere act of the entry by Kawam and KK Consolidated into the partnership agreement in the circumstances set out above was sufficient for the confidential information in the MMFC LTAL Model to be ‘passed’ to MMFC in accordance with the above authorities. It is not necessary for MMFC to plead, or establish at trial, a formal ‘assignment’ of the confidential information from Mr Manderson and Mr Karis.”

As indicated in its oral submissions at the hearing of these applications, IPL did not quarrel with the two general propositions which MMFC advanced with respect to the nature of confidential information and the basis of actions for breach of confidence. Rather, IPL’s point is, and one which, it submitted, was not addressed in MMFC’s written or oral submissions, that there is some potential doubt on the pleadings as contained in the proposed Statement of Claim as to whether Mr Karis had the right to use all of some of the confidential information which it is alleged he “passed” to MMFC when Mr Manderson and Mr Karis commenced to work for MMFC to “commercialise the MMFC LTAL Model”.[65]
[65]See Plaintiff’s Submissions, [41] (set out above).

Nevertheless, even if the position on the proposed pleadings as submitted by IPL were established at trial and it were found that Mr Karis had no right to use any part of the confidential information (assuming that any such confidential information could be properly identified or defined) and that, consequently, MMFC did not hold any or the whole proprietary right to this information, this would not, on the basis of the authorities relied upon by MMFC, necessarily detract from MMFC’s capacity to bring the proceedings.

It may, however, leave another party, such as Orica, with rights with respect to the confidential information, perhaps rights of a proprietary character, which may or may not be asserted separately against MMFC or against Mr Manderson or Mr Karis, or all of them. In other words, if the relevant confidential information could be properly identified or defined, wherever the proprietary right to it lay, provided that when it came into the hands of MMFC it had the requisite knowledge that it was confidential information, MMFC would be entitled to take action to protect it in circumstances where that confidential information was disclosed to parties, such as IPL, in circumstances where it or they ought to have known that that information was confidential. Indeed, this position would be consistent with the possibility that a party, such as MMFC, would need to take steps to protect the confidential information (in whole or in part), if only to protect itself in the event that action were taken against it by a third party claiming proprietary rights in that information.

For these reasons, I reject IPL’s submissions that, on the basis of the proposed Statement of Claim, it can be said that MMFC has no capacity to bring the proceedings. The proposed pleadings would, of course, be tested at trial on this issue, both having regard to the deficiencies with respect to those pleadings asserted by IPL, as raised in its submissions, and more generally.

Conclusions

For these reasons, I find that the claim of MMFC in these proceedings fails in that it “does not disclose a cause of action” within the meaning of rule 23.01 of the Rules and, further, that the whole of its claim has “no real prospect of success” within the meaning of s 63 of the Act. The appropriate course is that I should now dismiss the proceeding with summary judgment for the defendant or permanently stay the proceeding.

I will hear the parties in relation to which of these alternatives should be adopted; in relation to the question of costs and in relation to the form of orders.

ANNEXURE A: MMFC’S PLEADING

Date	Version	Event
1	2 July 2008	Statement of claim
2	24 October 2008	Amended Statement of Claim	Following strike out by Hargrave J
3	12 December 2008	Further Amended Statement of Claim	Removed confidential Incitec Pivot board quote [this version is the only minor amendment to the pleading by MMFC]
4	6 March 2009	Proposed new Further Amended Statement of Claim	Provided to Incitec Pivot at hearing before Efthim AsJ, but no formal application for leave made by MMFC (although hearing proceeded on the basis of this new version)
5	12 October 2009	Second Further Amended Statement of Claim	Following strike out by Efthim AsJ, which was upheld by Davies J on appeal
6	16 February 2010	First proposed version of Third Further Amended Statement of Claim	MMFC’s application for leave to file this version refused by Croft J in March 2010
7	28 June 2010	Second proposed version of Third Further Amended Statement of Claim	No application for leave to file made by MMFC
8	2 September 2010	Third proposed version of Third Further Amended Statement of Claim	No application for leave to file made by MMFC
9	12 October 2010	Fourth proposed version of Third Further Amended Statement of Claim	MMFC’s application for leave to file this version was adjourned part-heard by Croft J in November 2010
10	17 December 2010	Fifth proposed version of Third Further Amended Statement of Claim	MMFC’s application for leave to file this version and Incitec Pivot’s application for summary judgment were adjourned part-heard by Croft J in February 2010
11	4 March 2011	Proposed Fourth Further Amended Statement of Claim	Present version

Citations

Manderson M and F Consulting v Incitec Pivot Ltd (No 2) [2011] VSC 205

Most Recent Citation

Cases Citing This Decision

1

Manderson M & F Consulting v Incitec Pivot Ltd (No 3) [2011] VSC 441

Cases Cited

10

Statutory Material Cited

0

Manderson M and F Consulting v Incitec Pivot Ltd [2010] VSC 63

White Industries Australia Ltd v Federal Commissioner of Taxation [2007] FCA 511

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[2011] VSC 205

16 May 2011