Merzo Power Take-Off Pty Ltd v Steam-Vac of Australia Pty Ltd

[1990] FCA 342

JUDGMENT NO. .3%.2..:/3..!

IN THE FEDERAL COURT OF AUSTRAGIq	1
FEW SOUTH WALES DISTRICT REGISN	1 No NG97 of 1990

GENERAL DIVISI Ox 1

BETWEEN t MERZO POWER TAKE-OFF,

PTY LIHITEQ

Applicant

AND :	STEILM-VAC OF AUSTRALIA PTY LIMITEQ
~espondent

16 JUL 1990

CORAM :	HILL J
PLACE :	SYDNEY
DATE :	16 MARCH 1990

EX TEMPORE REASONS FOR JUDGMENT

In these proceedings, numbered NG97 of 1990, which were instituted by application filed in this court on 2 March 1990, the applicant, Merzo Power Take-Off Pty Limited, seeks interlocutory relief against the respondent, Steam-Vac of Australia Pty Limited, by way of an order restraining the respondent from manufacturing, promoting or installing in any truck a mounted carpet-cleaning machine using a process said to have been developed by the applicant for which process the applicant has applied for a patent. The relief ultimately claimed against the respondent is set out in the application and stated as follows:

patent is pending.

"An order that the respondent be restrained from manufacturing, promoting and selling and installing in any truck a mounted carpet cleaning machine using the process developed by the applicant for which a

"An order restraining the respondent from using

confidential information and technical infoxmation of the applicant relating to the manufacture and installation of a compact truck mounted carpet cleaning machine for which the applicant has applied for a patent.

A declaration that the plaintiff's conduct was misleading and/or deceptive within the meaning of section 52 of the Trade Practices Act and/or unconscionable within the meaning of section 52A of the Trade Practices Act.

An order that the respondent account to the

applicant for profits made by the respondent in manufacturing, promoting and installing in any truck mount'ed carpet cleaning machines using the process

I ( developed by the applicant."

From the affidavit evidence filed on behalf of the applicant it appears that Mr Hovsep Joe Mirzikinian (hereafter referred to as "Mr Merzo Senior") had, while employed by Grace Brothers Carpet Cleaning Service as a mechanic, perceived the advantages which would flow from a carpet cleaning machine carried in a van being powered by the vehicle's own engine rather than being driven by a secondary diesel motor.

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Accordingly, he rented factory premises in 1986 and machine, the particular features of which were a gearbox geared	employed a sheet metal worker to assist him in developing his	idea. He says that he spent over $184,000 in developing his
to the tailshaft of a van and a heat exchanger system. It took some 13 months of full-time work to produce a machine good enough for sale. He applied for a patent in Australia and

overseas. This application in Australia has been opened for
public inspection, but as yet it has not been examined.

According to the evidence of Mr Warwick Mirzikinian (hereinafter referred to as "Mr Merzo Junior") a phone call was received by him on 20 January 1989 from Mr Warren of the respondent. It appears that Mr Warren had seen a van containing Mr Merzo Senior's invention and was impressed by it. Mr Warren expressed interest in distributing this equipment in Melbourne.

In a subsequent discussion Mr Merzo Senior suggested to Mr Warren that anyone wishing to fit out such a machine would need to have extensive training so to do, and it was suggested that Mr Pulkka, the service manager of the respondent, would be able to attend in Sydney and learn the procedure. Mr Warren expressed the desire to buy one of the machines as a demonstration unit to assist with sales in Melbourne.

The next week Mr Pulkka arrived in Sydney and remained there for a period of two weeks, where it was claimed he was brought to the applicant's workshop and trained in the building and installation of the machine in a Nissan van that Mr Pulkka had brought with him from Melbourne.

Mr Pulkka made notes of what he says he was told on this occasion. Around this time a conversation is said to have occurred between Mr Warren, representing the respondent, and Mr Merzo Junior, representing the applicant, in the following terms :

Mr Warren:  "I would like the distribution rights for

Melbourne and Adelaide".

Mr Merzo Junior: "The price will allow you $1500 off the trade price for installing the machine in Melbourne."

Mr Warren:  "I agree to this and I will arrange for my

solicitors to draw up the necessary documentation."

Subsequently Mr Pulkka came to Sydney for a further week's training because of a difficulty with fitting the gearbox to the tail shaft of the motor vehicle and other details. This extra training was given. It does not appear from the respondent's evidence whether Mr Pulkka took notes on

this occasion.

Later a conversation took place between Mr Warren and Mr Merzo Junior, in which the former expressed interest in purchasing the patent. As a result of this conversation information was made available by the applicant's patent attorney to the respondent's patent attorney and to the respondent in confidence. It should here be observed that the subject matter of the patent application was the gearbox only.

Mr Warren's interest in purchasing the patent was short-lived. He later expressed interest in purchasing gearboxes produced by the applicant. Still later it seems that

Mr Warren was able to buy a suitable gearbox, "off the shelf."

He advised Mr Merzo Junior that he was going to build his own machine using the gearbox which had been purchased and he was going to use the same vacuum pump and pressure pump as in the applicant's machine. The respondent alleges that there is no element of novelty in the vacuum pump and pressure pump. Such novelty is not alleged on behalf of the applicant.

In about August 1989 a meeting took place between Mr Merzo Junior and Mr Pulkka during which Mr Merzo Junior asked how the building of the machine was going. Mr Merzo Junior is alleged to have said, "It does not matter, he can try to buil'd his own machine, we will see what happens."

In October 1989 Mr Merzo Junior observed Mr Pulkka

demonstrating the respondent's carpet cleaning machine at a

photos. The machine was demonstrated to him. The basic

football club. Mr Merzo Junior inspected the machine and took

machine demonstrated was said to be, "exactly the same" as the applicant's machine. The only difference was that it had a four wheel drive gearbox which fitted, it was said, exactly the same as the applicant's power take-off system, and there were different size tanks and covers with the name "TAIPAN" (apparently a trademark of the respondent) fitted on the machine. The applicant at this stage took no action.

Further conversations took place between Mr Warren and

Mr Merzo Junior in November and December 1989. In December

1989 Mr Warren was told by M r Merzo Junior: "So you are building your machine now, we're not happy about it. We taught Juha (Mr Pulkka) all he needs to know." Still the applicant took no action.

A substantial number of affidavits were filed on behalf
of the respondent. It is not necessary for present purposes to

discuss the detail of this evidence. Much of it was directed

I towards what was said to be lack of novelty of the gearbox the subject of the applicant's patent application. Mr Pulkka deposes in essence that the information imparted to him was ordinary routine mechanical information. He tendered what was said to be the notes which he had taken. Mr Warren in effect denied that a concluded agreement had been reached for distribution between the applicant and the respondent. He deposed to the steps he had taken to develop the respondent's

I	own machine which he asserted was superior to that of the
applicant. Particularly Mr Warren denied that any confidential
information had been given to him or used by him in developing
the respondent's machine.
The parties informed me from the bar table that it was agreed between them that a trade fair was to be held in Victoria at the Exhibition Building in Melbourne on 25 March next in which the respondent had a stall and in which the respondent planned to exhibit for sale equipment which included the machine which the respondent had made. It appears that the applicant did not propose to take a stall at that trade fair. The imminence of that fair was said to justify an urgent application requiring the intervention of the court.
The principles to be applied in determining whether or not interlocutory applications should be granted are now well settled. They are set out in the decision of the Full Court of
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this court in E~itoma Ptv Limited v. Australasian Meat Indust~ Em~lovees' Union and Others (Number 2 1 (1984) 54 ALR 730, 734 by reference to the decisions of the High Court in Australian Coarse Grain Pool Ptv Limited v. Barlev Marketing Board of Oueensland (1982) 46 ALR 398 and Tableland Peanuts Pty Limited v. Peanut Marketina Board (1984) 52 ALR 651.

I	In accordance with these principles I am required to determine whether there is a serious issue to be tried and then
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I	to proceed to consider if the answer to that be in the positive
whether the balance of convenience lies in favour of granting or refusing the interlocutory relief sought.
It was early in the hearing conceded by the applicant that its case so far as it depended upon the patent application for the gearbox was misconceived. There are two reasons for this, the first can be found in the provisions of s.67(4) of the Patents Act 1952 which provides inter alia:

"A person is not entitled to institute proceedings

for infringement	...
(a)	in the case of a standard patent...

(i) unless and until the patent for the invention has been sealed: or

(ii) in respect of an infringement committed be£ ore the complete specification became open to public inspection."

The second reason is that the gearbox used in the respondent's machine was in any event not the applicant's

I	gearbox at all but was one purchased off the shelf from an independent supplier and on its face hardly seems to have been a gearbox that could have infringed a patent of the applicant even if the application had in fact been granted.
If there be an arguable claim for relief at all the applicant must rely upon the claim for use of confidential

\	I	information, not in respect of the gearbox but in respect of
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the assembly of the various units together into a van to be
j	used without an auxiliary motor for carpet cleaning .

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It must be stressed at this stage it is not the function
of the court on interlocutory applications to make ultimate

findings of fact and I refrain from so doing. I have so far in

I	this judgment sought only to set out the case as I understand it sought to have been raised by the applicant. The ultimate findings of fact must await the final disposition of these proceedings.
The principles applicable to a case raising the use of confidential information for present purposes are sufficiently set out in the judgment of Megarry J in v. A N Clark (EnaineersI Limited, (1969) RPC 41 at 47 and were not in dispute.
After referring to a number of cases, including Saltman Enaineerina CO Limited v. Camubell Enaineerina CO Limited (1948) 65 RPC 203, his Lordship said:

"I think it is quite plain from the Saltman case that the obligation of confidence may exist where, as in this case, there is no contractual relationship between the parties. In cases of contract, the primary question is no doubt that of construing the contract and any terms implied in it.. . In my judgment, three elements are clearly required if, apart from contract, a case of breach of con£ idence is to succeed. First, the information itself, in the words of Lord Greene MR in the Saltman case on page 215, must 'have the necessary quality of confidence about it.' Secondly, that information must have been imparted in circumstances importing an obligation of confidence. Thirdly, there must be an unauthorised use of that information to the detriment of the party communicating it."

There is, in the evidence, a conflict as to whether there really was a contractual relationship between the applicant and the respondent; that is an issue of mixed fact and law. There is a question whether there was an implied term

in that contract that information supplied to the

representative of the respondent would be treated as confidential. There is a dispute in existence as to the nature and extent of the information made available to M r Pulkka and also as to whether his notes represent the entirety of the information made available to him.

In short, the following matters seem to me to be at issue between the parties:

(1) whether there was a contractual relationship

between the parties;

(2) if so, was there an implied term that information arising out of that contractual relationship would be kept confidential;

(3) whether in all the circumstances the information imparted to Mr Pulkka acting on behalf of the respondent had the necessary quality of confidence about it;

(4) whether that information was imparted in

circumstances importing an obligation of

confidence; and finally .

(5) whether there was in fact an unauthorised use of

that information by the respondent.

It follows, in my view, that there is an arguable issue between the parties to be tried. I must say that the evidence put before me by the applicant was not particularly full. In any event, at the end of the day the respondent virtually conceded that in the respect I have mentioned there was an arguable issue to be tried. I turn therefore to the question of the balance of convenience.

Notwithstanding the applicant's undertaking as to damages proffered to the Court, there are considerable difficulties in the present case in seeing this undertaking as a sufficient protection for the respondent should it turn out that an injunction should not have been granted. This is because of a difficulty which could arise, if the applicant alone were permitted to sell, of determining whether any sale made was one which would have been made by the respondent but for the injunction.

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However, more importantly, the respondent will be
represented at the Trade Fair and the applicant will not. If

an injunction be granted against the respondent restraining it

i	from inter alia selling its machine during the Trade Fair, the
I	potential sales that could be made at it could be lost
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altogether. If the applicant ultimately succeeds, the respondent will be required to compensate the applicant in damages.

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In these circumstances, it seems to me that the balance of convenience favours not granting an injunction against the respondent at this stage but permitting the respondent to trade on the basis ultimately that the applicant, if successful, will be entitled in the event to damages. I might say that I would order in the circumstances that the respondent keep full records of all sales of its carpet cleaning machine so that if it becomes necessary, an accounting for profits can be made in due course.
There is one other matter which would also have led me to conclude that an injunction was not at the present stage	I
appropriate. It will be recalled that at least since October 1989 the applicant has been fully aware that the respondent has made its own carpet cleaning machine. Indeed, the applicant had the opportunity in December 1989 of inspecting the machine, and of having it demonstrated to Mr Merzo Junior. But despite this knowledge, the applicant has not until now sought to take any proceedings whatsoever against the respondent. AS I reiterate, it was only in March of this year that an
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application was sought for interlocutory injunctive relief.	+
In these circumstances a question of laches arises as well as an issue as to whether or not the applicant has	i i
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acquiesced in the conduct of the respondent. However, I prefer i

to rest my decision on the question of balance of convenience rather than rely upon the question of delay. In these circumstances, I do not propose at this stage to grant any interlocutory relief to the applicant.

There remains the issue of costs. I was strongly urged by the applicant's counsel not to make an order for costs against the applicant but to treat the question of costs either by reserving them or making them costs of one or other of the parties in the ultimate hearing.

I have, however, decided that in the circumstances of this case it would be appropriate that an order for costs be made against the applicant, for the following reasons. First, the proceedings brought by the applicant were largely misconceived. Indeed, its application for interlocutory relief was really based upon the application for the patent relating to the gearbox, although I permitted it to be treated in more general terms. The effect of the application being misconceived was to cause the respondent to put before the Court a large amount of evidence related to issues which ultimately were not litigated because they had to be found against the applicant. Second, it is the applicant who has chosen to bring these proceedings, in circumstances where it seems to me clear that the balance of convenience would have sensibly required that sales be made at the trade fair rather than that they be lost altogether. In other words, the circumstances did not really suggest that interlocutory relief

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was an appropriate form of relief.

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I	Third, there was the question of delay in any event, which in exercising the judicial discretion as to a costs order, I have taken into account. The applicant has been unsuccessful in its application for interlocutory relief and I see no reason why in those circumstances it should not pay the respondent's costs of it.
For completeness I should mention that there were other proceedings between the parties in this court, being
l	proceedings number G115 of 1990, commenced by Steam-Vac
1	Australia Pty Limited against Merzo Power Take-off Pty Limited. No interlocutory relief was sought in those
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proceedings. They will become unnecessary having regard to the orders which I made yesterday because once the applicant in the
1	main proceedings pleads its case by way of statement of claim
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I	in accordance with orders I have already made and the
I	respondent files its defence, the respondent can then deal with

. the subject matter of the other proceedings by way of cross claim, and in those circumstances the additional proceeding will become wholly unnecessary.

I	I certify that this and the
I	preceding thirteen (13) pages are a true copy of the Ex Tempore
I	1	Reasons for Judgment herein of
I	his Honour Mr Justice Hill.
Associate:  a& m
Dated: 16 March 1990
Counsel and Solicitors  Mr N Carney instructed by
for Applicant:

Messrs Wehbe & CO

Counsel and Solicitors	Mr J Hess instructed by
for Respondent:	Messrs Phillips Fox
Date of hearing:	15 March 1990
Date Judgment delivered:	16 March 1990