SGS Australia Pty Ltd v Australian Laboratory Services Pty Ltd
[2012] FCA 711
•6 July 2012
FEDERAL COURT OF AUSTRALIA
SGS Australia Pty Ltd v Australian Laboratory Services Pty Ltd [2012] FCA 711
Citation: SGS Australia Pty Ltd v Australian Laboratory Services Pty Ltd [2012] FCA 711 Parties: SGS AUSTRALIA PTY LTD (ACN 000 964 278) and SGS GROUP MANAGEMENT SA v AUSTRALIAN LABORATORY SERVICES PTY LTD
(ACN 009 936 029)File number: WAD 10 of 2010 Judge: LANDER J Date of judgment: 6 July 2012 Catchwords: CONTRACTS – breach of licence agreement – whether term of licence agreement extended by conduct – restraint of trade clause – non-competition clause – scope of non-competition clause after transfer of rights – agreement not to copy, duplicate, imitate or reverse-engineer – confidentiality undertaking
EQUITY – breach of equitable obligation of confidence
TRADE PRACTICES – misleading and deceptive conduct – false or misleading representations – brochure advertising respondent’s product – express and implied representations
Legislation: Competition and Consumer Act 2010 (Cth) Sch 2, Australian Consumer Law s 232
Trade Practices Act 1974 (Cth) ss 52, 53(c), 53(d), 53(g), 80
Trade Practices Amendment (Australian Consumer Law) Act (No 2)2010 (Cth) Sch 7, Item 7(2)Cases cited: Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288
Butt v Long (1953) 88 CLR 476
Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304
Codelfa Construction Proprietary Limited v State Railway Authority of New South Wales (1982) 149 CLR 337Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165
Date of hearing: 12, 13, 14, 15 and 16 December 2011 Place: Adelaide (Videoconference to Perth and Brisbane) Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 165 Counsel for the Applicants: Mr P McGowan with Mr P McAppion Solicitor for the Applicants: Griffith Hack Counsel for the Respondent: Mr K Wilson SC with Mr D Pyle Solicitor for the Respondent: Thynne and Macartney
IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
WAD 10 of 2010
BETWEEN: SGS AUSTRALIA PTY LTD (ACN 000 964 278)
First ApplicantSGS GROUP MANAGEMENT SA
Second ApplicantAND: AUSTRALIAN LABORATORY SERVICES PTY LTD
(ACN 009 936 029)
Respondent
JUDGE:
LANDER J
DATE OF ORDER:
6 JULY 2012
WHERE MADE:
ADELAIDE (VIDEOCONFERENCE TO PERTH AND BRISBANE)
THE COURT ORDERS THAT:
1.The application be dismissed.
2.The applicants pay the respondent’s costs.
Note:Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
WAD 10 of 2010
BETWEEN: SGS AUSTRALIA PTY LTD (ACN 000 964 278)
First ApplicantSGS GROUP MANAGEMENT SA
Second ApplicantAND: AUSTRALIAN LABORATORY SERVICES PTY LTD
(ACN 009 936 029)
Respondent
JUDGE:
LANDER J
DATE:
6 JULY 2012
PLACE:
ADELAIDE (VIDEOCONFERENCE TO PERTH AND BRISBANE)
REASONS FOR JUDGMENT – FOR PUBLICATION
In this proceeding the applicants claim damages and injunctive relief against the respondent for the respondent’s:
(a)breach of its equitable obligations to keep a partial leaching geochemistry technique confidential and not to misuse that technique;
(b)breach of its contractual obligations under a “Confidentiality Undertaking” and a “Licence Agreement”; and
(c)contraventions of ss 52, 53(c), 53(d) and/or 53(g) of the Trade Practices Act 1974 (Cth) (TPA).
The respondent agrees that the issues that are to be decided are as stated by the applicants.
On 24 August 2010, an order was made that questions and issues of relief including damages and injunctive relief under s 80 of the TPA, and liability, be heard separately, and that the issue of liability be decided before the issues of damages and injunctive relief.
These reasons address the question of liability by addressing the three issues identified above.
Background
The proceeding generally concerns partial leaching geochemistry, which is a surface exploration technique used to locate mineral deposits. This proceeding addresses a Mobil Metal Ion (MMI) technique that was developed by Dr Mann whilst employed by a company he controlled, Wamtech Pty Ltd (Wamtech). The particular leachant in question is known as MMI-M.
MMI-M is a proprietary solution and is confidential. The issues of liability involve the applicants’ claim that the respondent breached its equitable and contractual obligations to keep MMI-M confidential and for the contraventions of the sections of the TPA identified in [1] (c) above. The proceeding has been brought because the respondent has developed a product known as Ionic Leach, which the applicants allege is a copy or imitation of MMI-M.
Both applicants are members of the SGS group of companies, which provides certified inspection testing, technical consulting (including partial leaching) and other services throughout the world. SGS Australia Pty Ltd (SGS) conducts the SGS group’s business in Australia. SGS Group Management SA (SGS SA) is the parent company of the SGS group.
The respondent, Australian Laboratory Services Pty Ltd (ALS), is a company incorporated in Australia and owned by Campbell Brothers Ltd. ALS carries on the business of the supply of laboratory services in the field of geochemistry, and in competition to the laboratory services provided by SGS in Australia. It operates in 24 countries and from 48 locations, and has the necessary chemicals and equipment at its disposal to enable it to develop a partial leach. It has employees with extensive chemistry experience. One of its employees, Mr Abbott, an Operations Manager of ALS, has nearly 40 years’ experience and has previously developed a partial leach. Indeed that leach had xxx things in common with MMI. It contained xxxxxxx in the form of xxxxxxxxxxxxxx and had a xx which was xxxxxxxx xxxxxxxx.
Development of MMI-M
Partial leaching is a well-known and well-established geochemistry surface exploration technique used to locate mineral deposits. MMIs are those ions which have moved close to the surface of the ground, from the ore bodies below the ground and are only weakly or loosely attached to the surface of soil particles. While it is not completely understood how metal ions break through the surface of the earth, research has shown that MMIs accumulate in surface soils above a mineralisation indicating that the metals derive from a mineralisation source below. The MMIs probably move by way of capillary action. The weakly attached ions, which move to the surface of the earth, are in very low concentrations, but, when measured by a partial leaching technique, provide a signal as to where the ore bodies are below the surface of the earth.
The purpose of the partial leaching technique is to measure the MMIs in the surface soils and therefore determine if there are ore bodies below the surface. Partial leaching is done by using solutions which are called leachants or extractants, which are applied to samples of soil to extract the weakly attached MMIs. The leachant or extractant contains one or more complexing agents (or ligands) which react with (or complex with) the MMIs in the soil. The resultant leach solution containing the soil sample is measured to determine the trace elements in the soil. The leach solution is measured to determine anomalies, that is to say, a peak or higher concentration of MMIs compared to the usual.
Dr Mann developed his MMI technology in the early 1990s. He sought to develop a solution which could detect what are called the “commodity elements”, such as gold, silver, copper, lead, zinc and cadmium. These are the most commonly analysed elements in many exploration field surveys. However, he discovered that for each element, particularly the commodity elements, there is a ligand that will complex with one element, but may not complex with other elements. Accordingly, Dr Mann sought to develop a single solution which would not only detect the commodity elements, but also the specific compounds that complex with the most important elements.
In 1992, Dr Mann developed two extractants. One was acidic and the other had a neutral pH. Dr Mann called one of the extractants MMI-A, and the other MMI-B. MMI-A had xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx. MMI-B had xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx. MMI-A was able to detect cadmium, copper, lead and zinc, whereas MMI-B could detect silver, gold, cobalt, nickel and palladium.
Dr Mann subsequently developed other extraction solutions for other elemental suites. These were called MMI-C, MMI-D, MMI-E, MMI-F, MMI-G and MMI-H.
Before 2000, geochemists did not understand that elements like xxxxxxxxxxxx xxxxxxxxxxxxxxx could be kept in a xxxxxxxxxx because it was thought that those elements formed xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx. However, Dr Mann developed a solution xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx.
In 2000, Dr Mann developed a xxxxxxxxxx multi-component leachant, which kept not only gold, silver, nickel, cobalt and palladium in solution xxxxxxxxxxxx, but also copper, lead, zinc and cadmium as well, if the appropriate leachants were present and in the appropriate amounts.
It was around this time, about seven or eight years after he developed MMI-A and MMI-B, that Dr Mann began to develop MMI-M. The final solution was developed in December 2003 after a series of experiments were undertaken to determine and ultimately confirm the compatibility of the ingredients. MMI-M is not simply a combination of MMI-A and MMI-B. Rather, it is made up of a combination and concentration of ligands incorporating all of the sequential developments of MMI-A to MMI-H.
MMI-M is a xxxxxxxxxx multi-component extractant that was tested and proven effective for a wide-range of elements on a wide variety of soil types. pH is a measure of the acidity or alkalinity of solutions represented on a scale of 0 to 14 with 0 being strongly acidic, 7 being neutral and 14 being strongly alkaline. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx.
At the time it was developed in December 2003, and still by February 2008, MMI-M was the only leachant which used xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx. Ordinarily, a geochemist would not expect those xxxxxxxxxxxxxx to be used at the same time. Indeed, most leaching extractants used xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx.
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx.
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx.
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx.
Dr Mann added xxxxxxxxxxxxxxxxxx and xxxxxxxxxxxxxx to the xxxxxxxxxxxxxx xxxxxxx, which operated safely and successfully such that the resultant leachant was capable of simultaneously extracting 40 elements into solution for analysis.
Dr Mann developed MMI-M using a process of trial and error research over a period of 11 years, it being first released in December 2003. MMI-M was, in Dr Mann’s view, revolutionary in the geochemical marketplace because it is capable of complexing the commodity elements. MMI-M is a xxxxxxxxxx multi-component extractant that has been tested and proved effective for a wide range of elements on a wide variety of soil types.
The Confidentiality Undertaking
The applicants claim that the MMI-M formula was confidential. In particular, the applicants claim that the constituent ingredients of MMI-M, and their relative concentrations, are confidential. The applicants further claim that the physical and chemical qualities of MMI-M, such as its pH, are also confidential. The respondent accepts that the MMI process contains or comprises confidential information, or comprises information of a confidential character: see paragraph 3A of the Amended Defence.
Wamtech owned the leachants created by Dr Mann and made MMI-A and MMI-B and the later developed leachants, including, from December 2003, MMI-M available to licensed laboratories including the respondent.
On 13 December 1996, the respondent agreed in writing with Wamtech to maintain the confidentiality of the MMI process and the “MMI Process Extractants” (the Confidentiality Undertaking).
The Licence Agreement
On 26 June 1997, Wamtech entered into a licence agreement with the respondent giving the respondent the right to use the multi-ligand partial leach MMI solutions that Dr Mann had already developed and was continuing to develop (Licence Agreement). The Licence Agreement was for a period of 36 months commencing on 1 July 1997.
The applicants contend that the Licence Agreement entered into between Wamtech and ALS was extended from 1 July 2000 until 20 February 2008, the date on which the applicants terminated the Licence Agreement. There was no written agreement evidencing the extension.
On 13 February 2008, SGS SA and Wamtech executed a written Share Purchase Agreement pursuant to which SGS SA purchased all of the issued share capital in Wamtech. SGS SA and Wamtech entered into an Intellectual Property Purchase Agreement on 29 October 2008 and a confirmatory Deed, both of which were effective from 15 February 2008, by which SGS SA acquired from Wamtech all of the rights, title and interest in the MMI technology.
On 7 April 2009, SGS SA and SGS entered into an exclusive Licence Agreement for SGS to use the MMI Technology in Australia.
On 20 February 2008, the applicants terminated the Licence Agreement at a meeting that took place at the respondent’s Perth laboratory. Messrs Litjens and Prince and Dr Mann represented the applicants; Messrs Abbott, Williams and McLean represented the respondent at that meeting. I shall identify who those persons are later in these reasons. Of course, the applicants could only have terminated the Licence Agreement at that time if it had continued to operate as the applicants have contended.
The termination of the Licence Agreement was effective from 21 February 2008. At the same time, the applicants advised the respondent that it would provide sufficient MMI solution for the respondent to discharge its existing contracts, but that the respondent should not commence any new work that required the use of MMI-M.
Subsequently, on 6 March 2008, SGS on behalf of SGS SA, and the respondent, agreed to a transitional arrangement by which the respondent could use the MMI Technology until 31 August 2008 for the purpose of servicing its existing contracts.
The termination of the Licence Agreement on 20 February 2008 left the respondent without an extractant that it could offer its clients that could complex with the wide number of metals that MMI-M could. The respondent’s employees gave evidence that it was imperative for the respondent to develop a new leach as quickly as possible.
By late March/early April 2008, the respondent had developed and made commercially available an extractant which it has called Ionic Leach. Ionic Leach can perform the same or similar functions to MMI-M.
The Events after the Termination of the Licence Agreement
Mr Williams, the General Manager of the Minerals Division in Australia and the Asia Pacific region for the respondent, who was based in Perth, decided that the termination of the Licence Agreement meant that it was necessary for ALS Perth to develop an alternative to MMI-M. Immediately after the meeting on 20 February 2008 he instructed Mr Abbott, the Operations Manager in the Western Region for the respondent, to create an alternative to MMI-M using, for assistance, chemists in ALS’ Brisbane and Canadian laboratories. In particular, Mr Williams instructed Mr Abbott to contact Ms Caughlin, who was a senior employee of a related company, ALS Canada Ltd, in Canada.
On the same day, Mr Abbott met with Mr Edmondson, the spectroscopy manager of the laboratory group for the Minerals Division of the respondent, and they decided that the leach to be developed should be based upon a static leach method and should contain sodium cyanide with a combination or chelating (complexing) agents and have a pH of 8.5. They decided to use EDTA as a modifier to obtain a pH of 8.5. EDTA is referred to as a “chelating agent”. A chelating agent is said to keep metals stable in solution. It functions by “wrapping around” a metal in solution, preventing it from re-attaching to the soil. It is distinguishable from a ligand, which only attaches to a metal to make it soluble.
There is no suggestion that prior to 20 February 2008 the respondent had learnt of the constituent elements of MMI-M. However, the respondent must have been aware that MMI-M contained a compound of cyanide because the evidence was that a warning label was attached to MMI-M containers that disclosed that the MMI solution contained sodium cyanide. That said, there is no evidence to suggest that anyone within the respondent knew that MMI-M contained EDTA.
Mr Abbott gave evidence that, on 21 February 2008, Mr Edmondson commenced trialling EDTA as a pH modifier of sodium cyanide. In an email from Mr Abbott to Mr Williams on 22 February 2008 at 4.24pm, Mr Abbott said that “Peter [Edmondson] set up the test work and it was shown that 0.6 grams of EDTA was required for pH control of 0.1% NaCN”.
On 22 February 2008, Mr Williams emailed Mr Abbott referring him to “published papers on EDTA extraction from work that Wendy Hall completed in the 90s”.
Mr Abbott replied to Mr Williams and others stating that there should be some result by Monday 25 February 2008. Mr Abbott said that unless they had a GEMS available leach within two weeks they would not retain their Australian business. GEMS is the laboratory information management system for ALS.
On Monday 25 February 2008, Mr Abbott decided to trial ammonium acetate in an attempt to dissolve in a solution “U, Th [and] Cr”, and maintain the goal pH of 8.5. He told others that he expected to have the results by Wednesday 27 February 2008.
On 26 February 2008, Ms Caughlin wrote to Ms Mary Doherty, an Exploration Geologist based in Vancouver who, in February and March 2008, was employed by the respondent as its Director for Operations, USA, and Mr Abbott, advising that they were looking for a leach comparable to MMI-M and seeking any comments on chemicals that might be used and the concentration of those chemicals. On the same day, Mr Edmondson emailed Mr Howard Shafer, a chemist employed by the respondent at the relevant time at its minerals laboratory in Reno, Nevada as its Manager of Special Projects, telling him that he had developed an alternative to MMI-M that “worked well except for Cr Th U and Fe”. Mr Edmondson said he had tried ammonium acetate but had no success in achieving a pH of 8.5. He said he was asking for Mr Shafer’s help because he remembered that Mr Shafer had “worked to get that statics leach going.”
On 27 February 2008, Mr Shafer emailed Mr Edmondson suggesting that Mr Edmondson try sodium carbonate as a substitute, and hydrogen peroxide, to address the failure of the solution to complex with Cr, Th, U and Fe.
On the same day, Mr David Jones, a supervising chemist employed by the respondent based in Queensland, telephoned Mr Abbott and Mr Edmondson and discussed using ligands such as acetate, tartrate, oxalate, citrate, EDTA, cyanide, chloride and thio salts. Mr Jones emailed Mr Edmondson and Mr Abbott suggesting they try a solution using ammonium chloride with a possible mixture of ammonium acetate and sodium cyanide, with a dilution of hydrochloric acid/ammonium chloride. In response to that email Mr Abbott telephoned Mr Jones to suggest that he add citric acid as an alternative to ammonium chloride because he thought ammonium chloride would create an issue with the pH.
On 28 February 2008, Mr Jones emailed Mr Abbott with information relating to citric acid which he obtained from the internet.
Mr Abbott included citric acid and NH3/NH4 in the leach he was developing.
On the same day, Mr Abbott arranged for the leach to be tested on Standard Reference Material (SRM16), which had previously been analysed using MMI-M. Mr Abbott was endeavouring to ascertain whether the leach that had been developed would complex with the same number of compounds as MMI-M. He stated that “it was of value to me to know how the results of the analysis utilising MMI compared with those using the leach that I had developed”.
By Thursday 28 February 2008, the leach that was being developed contained 0.1% sodium cyanide, citric acid, EDTA, ammonium chloride and ammonia, and had a pH of 8.5. That leach had been developed within seven days of SGS’ termination of the Licence Agreement. After this date no other chemicals were used to produce a leach but the chemicals that had been identified were used in different strengths for the purpose of trying to keep the pH at a level of 8.5.
On 5 March 2008, Mr Phu Nguyen, a chemist employed by the respondent in its Minerals Division, analysed Ionic Leach and emailed Mr Abbott attaching what he called “the MMIM test results”, and stating that “I hope this will help you do the comparison between the new leach and the old leach solution”.
Mr Abbott forwarded Mr Nguyen’s email to Ms Caughlin and said that Mr Nguyen has “got a leach that is working for all elements.” In that email, Mr Abbott also said that the leach the respondent had developed, Ionic Leach, was, in respect of gold, “ten times lower than the oppositions [sic] leach”.
On 25 March 2008, Mr Shafer emailed Mr Edmondson and said that “[a]bout 50 years ago Harold Bloom developed a field method for the heavy metals”. Mr Shafer discussed and recommended this technique to Mr Edmondson, and also included five literature references.
In late March/early April 2008, Ionic Leach was made commercially available for the first time. From 2 April to 21 April 2008, Ms Wendy Wong, another chemist employed by the respondent in its Mineral Division, performed test works to validate Ionic Leach, and on 3, 7 and 10 April 2008 she provided test results to Mr Abbott.
The Reasons the Applicants Claim Relief
The applicants contend that Ionic Leach is a copy or imitation of MMI-M. They contend that it would not have been possible to develop Ionic Leach for commercial exploitation between 20 February 2008 and late March/early April 2008 without using the confidential information that attached to MMI-M.
Thus they claim that the respondent is in breach of its equitable and contractual obligations to the applicants described in [1] of these reasons. The contractual obligations are said to arise under the Licence Agreement and the Confidentiality Undertaking.
The applicants’ claim for a contravention of the TPA arises out of the subsequent publication by the respondent of a brochure entitled “Ionic Leach Breaks New Ground”, (the ALS Brochure), which contained the words:
(a) [Ionic Leach is a] new and innovative leach technique; and
(b)The ALS facility in Perth has been performing this type of analysis for over fifteen years with all the necessary protocols to ensure accurate partial extraction of ionic species in soils.
The applicants contend that Ionic Leach is neither new nor innovative because it uses the same technology as employed by the MMI process and MMI-M. They also contend that the ALS Brochure impliedly represents that the respondent is continuing to offer to its clients MMI-M under a new name or has a licence to develop or continue to offer MMI-M to its clients under the new name of “Ionic Leach”; representations that the applicants claim are false.
The applicants seek injunctive relief in respect of the respondent’s conduct in making the express and implied representations.
For those reasons the applicants claim that the respondent has breached ss 52, 53(c), 53(d) and 53(g) of the TPA.
Outcome
For the reasons that follow, the applicants have not established a breach of the respondent’s equitable or contractual obligations to them or any contraventions by the respondent of the TPA.
The proceeding will be dismissed. The applicants must pay the respondent’s costs of the proceeding to be taxed or agreed.
The Legislation
On 1 January 2011, the Australian Consumer Law (ACL), which is Schedule 2 of the Competition and Consumer Act 2010 (Cth), came into operation. Because this proceeding was started on 21 January 2010 before the start of the ACL, the TPA in the form it was before 1 January 2011 continues to apply. However, because the applicants seek a permanent injunction against the respondent under s 80 of the TPA, that injunctive relief, by operation of Schedule 7, item 7(2), of the Trade Practices Amendment (Australian Consumer Law) Act (No 2) 2010 (Cth), is taken to be sought under s 232 of the ACL.
The Applicants’ Contentions as to the Findings that should be made
The applicants contend that the Court should make the following findings:
(a)That the Confidentiality Undertaking remains valid and enforceable and binds the Respondent.
(b)That the Licence Agreement was valid and enforceable until it was terminated on 20 February 2008.
(c)That clauses 3.12 and 3.15(f) and (i) of the Licence Agreement survive termination of the Licence Agreement and are enforceable and bind the Respondent.
(d)That clause 3.13 of the Licence Agreement survives termination and was binding on the Respondent until 36 months after termination.
(e)That the Respondent has breached clause 3.12 of the Licence Agreement in that it copied, imitated and reverse engineered the MMI-M solution.
(f)That the Respondent has breached clause 3.13 of the Technology Licence Agreement which is properly limited to protecting the business previously conducted by Wamtech and its supply of MMI in various guises by releasing and exploiting a competing product known as Ionic Leach from 20 February 2008 to 20 February 2011.
(g)That the Respondent has breached its obligations under clause 3.15(f) and (i) of the Licence Agreement and under the Confidentiality Agreement through the misuse and disclosure [of] the confidential information of the Applicants, namely by misusing xxxx xxxxxx xxxxxxx (a confidential ingredient of MMI-M), the pH of MMI-M solution namely a pH of xxx, and the results of testing MMI-M solution against MMI-SRMs, to develop Ionic Leach and the publication of the formula for Ionic Leach.
(h)That in addition to or in the alternative to the Respondent’s contractual breaches, it has also breached its equitable obligation not to misuse the Applicants’ confidential information.
(i)That the Respondent has engaged in misleading and deceptive conduct within the meaning of section 52 of the Trade Practices Act and false and misleading representations in breach of sections 53(c), (d) and (g) of the said Act (with damages arising out of such conduct to be determined at a later stage in the proceedings).
The Confidentiality Undertaking
The Confidentiality Undertaking had no expiry date. It continued to operate in SGS SA’s favour as the successor to Wamtech at all relevant times.
Clause 2 of the Confidentiality Undertaking relevantly provided:
That the Pledger [ALS] will not:
(a)publish, release or disclose any of the Confidential Information to any other person (including any officer, employee or consultant of the Pledger except those set out in Schedule Two), or to any corporation (the “Third Party”), directly or indirectly; OR
(b)use or apply the Confidential Information in any way (including without limitation that [ALS] will not tamper with or alter the MMI Process Extractants)
without the prior written consent of Wamtech (which consent may be withheld at Wamtech’s absolute discretion) and without procuring the Third Party entering into a Confidentiality Agreement in terms satisfactory to Wamtech, being no less than the terms contained herein.
The Licence Agreement
The respondent contended that the Licence Agreement expired on 30 June 2000. However, I reject that contention. The conduct of the parties supports the finding sought by the applicants that the Licence Agreement was extended until 20 February 2008.
Dr Mann said in his evidence-in-chief that the parties, in a conversation between himself, Mr Russell Birrell of Wamtech and Mr Ian Cameron of ALS at a Japanese Restaurant in Perth, agreed on the extension without the need for formal documentation.
When, in his oral evidence, Dr Mann was asked if he could recall the specifics of that conversation, he replied:
No, it went something like Ian Cameron said, “We have a document that says we are licensed, it technically has expired – Do we need to redo it again?” and we all agreed that we didn’t need to do it again and in fact that – the spirit of the licence was sustained, was evidenced in the continued trade after that date.
Mr Birrell was not called, although he was in Perth and available. Mr Cameron died before the trial.
The respondent contended that Dr Mann’s evidence was either equivocal (less than persuasive ALS contended) or indicated that Dr Mann accepted the Licence Agreement had come to an end. The respondent also contended that I should infer that Mr Birrell’s evidence would not have assisted the applicants.
I think it must be inferred that Mr Birrell’s evidence would not have assisted the applicants, but that does not mean that the conversation that Dr Mann said occurred did not occur. The respondent’s counsel could not, because of Mr Cameron’s demise, put to Dr Mann that the conversation did not take place. I accept Dr Mann’s evidence in this regard. I think that there was a conversation of the kind to which Dr Mann deposed. I think that Dr Mann and Mr Cameron agreed that it was not necessary to prepare a further Licence Agreement, and that the parties’ rights and obligations would be governed by the Licence Agreement because the parties thereafter conducted themselves in accordance with the terms of the Licence Agreement by the respondent paying royalties in accordance with the formula in the Licence Agreement. Mr Williams said that the royalties were paid on that understanding. In a letter he wrote to SGS on 28 February 2008, he tacitly acknowledged that the Licence Agreement had been extended by agreement.
The respondent did not at any time prior to 20 February 2008, at least to the knowledge of the applicants, do anything inconsistent with the Licence Agreement.
I think Mr Williams’ evidence is generally consistent with ALS accepting the continued existence of the Licence Agreement.
I find, as the applicants have contended, that the Licence Agreement continued in existence up to 20 February 2008, and the parties continued to be bound by the Licence Agreement until that time. Relevantly, the Licence Agreement provided:
2.6The Licensee hereby acknowledges … that nothing in this Agreement shall in any way entitle the Licensee to deal with the MMI Process Extractants or the MMI Process in any manner whatsoever outside the Laboratory or after the expiration of the Term.
…
3.12The Licensee shall not attempt at any time to copy, duplicate, imitate or reverse engineer the MMI Process or the MMI Process Extractants which covenant shall survive termination of this Agreement.
3.13The Licensees shall not during the Term and for a period of 36 months thereafter either in its own right or by its officers, employees, agents or contractors without the prior written consent of the Licensor (which the Licensor may condition or withhold in its absolute discretion) directly or indirectly:
(a)compete with the Licensor including without limitation on the foregoing offering or providing extractants of competitors of the Licensor as an alternative to the MMI Process Extractants; or
…
PROVIDED THAT nothing in this clause shall restrict or limit the Licensee from carrying out a partial digest of a soil analysis where either the recipes and/or procedures have been published or are otherwise in the public domain, or the recipe and/or procedures are owned by a third party customer or client of the Licensee and the partial digest is carried out at the request of the customer or client in the normal course of the Licensee’s business.
…
3.15The Licensee covenants, undertakes and agrees to the Licensor that the Licensee shall:
…
(f)not tamper with or alter the MMI Process Extractants nor impart any secret or confidential information relating to the Licensor, the MMI Process or the MMI Process Extractants without the prior written consent of the Licensor, which consent may be withheld at the Licensor’s absolute discretion;
…
(i)not and shall ensure that the Licensee’s officers, employees, agents and contractors shall not, whether before or after the termination of the Agreement, disclose to any person any information relating to the MMI Process, the MMI Process Extractants, the Licensor or any of the Licensor’s methods and the Licensee shall ensure that the Licensee’s Subsidiary and the Licensee Contractors shall not make such disclosure. This restriction shall cease to apply to any such information falling into the public domain other than by the Licensee’s defaults, but otherwise shall continue to apply during and after the termination of this Agreement howsoever arising without limitation in point of time;
As I have already said, the Licence Agreement continued to operate in its terms up to 20 February 2008. The respondent was, therefore, bound by clauses 2.6, 3.12, 3.13 and 3.15(f) and (i). Even if the Licence Agreement had come to an end on 30 June 2000, as the respondent contended, it would still have been bound by Clauses 2.6, 3.12, and 3.15(i).
The respondent also continued to be bound by the Confidentiality Undertaking, because it was not limited in time. Indeed, although the respondent contended that the Licence Agreement had come to an end on 30 June 2000, a contention which, as I have said, I reject, the respondent accepted that it had an ongoing obligation of confidentiality in relation to the MMI Process and MMI-M.
Because of my finding that the Licence Agreement continued to operate as between the parties until 20 February 2008, the findings sought by the applicants in sub-paragraphs (a) to (d) of paragraph [63] of these reasons should be made.
While the three questions in paragraph [1] of these reasons arise for determination, the real question in this proceeding is whether the respondent breached its contractual and equitable obligations to the applicants not to “copy, duplicate, imitate or reverse engineer the MMI Process or the MMI Process Extractants” and, in particular, MMI-M. A subsidiary question that arises is whether the respondent is in competition with the applicants and in breach of Clause 3.13 of the Licence Agreement.
The first question gives rise to a construction issue in respect to Clause 3.12 of the Licence Agreement. The applicants contended that the respondent would be in breach of clause 3.12 if it produced a partial leach that was the copy or duplicate of MMI-M without intending to do so. The applicants argued that the respondent would be in breach of this clause even if using its own process and without any reference to MMI-M it simply stumbled across an extractant that was the same as MMI-M.
I do not accept that contention. Clause 3.12, read in context, prevents the respondent from attempting to copy, duplicate, imitate or reverse engineer the applicants’ extractants. In my view, it is not possible to accidentally attempt to copy, duplicate or imitate a product. The act of attempting to copy, duplicate or imitate requires a conscious effort on the copier, duplicator or imitator to reproduce the copy, duplication or imitation. The same is true of reverse engineering. Reverse engineering must be a deliberate act to determine from an existing product the elements and quantities of the elements in the product for the purpose of copying, duplicating or imitating that product.
To establish a breach of clause 3.12 the applicants must establish that the respondent deliberately or intentionally attempted to copy, duplicate, imitate or reverse engineer the applicants’ products and, in particular, MMI-M.
The second question gives rise to a consideration of the effect of clause 3.13 of the Licence Agreement. The applicants contended that by the respondent offering Ionic Leaching from late March/early April 2008 to the respondent’s clients, the respondent competed with the applicants. The applicants submitted that the respondent’s obligation not to compete continued for a period of three years after 20 February 2008.
The clause was included in the Licence Agreement for the benefit of Wamtech, and, objectively, clause 3.13 was intended to prevent the respondent from competing with Wamtech in Wamtech’s business. Wamtech’s business, so the respondent contended, was the manufacture of extractants for licensing to laboratories which provided soil leaching analysis services. It contended that the clause cannot be construed more widely merely because Wamtech sold the intellectual property in its products to SGS SA.
The clause is a restraint of trade and should not be given any extended meaning. It should be construed narrowly. Clause 3.13 is a restraint of trade clause. Such clauses are subject to the presumption that they are void or unenforceable, unless the restraint is justified on the basis that it was, at the time when it was agreed to, reasonable in reference to the interests of the parties concerned: Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288 at 306-7.
The respondent did not contend that clause 3.13 was void or unenforceable, but merely confined in its terms as I have observed.
I think the respondent must have conceded that the clause when it was agreed was not, having regard to the parties’ circumstances, unreasonable.
Where there is ambiguity, a narrower construction of the scope of the restraint of trade clause will be preferred to a broader construction, when both are reasonably available, but this approach is not to be adopted simply to save the clause from invalidity: Butt v Long (1953) 88 CLR 476 at 487.
Clause 3.13 should be considered contextually and in the light of the factual matrix which operated at the time the Licence Agreement was entered to determine the objective intention of the parties. Objectively the parties intended that the clause operated in the narrow way contended for by the respondent.
The question is what the parties objectively intended by the inclusion of Clause 3.13 in the Licence Agreement. The parties’ objective intentions will be determined by reference to the surrounding factual matrix and the agreement read as a whole: Codelfa Construction Proprietary Limited v State Railway Authority of New South Wales (1982) 149 CLR 337; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52 at [40].
The parties intended to protect Wamtech from competition with the respondent in the business conducted by Wamtech at the time when the Licence Agreement was executed. Wamtech’s then business was the invention and manufacture of extractants for licensing. It was not in the business of providing laboratory services for soil analysis and report. Wamtech could not sell its business or its intellectual property in the extractants to a third party who carried on the same business as the respondent and thereby impose a wider restraint of trade than was objectively intended by the parties when the parties entered into the License Agreement. Clause 3.13 only applies to a business of the kind operated by Wamtech as at 1 July 1997.
The Parties’ Cases
The applicants put their case in their opening:
51.In developing IL [Ionic Leach], ALS attempted to copy, imitate, or reverse engineer MMI-M and/or use the Applicants’ confidential information. This is supported by the following evidence:
(a)upon losing its licence rights to use MMI-M, ALS immediately set out to develop a leach to prevent it from losing the MMI-M work;
(b)there is the striking similarity in the constitution and chemical composition of MMI-M and IL;
(c)upon being told that ALS was no longer licensed to use MMI-M, ALS immediately decided to develop “an alternative” to MMI-M using MMI-M parameters, namely, xxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxx;
(d)there was a very short time period for development of IL, which is a complex multi-ligand leach;
(e)the results for IL were being directly compared to the MMI-M accepted values for various standards; and
(f)MMI-M is an unusual chemical composition relative to industry standards.
The applicants’ case was entirely circumstantial. They have no direct evidence that the respondent in developing Ionic Leach, copied, duplicated, imitated or reverse engineered the MMI Process or the MMI Process Extractants.
The applicants asked the Court to find that Ionic Leach is the same as, or strikingly similar to, MMI-M. The applicants asked the Court to infer that the respondent could not have developed Ionic Leach within six weeks or so of 20 February 2008 without copying, duplicating, imitating or reverse engineering MMI-M.
For the drawing of that inference they rely upon the time Dr Mann took to develop MMI-M; the lack of reliance upon the literature by the respondent in developing Ionic Leach; the lack of research and development documents evidencing a trial and error creation of a multi-ligand partial leach solution; the use of the same complexing reagents very soon after 22 February 2008; the similarity of the elements of the two leaches; and the fact that the respondent approached a known MMI-M provider to promote Ionic Leach.
Apart from Dr Mann’s evidence as to the time he took to develop MMI-M and the approach he took in developing MMI-M, the applicants rely on expert evidence to establish the circumstances they say support the drawing of the inference.
The applicants relied upon two experts, apart from Dr Mann himself, for its circumstantial evidence case in support of those matters: Dr Michelle Carey, who is a consulting geochemist with a PhD in geochemistry from Monash University and 15 years experience in the mining industry; and Dr Ryan Noble, a research scientist at CSIRO with a PhD in geochemistry from Curtin University with 10 years experience in partial leaching geochemistry including developing partial leaches, and the author of numerous peer-reviewed papers on partial extraction geochemistry.
The respondents called two experts; Associate Professor David Cohen, Head of the School of Biological, Earth and Environmental Sciences at the University of New South Wales, and Bradley Whisson, the managing director of LabWest Minerals Analysis Pty Ltd with a degree in chemistry from the University of Western Australia.
The respondent accepts that Dr Mann took a number of years to develop MMI-M. However, it denies that the other circumstances either alone or together lead to the inference sought. Apart from its expert evidence it also advanced a positive case by adducing evidence from its relevant employees that they did not, and therefore the respondent did not, copy, duplicate, imitate or reverse engineer MMI-M.
Did the Respondent set out to develop a Leach immediately on losing its Licence Rights?
There is no argument that the respondent immediately set out developing its own leach, so as to keep the business it had developed using MMI-M. That was a commercial decision driven out of necessity. Nothing that would assist the applicants’ case can be inferred from the fact that the respondent desired to protect its business.
Is Ionic Leach the same as MMI-M?
The applicants contended that Ionic Leach was in fact substantially the same as MMI-M, because the two leaches contained similar ingredients and had similar pH levels. Dr Carey analysed the chemical constituents of the two leaches and found that xxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx, were common to both leaches. However, Dr Carey also found that the Ionic Leach contained xxxxxxxxxxxxxxxxxxxxxx xxxxxxx whilst MMI-M contained xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx. There was no xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx in the Ionic Leach. Whilst Dr Carey said that xxxxxxxxxxxxxxxxxxxxxxxxxxx were xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxx, there is a clear difference in the compounds which have been used in the two leaches. Furthermore, Dr Carey’s analysis shows that even for those ingredients that are common to both leaches, the relative “average weight/volume” ratios of those ingredients in each leach differ.
The respondent’s expert, Dr Cohen, said:
The analyses indicate very significant differences in the analytical composition of the two leaches.
… the differences between the formulation of MMI and IL, pointed out by both Dr Mann and Dr Casey, may be very significant. In this respect, both MMI and IL are unique …
The other point of distinction between the two compounds is xxxxxxxxxx. Ionic Leach has xxxxxxxxxxxxxxxxxxxxxxxxxx whilst MMI-M has xxxxxxxxxxxxxxxxxxxxxx xxx. On this, Dr Cohen said, xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx.
Dr Noble said small differences in pH can be significant. Small variations in the pH level might produce quite different results. Dr Carey admitted that the difference in pH levels could be significant, but she had not assessed the significance of the different pH levels.
The applicants contended that in those circumstances there ought to be a finding that, functionally, the two leaches are substantially the same. Dr Mann admitted that the leaches in some cases had different behaviour. Given that the two leaches were to perform the same task, it is hardly surprising they would be functionally similar. Again, this does not advance the applicants’ case. The point is, as the respondent contended, the leaches are not the same and they do not contain the same constituents, notwithstanding that they perform the same task. Indeed, as Dr Cohen stated:
The behaviour of IL is similar to that of MMI, but this is to be expected if IL was designed to extract highly mobile metals without dissolving soil mineral matter. … [However, the tests and studies] would suggest that MMI and IL are not identical.
Dr Cohen also said:
As pointed out by Dr Carey in her affidavit, MMI and IL do not deliver the same response for all metals in the soil reference materials used. The two Herberlein papers … also show the two leaches deliver quite different patterns in an orientation (test) study. For this reason it cannot be said that IL is the same as MMI.
…
The few field studies in which MMI and IL have been directly compared demonstrate different patterns for MMI and IL. Hence, if MMI is meant to be an optimal, weak, non-selective leach, then IL is both non-optimal and therefore not a copy of MMI.
In those circumstances, it cannot be said that Ionic Leach is a copy, duplication, or imitation of MMI-M. They are similar, and they do contain xxxxxxxxxxxxxxxxxxxxxxx, but they differ as to xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxx.
The evidence does not support a finding that the Ionic Leach is the same as MMI-M. The applicants have not made out that circumstance.
Could Ionic Leach be developed without an appropriate literature search?
The applicants contended that the evidence disclosed that the respondent embarked upon its development of a new partial leach without a genuine literature search, and that failing to do so would defy commonsense. Dr Carey said that she had reviewed the documents discovered by the respondent in relation to the development of Ionic Leach but would have expected more documents indicating the development path.
Dr Carey, in commenting on her usual approach to literature searches, stated that “[t]he literature search would be as thorough as time and money would allow.” The respondent was under commercial pressures to develop the leach which I think Dr Carey accepted would mean that a comprehensive literature search may not be carried out.
Dr Noble said that if a literature search was not done, the researchers would miss out on “potentially big shortcuts … by finding out what people have already done …”. He went as far as saying he could not believe that anyone would develop a leach without first conducting a literature search. Mr Whisson, however, stated that the literature search contemplated by Dr Noble:
… would be reasonable if performing research for a PhD. In reality, experienced chemists such as those working for the Respondent will have a substantial body of knowledge amongst them and will only require a literature search to refine that knowledge to fill in any gaps.
I do not think that the paucity of documentation of the developmental stages establishes that the respondent copied or imitated MMI-M. The respondent knew that it had to find a partial leach that it could offer its customers after SGS terminated the Licence Agreement. It was not so important for the respondent to show the development stages as it was to develop the leach. The absence of documentary evidence of the chemical testing is, in my opinion, not sufficient to make a finding contrary to the sworn evidence of the respondent’s witnesses that they did not, in their development of Ionic Leach, copy, duplicate, imitate or reverse engineer MMI-M.
The evidence does not support a finding that the respondent could not have developed Ionic Leach without a literature search.
The Choice of the Ingredients
Dr Noble said that, as to selecting ingredients for the development of a leach, “there are no obvious choices”. However, Dr Noble approached his assessment from a research scientist’s point of view and assumed for the purpose of his proposition that the leach was developed by one person alone.
That was not in fact how Ionic Leach was developed. Ionic Leach was developed using the respondent’s full resources and a number of chemists. Dr Noble agreed that if the purpose of the leach was to extract the most number of elements it makes sense to use more than one reagent in the leach because different reagents or ligands react better with some metal than others. Dr Noble said it would be no surprise to use three reagents to extract more than 40 elements, and that cyanide is one obvious reagent if gold is one of the elements sought to be extracted. Dr Noble agreed that if cyanide is used, then the pH level must be above 8.2, and a number of reagents cannot be used in combination with cyanide.
Dr Noble’s evidence simply does not support the applicants’ case. Indeed, a reading of his evidence in cross-examination would allow a finding that, given the right circumstances, the respondent could have achieved what it said it did without copying, duplicating, or imitating MMI-M, nor attempting to do so.
Dr Carey also commented on the ingredients of Ionic Leach, remarking on the choice of cyanide. I reject that evidence. There appears to be no doubt that, because gold was one of the elements sought to be extracted, cyanide was an obvious choice. That appears to be the evidence of Dr Mann, Dr Noble, Mr Abbott, and Dr Cohen, who said:
Firstly, and most obviously, cyanide would be included to mobilise gold and silver. The cyanide concentration of 0.1% selected is typical for a whole range of digestions that use cyanide to extract gold.
Similarly, Mr Whisson said:
There are several quite obvious choices available to the commercial chemist. Cyanide, for one, is an obvious starting point …
Indeed, Dr Carey acknowledged in cross-examination that it might be a reasonable basis to start with cyanide if gold was one of the elements sought to be extracted.
Dr Carey also remarked upon the choice of EDTA. I also reject that evidence. Mr Abbott and Mr Jones both had had experience with EDTA as a complexing agent, and Dr Carey agreed that in developing a leach a chemist would use a complexing agent with which the chemist was familiar.
Dr Cohen said that EDTA was “the most famous” chelating agent, and Dr Mann agreed that EDTA is one of the most common chelating agents. Dr Carey agreed in cross-examination that EDTA is a common chelating agent and that if the purpose of the leachant was to extract as many elements as possible EDTA is “a reasonably obvious choice”.
Therefore, the applicants’ claim that the use of EDTA was remarkable must be rejected in the light of the evidence.
Dr Carey also commented on the use of citric acid, saying it was an “uncommon choice”. However, the use of citric acid is widely reported in the literature. Dr Cohen said, “[c]itric acid is a common component of extractions”.
Furthermore, Dr Cohen said:
… the selection of reagents by [the respondent] for testing, in development of IL, simply indicates a good knowledge of basic chemistry and familiarity with the extensive body of [the relevant] literature …
In those circumstances, the applicants’ case that the choice of the same ingredients supported the finding that the respondent copied, duplicated, imitated, or reverse-engineered MMI-M has not been made out.
Could Ionic Leach be developed in such a short time?
I have already referred to Dr Mann’s evidence of the time he took to develop MMI-M. The applicants ask for a finding that it would be impossible to develop a similar leach in such a short time. Dr Noble said in his affidavit that he would expect the development process to take at least a year. Dr Carey said in her affidavit it would take months to develop the leach.
In cross-examination, Dr Noble conceded that given certain conditions, including access to chemicals and testing equipment, and if the objective was merely to get a leach that works as opposed to one that is optimised, then a leach of the kind of Ionic Leach could be developed within six weeks.
The applicants contended that Dr Noble’s concession was based upon assumptions that were not established. However, I reject that submission. I think that Dr Noble’s evidence in cross-examination meant that his evidence-in-chief has to be rejected and his evidence viewed as supporting the respondent’s case.
In cross-examination, Dr Carey, when pressed on her statement of “months” said it would take significantly more than five days.
The respondent’s experts’ evidence was that the time within which the leach was developed was not surprising. Dr Cohen said:
I am not surprised that [the respondent] was able to rapidly arrive at the IL formulation given the general behaviour required of the leach, the substantial literature on the subject of partial extraction, the experience of the [respondent’s] personnel and their considerable resources.
Mr Whisson said:
… about 40 days of development work would be required before initial release to the market.
I do not believe the timeline is implausible nor does it surprise me, given the resources available to the development team of the Respondent.
The evidence does not support a finding that the Ionic Leach could not have been developed within the time that it took without copying, imitating, duplicating, or reverse-engineering MMI-M.
Ionic Leaching tested against the same Standard Reference Material (SRM)
A further circumstance relied upon by the applicants is the testing by the respondent of its leach against the SRMs used by the applicants. The SRMs used by the respondent are available commercially. I cannot see why the fact that the respondent tested its leach against the same SRMs that the applicants tested MMI-M would necessarily support the inference that the respondent copied, duplicated, imitated, or reverse engineered MMI-M.
It seems to me sensible for the respondent, which was developing a leach which had similar functionality to MMI-M, to test its functionality against the same SRMs. The circumstance does not necessarily support the applicants’ proposition.
The Respondent’s approach to Mr Varndell
The lastmentioned circumstance in paragraph [94] of these reasons arises from the respondent’s approach to Mr Brian Varndell, who acts as a consultant providing geological services in the mining industry. Mr Abbott approached him in late February 2008 in relation to the respondent developing a product to rival MMI-M. Mr Varndell declined to assist.
The applicants say the respondent’s approach to Mr Varndell supports an inference that the respondent was attempting to copy, imitate or reverse engineer MMI-M. I do not agree. It seems to me that the fact that the respondent was attempting to have Mr Varndell help to develop a rival product to MMI-M is at best, from the applicants’ point of view, a neutral fact. It could be used to support a finding that the respondent had not copied, imitated or reverse engineered at that point of time, because if it had it would not have needed Mr Varndell’s assistance.
That lastmentioned circumstance does not support the applicants’ case.
Conclusion
The applicants’ circumstantial evidence case has not been made out. That would be enough to dispose of the proceeding insofar as it relies upon the cases of action in (a) and (b) in paragraph [1] of these reasons, but for completeness I will also address the positive case advanced by the respondent.
ALS’ Evidence
The respondent’s evidence, which I accept, is that the respondent had available to it considerable internal expertise in chemistry. Mr Abbott had spent 40 years in the industry and had developed a partial leach. The respondent had developed its own leaches. It had chemists throughout the world, which the Perth laboratory could and did call upon. It had all the necessary chemicals, and testing equipment, available to it.
The applicants contended that because Dr Mann had taken years to develop MMI-M, then anyone who developed a like extractant in such a short period of time must have copied, duplicated, imitated, or reversed engineered MMI-M. That was the purported effect of Dr Mann’s evidence, although he later resiled from that claim and said that the respondent must have analysed MMI-M for its constituent elements, but not their concentrations. Ultimately, the applicants’ case in this regard must fail because it was never put to any of the respondent’s witnesses that they copied, duplicated, imitated, or reverse engineered MMI-M. Mr McGowan said that he could not put such a proposition to the witnesses because he did not have the evidence to do so.
Mr McGowan was right, therefore, not to suggest to the witnesses that they had, particularly as it was their sworn evidence that they did not do so. However, that means that the applicants’ case has to fail, at least in respect of the equitable and contractual breaches, because the evidence in this regard was all in favour of the respondent.
The respondent met the applicants’ case head on. In its opening submissions, the respondent said:
11.The Respondent’s case is straightforward. It did not copy, duplicate, imitate or reverse engineer the MMI solution, or attempt to do so. Rather than rely on inference, the Respondent will call direct evidence. Each of the Respondent’s witnesses will swear that they did not know the ingredients of the MMI formula, and did not attempt to ascertain them. They did not use any MMI solution in the development of Ionic Leach. They will give evidence that by applying some basic principles of chemistry they developed the formula for Ionic Leach. The Court will see from the evidence of the Respondent’s employees how the formula was developed by a process of consultation between very experienced employees of the Respondent in Perth, Brisbane, the United States and Canada.
…
13.If the evidence of the Respondent’s employees is accepted, the Applicants’ case for breach of an equitable obligation of confidence must fail.
The respondent tendered evidence from nine separate witnesses who were involved in the development of Ionic Leach; two of whom (Howard Shafer and Mary Doherty) were not cross-examined.
The witnesses who participated in the development of Ionic Leach gave evidence to the effect that they did not instruct any of the respondents, employees or anyone else to analyse the MMI-M solution to determine its constituents and that they did not use MMI-M for the purpose of development of Ionic Leach. With some witnesses the statement is implicit because they did not do anything to analyse MMI-M. With others the statement is implicit because they were unaware of the composition or concentration of the ingredients.
Mr Williams said that he did not instruct anyone “to determine the chemical composition of or to reproduce the MMI reagent”. Mr Abbott said that “[a]t no time was I aware of the constituent elements of the MMI solution provided to ALS, nor of their concentration.”
Mr Abbott said:
I was not privy to the formula for the MMI solution with the exception of the fact it contained xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxx. … At no time did I attempt to analyse any of the MMI solution provided by Wamtech so as to detect the constituent elements or their concentration. I did not instruct any employee of ALS to perform this task either.
Ms Caughlin, who was employed by ALS Canada Ltd as the Vice President of Technical Services, gave evidence of her contribution to the development of Ionic Leach. She did not say she had copied, duplicated, imitated, or reverse engineered MMI-M, and it was not put to her in cross-examination that she had.
Mr Edmondson said:
I had not at any time, during the course of using [the MMI leach] analysed it so as to become aware of its ingredients nor had I measured its pH.
…
I made it clear to all persons whom I instructed or directed in relation to the development of Ionic Leach that any MMI concentrate solution remaining at the Perth laboratory of ALS was not to be tested or analysed at any stage or by any means.
Mr Jones did not say that he had, at any time, copied, duplicated, imitated, or reverse engineered, MMI-M and he, like all the other respondent’s witnesses, was not cross-examined to the effect that he had.
Mr Shafer, who was employed as Manager of Special Projects by ALS at its Minerals Laboratory in Reno, Nevada, said:
… there has never been a sample of MMI at the Minerals Laboratory of ALS located in Reno, Nevada, and I have never utilised MMI.
Ms Doherty was ALS’ Director for Operations in the United State of America. She did not say that she had, at any time, copied, duplicated, imitated, or reverse engineered, MMI-M.
Ms Wong, who was involved in the testing of the final formula, which became Ionic Leach, said:
MMI Extractant was not used by me in any part of the testing of the leach or its development, not even for comparisons. I did not attempt to analyse the MMI solution to ascertain its components nor the concentrations of those components.
Mr Nguyen, who was involved in the testing of Ionic Leach, said:
At no time have I been instructed to, nor have I in fact, analysed MMI solution to ascertain its constituent ingredients or the concentrations of those ingredients.
The finding sought by the applicants in (e) in of paragraph [63] of these reasons cannot be made. The relevant respondent witnesses have denied on oath that they analysed, copied, imitated, duplicated, or reverse engineered, the MMI-M solution. They have not been challenged on that evidence, and it has not been put to them that the evidence they gave is in any way false. It was not put to any witness called by the respondent that the witnesses took any step whatsoever to attempt to copy, imitate, duplicate, or reverse engineer MMI-M. I cannot in those circumstances find, contrary to their sworn evidence, that they did that which this proceeding accuses them of. They were all apparently honest. I could not find them to be dishonest in circumstances when it was not claimed in cross-examination that they were. If the applicants’ case were to succeed, I would have to conclude that the respondent’s witnesses were untruthful and that is not possible.
In view of the respondent’s witnesses’ sworn evidence, the finding must be that they did what they said they did. Whether their achievement was quite remarkable is not the point.
The claim for a breach of clause 13.3
The further findings sought by the applicants also cannot be made. Because of the construction which I would give, the respondent was not bound by clause 13.3 not to compete with the applicants, save for those areas of business conducted by Wamtech as at 1 July 1997.
It was not a breach of clause 13.3 for the respondent to offer to its clients Ionic Leach. As I have already said, clause 13.3 was intended to benefit Wamtech by obliging the respondent not to compete with Wamtech’s business, which was never, as SGS’ business was, to provide laboratory services for soil analysis and report.
The claim for a breach of clause 13.5(f) and (i)
The finding sought by the applicants in (g) of paragraph [63] of these reasons, being a breach of clause 13.15(f) and (i), must also be rejected. The respondent has not misused and disclosed to anyone confidential information of the applicants.
It never analysed, copied or imitated or reverse engineered MMI-M. It did not breach clause 13.15(f) or (i) by testing Ionic Leach against the same SRMs as had been used for testing MMI-M.
The evidence simply does not support any finding that the respondent misused the applicants’ confidential information. The highest the applicants can put their case is that there is evidence from which it may be inferred, contrary to the sworn evidence of the respondent’s witnesses, that the respondent copied, imitated, duplicated, or reverse engineered MMI-M. However, for the reasons already given, that inference cannot be drawn in the face of the respondent’s case that it did not do so. That case has not been directly contradicted.
The Applicants’ Case for a Contravention of the TPA
The finding sought in (i) of paragraph [63] of these reasons also cannot be made. The conduct that is said to be misleading and deceptive concerns the respondent publishing the ALS Brochure, which contained the words in paragraph [56] of these reasons. The express and the claimed implied representations are identified at paragraphs [56] and [57] of these reasons.
There is a risk in analysing the content of a document for the purpose of determining the representations that might be found in the document that the inquiry into whether a respondent has engaged in misleading or deceptive conduct of a kind that leads to a remedy of an injunction or damages will be derailed. Representations that are proved to be false will often be evidence of misleading and deceptive conduct. The proper inquiry, however, is not into whether a respondent has made representations that are false. The proper inquiry is into whether the respondent has engaged in misleading or deceptive conduct, or in conduct that is likely to mislead or deceive. It is wrong to complete the inquiry at the level of determining whether a representation is false. A finding that a respondent’s representation is false does not necessarily lead to a finding that the respondent has engaged in misleading or deceptive conduct, or in conduct likely to mislead or deceive. The Court on a charge of this kind must complete the inquiry by determining whether a representation that is proved to be false is itself evidence that the person making the representation has engaged in conduct that is misleading or deceptive, or in conduct that is likely to mislead or deceive. In Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; [2009] HCA 25 the plurality stated at [102]:
References to misrepresentation or reliance must not be permitted to obscure the need to identify contravening conduct (here, misleading or deceptive conduct) and a causal connection (denoted by the word “by”) between that conduct and the loss and damage allegedly suffered. As McHugh J also pointed out in Butcher, with particular reference to s 52 of the Trade Practices Act, but with equal application to s 42 of the Fair Trading Act:
“The question whether conduct is misleading or deceptive or is likely to mislead or deceive is a question of fact. In determining whether a contravention of s 52 has occurred, the task of the court is to examine the relevant course of conduct as a whole. It is determined by reference to the alleged conduct in the light of the relevant surrounding facts and circumstances. It is an objective question that the court must determine for itself. It invites error to look at isolated parts of the corporation’s conduct. The effect of any relevant statements or actions or any silence or inaction occurring in the context of a single course of conduct must be deduced from the whole course of conduct. Thus, where the alleged contravention of s 52 relates primarily to a document, the effect of the document must be examined in the context of the evidence as a whole. The court is not confined to examining the document in isolation. It must have regard to all the conduct of the corporation in relation to the document including the preparation and distribution of the document and any statement, action, silence or inaction in connection with the document.”
(Footnotes omitted)The words used in the brochure are plain enough. The respondent claims that Ionic Leach is new and innovative. It is certainly new and it is also an innovative leach technique. It has not been used before. The leach technique uses a leach with different ingredients to those contained in MMI-M.
The respondent has been performing the type of analysis which is the analysis of soil materials for over 15 years. That is not false. It has also been conducting its analysis with the necessary protocols to ensure accurate partial extraction of ionic species in soils.
The two statements cannot be understood as the applicants contend as being a representation that the respondent is continuing to offer MMI-M under a new name or has a licence to continue to offer MMI-M to its clients under a new name. The statement in the brochure is that Ionic Leach is a new and innovative leach technique. Readers of this brochure would have comprised two groups: a group that knew the respondent previously used MMI-M under licence to analyse soil samples; and a group that was unaware of that fact. The audience who read this brochure and who knew that the respondent previously used MMI-M under licence to analyse soil samples could not have understood the statements in the brochure to mean that the respondent was continuing to offer MMI-M under a new name. The statement is that Ionic Leach is a new and innovative leach technique. That audience could not have understood this new and innovative leach technique to be a licence to continue to offer MMI-M to its clients. The records simply do not allow an understanding of the kind contended for by the applicants. The audience who read this brochure, unaware that the respondent previously used MMI-M for its analyses, could not have understood the words to have the meaning contended for by the applicants because they did not know the respondent had previously used MMI-M so therefore could not understand the words to mean that the respondent continued to do so.
Conclusion
The applicants’ proceeding is dismissed. The applicants must pay the respondent’s costs.
I certify that the preceding one hundred and sixty-five (165) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lander. Associate:
Dated: 6 July 2012
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