Sigma Chemicals (1986) Pty Ltd as Trustee of the Sigma Chemicals Trust v Brown

[2001] WASC 39

SIGMA CHEMICALS (1986) PTY LTD as Trustee of the Sigma Chemicals Trust -v- BROWN & ORS [2001] WASC 39

Jurisdiction:	SUPREME COURT OF WESTERN AUSTRALIA	Citation No:	[2001] WASC 39
Case No:	CIV:1715/2000	Heard:	29 & 30 JANUARY 2001
Coram:	STEYTLER J	Delivered:	15/02/01
No of pages:	34	Judgment Part:	1 of 1
Result:	Injunction granted
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Parties:	SIGMA CHEMICALS (1986) PTY LTD as Trustee of the Sigma Chemicals Trust DAVID BROWN GLENYS DAWN BROWN DAVID BROWN INVESTMENTS PTY LTD JEAN-PIERRE GEORGES HERICHER CICELY MADELEINE HERICHER STEPHEN GLEN BROWN JEFFREY DAVID BROWN MICHAEL CHARLES BROWN CHEMISALES PTY LTD PAUL CONRAD WOJTYSIAK ROBERT STALLARD Proposed Twelfth Defendant
Catchwords:	Equity Confidential information Alleged breach of fiduciary duty Conflict of interest Whether director of company made improper use of information acquired during the course of employment Effect on fiduciary obligations of article of association permitting director to be interested in contract made with company Injunction Interlocutory injunction sought to restrain alleged breach of fiduciary duty or misuse of confidential information Serious question to be tried Balance of convenience Turns on own facts
Legislation:	Nil
Case References:	Bank of New Zealand v Simpson [1900] AC 182 British Syphon Coy Ltd v Homewood (No 2) [1956] RPC 225 Centofanti v Eekimitor Pty Ltd (1995) 65 SASR 31 Chan v Zacharia (1984) 154 CLR 178 Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 Cook v Deeks [1916] 1 AC 554 Corporate Affairs Commission (NSW) v Smithson [1984] 3 NSWLR 547 Furs Ltd v Tomkies (1936) 54 CLR 583 Guinness plc v Saunders [1990] 2 AC 663 MacDonald v Longbottom [1859] 1 EI & L 977; 120 ER 1177 Phipps v Boardman [1967] 2 AC 46 Sir William Gordon-Cumming v James Hamilton Houldsworth [1910] AC 537 The Worthington Pump Engine Company v Moore (1902) 19 TLR 84 Triplex Safety Glass Co Ltd v Scorah [1937] 4 All ER 693 AMP Life Ltd v Lehmann [1999] WASC 274 Brink's Mat Ltd v Elcombe [1988] 1 WLR 1350 Cardile v LED Builders Pty Ltd (1999) 73 ALJR 657 Field v Commissioner for Railways for New South Wales (1955) 99 CLR 285 Grovenor v Permanent Trustee Company of NSW Limited (1966) 40 ALJR 329 McKellar v Container Terminal Management Services Ltd (1999) 165 ALR 409 Noakes v Harvy Holmes & Son (1979) 26 ALR 297 North London Railway Company v Great Northern Railway Company [1883] 11 QBD 30 Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319 Re Automotive & General Industries Limited [1975] VR 454 Riteway Express Pty Ltd v Clayton (1987) 10 NSWLR 238 Rush & Tompkins Ltd v Greater London Council [1988] 3 All ER 737 Thomas A Edison Limited v Bullock (1913) 15 CLR 679 UTSA Pty Ltd (In Liquidation) v Ultra Tune Australia Pty Ltd [1999] 1 VR 204 Vandervell Trustees Ltd v White [1971] AC 912 Walker v Commonwealth Trading Bank of Australia (1985) 3 NSWLR 496

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION : SIGMA CHEMICALS (1986) PTY LTD as Trustee of the Sigma Chemicals Trust -v- BROWN & ORS [2001] WASC 39 CORAM : STEYTLER J HEARD : 29 & 30 JANUARY 2001 DELIVERED : 15 FEBRUARY 2001 FILE NO/S : CIV 1715 of 2000 BETWEEN : SIGMA CHEMICALS (1986) PTY LTD as Trustee of the Sigma Chemicals Trust

Plaintiff

AND

DAVID BROWN
First Defendant

GLENYS DAWN BROWN
Second Defendant

DAVID BROWN INVESTMENTS PTY LTD
Third Defendant

JEAN-PIERRE GEORGES HERICHER
Fourth Defendant

CICELY MADELEINE HERICHER
Fifth Defendant

STEPHEN GLEN BROWN
Sixth Defendant

JEFFREY DAVID BROWN
Seventh Defendant

(Page 2)

MICHAEL CHARLES BROWN
Eighth Defendant

CHEMISALES PTY LTD
Ninth Defendant

PAUL CONRAD WOJTYSIAK
Tenth Defendant

ROBERT STALLARD
Eleventh Defendant

Catchwords:

Equity - Confidential information - Alleged breach of fiduciary duty - Conflict of interest - Whether director of company made improper use of information acquired during the course of employment - Effect on fiduciary obligations of article of association permitting director to be interested in contract made with company

Injunction - Interlocutory injunction sought to restrain alleged breach of fiduciary duty or misuse of confidential information - Serious question to be tried - Balance of convenience - Turns on own facts

Legislation:

Nil

Result:

Injunction granted

(Page 3)

Representation:

Counsel:

Plaintiff : Mr S J Archer & Mr S J Penrose
First Defendant : Mr G T Bigmore QC & Mr S K Shepherd
Second Defendant : Mr G T Bigmore QC & Mr S K Shepherd
Third Defendant : Mr G T Bigmore QC & Mr S K Shepherd
Fourth Defendant : Mr D C Leask
Fifth Defendant : Mr D C Leask
Sixth Defendant : Mr G T Bigmore QC & Mr S K Shepherd
Seventh Defendant : Mr G T Bigmore QC & Mr S K Shepherd
Eighth Defendant : Mr G T Bigmore QC & Mr S K Shepherd
Ninth Defendant : Mr G T Bigmore QC & Mr S K Shepherd
Tenth Defendant : Mr D C Leask
Eleventh Defendant : Mr C L Caine
Proposed Twelfth Defendant : Mr G T Bigmore QC & Mr S K Shepherd

Solicitors:

Plaintiff : Tottle Christensen
First Defendant : Mallesons Stephen Jaques
Second Defendant : Mallesons Stephen Jaques
Third Defendant : Mallesons Stephen Jaques
Fourth Defendant : Leask & Co
Fifth Defendant : Leask & Co
Sixth Defendant : Mallesons Stephen Jaques
Seventh Defendant : Mallesons Stephen Jaques
Eighth Defendant : Mallesons Stephen Jaques
Ninth Defendant : Mallesons Stephen Jaques
Tenth Defendant : Leask & Co
Eleventh Defendant : Corrin Caine
Proposed Twelfth Defendant : Mallesons Stephen Jaques

Case(s) referred to in judgment(s):

Bank of New Zealand v Simpson [1900] AC 182

(Page 4)

British Syphon Coy Ltd v Homewood (No 2) [1956] RPC 225
Centofanti v Eekimitor Pty Ltd (1995) 65 SASR 31
Chan v Zacharia (1984) 154 CLR 178
Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337


(Page 5)

Cook v Deeks [1916] 1 AC 554
Corporate Affairs Commission (NSW) v Smithson [1984] 3 NSWLR 547
Furs Ltd v Tomkies (1936) 54 CLR 583
Guinness plc v Saunders [1990] 2 AC 663
MacDonald v Longbottom [1859] 1 EI & L 977; 120 ER 1177
Phipps v Boardman [1967] 2 AC 46
Sir William Gordon-Cumming v James Hamilton Houldsworth [1910] AC 537
The Worthington Pump Engine Company v Moore (1902) 19 TLR 84
Triplex Safety Glass Co Ltd v Scorah [1937] 4 All ER 693

Case(s) also cited:

AMP Life Ltd v Lehmann [1999] WASC 274
Brink's Mat Ltd v Elcombe [1988] 1 WLR 1350
Cardile v LED Builders Pty Ltd (1999) 73 ALJR 657
Field v Commissioner for Railways for New South Wales (1955) 99 CLR 285
Grovenor v Permanent Trustee Company of NSW Limited (1966) 40 ALJR 329
McKellar v Container Terminal Management Services Ltd (1999) 165 ALR 409
Noakes v Harvy Holmes & Son (1979) 26 ALR 297
North London Railway Company v Great Northern Railway Company [1883] 11 QBD 30
Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319
Re Automotive & General Industries Limited [1975] VR 454
Riteway Express Pty Ltd v Clayton (1987) 10 NSWLR 238
Rush & Tompkins Ltd v Greater London Council [1988] 3 All ER 737
Thomas A Edison Limited v Bullock (1913) 15 CLR 679
UTSA Pty Ltd (In Liquidation) v Ultra Tune Australia Pty Ltd [1999] 1 VR 204
Vandervell Trustees Ltd v White [1971] AC 912
Walker v Commonwealth Trading Bank of Australia (1985) 3 NSWLR 496

(Page 6)

1 STEYTLER J: This is an application, brought by the plaintiff, for the joinder of a company, Xray Flux Corporation Pty Ltd ("XFC"), as a defendant to existing proceedings against the first to eleventh defendants and for injunctive and other relief.

2 In 1986 the plaintiff bought from the first and second defendants, who are husband and wife, and from a company known as D & G D Brown Nominees Pty Ltd (together "the vendors") the goodwill of the business of manufacturing and retailing chemicals then carried on by the vendors under the names "Sigma Chemicals" and "David Brown Scientific" and various items of property and other assets of that business. I shall refer to all of the acquired items, together, as "the business".

3 The agreement for acquisition of the business appears to have been comprised by a written offer to sell made on 30 April 1986 (exhibit "E" to an affidavit of the first defendant sworn on 5 July 2000) and the oral acceptance thereof by the plaintiff. It was a condition of that agreement that the first and second defendants (to whom I shall refer, respectively, as Mr and Mrs Brown) should execute a "Service and Restraint Agreement" in the form of exhibit "B" to the written offer to sell. That document (to which I shall, for the sake of convenience, refer as the "Service Agreement"), provides for the appointment of Mr Brown as the manager of the business in Western Australia for a term of one year from 1 May 1986.

4 The Service Agreement also provides, by cl 5, that Mr Brown:

" ... shall exercise and perform such powers and duties relating to the Business as the Company [the plaintiff] may from time to time delegate to him subject to such directions and restrictions as the Company may from time to time give or impose and, subject as aforesaid, [Mr] Brown shall have the ower [sic] to do such acts and things relating to the Business as he may consider necessary or conducitve [sic] to the interests thereof."

5 Clause 7(d) of the Service Agreement gives to the plaintiff the right to terminate the agreement at any time without notice if, inter alia:

" ... [Mr] Brown shall have taken any secret or corrupt profits or commission or shall have speculated with or unlawfully appropriated to his own use any money or property of the Company or the Business or shall have been guilty of any dishonesty or infidelity in regard to the Business or if he shall

(Page 7)

have acted otherwise than in the best interests thereof in the reasonable opinion of the Company ... ."

6 Clause 9 of the Service Agreement provides that:

"All records, material, information, trade secrets and copies thereof obtained by [Mr] Brown in the course of his employment by the Company or otherwise obtained as a result of his dealings with the Company are confidential and shall remain the exclusive property of the Company. Brown shall not at any time during the period of his employment as Manager or after the termination thereof disclose any of the said confidential information or the contents of such records to any person firm or corporation other than duly qualified directors, servants or agents of the Company if so required by the Company and shall not after termination of his appointment use the contents of such records or such information for any purpose whatsoever."

7 Clause 11 of the Service Agreement provides that:

"After the termination of this Agreement for any reason whatsoever [Mr] Brown shall not directly or indirectly be involved in any manner whatsoever with any business which can reasonably be regarded as being in competition to and is of a similar nature to the Business for a period of five (5) years after such termination at any place within the Perth metropolitan area."

8 Neither of Mr and Mrs Brown appears, from the affidavit evidence as it stands, to have executed the Service Agreement. However Mr Brown was, upon completion of the purchase of the business by the plaintiff, appointed as a director of the plaintiff and became, effectively, its managing director. Mrs Brown was appointed as the plaintiff's financial controller.

9 I should mention, because this is a point on which reliance is placed by the defendants, that article 75 of the plaintiff's articles of association then read, as it still does, as follows:

"75. (1) Notwithstanding any rule of Law to the contrary, or the holding by a Director of any office in the Company, or in any other company or any other interest, a Director may

(Page 8)

(a) hold any office or place of profit in the Company, or in any company in which the Company may be a shareholder, or otherwise interested;

(b) in any capacity, enter into any contract arrangement or understanding, with the Company;

(c) help to constitute a quorum and vote, at any meeting of Directors convened to deal with any contract, arrangement or understanding; or

(d) affix the Seal to and sign, any instrument in respect of any contract, arrangement or understanding.

(2) No contract, arrangement or understanding shall be avoided, or rendered voidable, by reason that that Director is or may be interested in that contract, arrangement or understanding, within the meaning of Section 228 of the Code or otherwise.

(3) No Director shall be liable to account to the Company for any profit realised by him from any contract, arrangement or understanding.

(4) A Director entering into a contract, arrangement or understanding, shall disclose his interest in that contract, arrangement or understanding, in the manner mentioned in Section 228 of the Code, PROVIDED THAT failure to make or record that disclosure, shall not operate to avoid or render voidable that contract, arrangement or understanding."

10 Article 2(a) defines "The Code" as meaning the Companies (Victoria) Code as amended. Section 228 of that Code then provided that, subject to the other provisions of that section, a director of a company who was directly or indirectly interested in a contract or proposed contract with the company was required, as soon as practicable after the relevant facts had come to his knowledge, to declare the nature of his interest at a meeting of the directors of the company.
(Page 9)

11 I will return to these provisions below.

12 I should also mention, as a matter which was raised in the submissions of both parties, that it seems to me to be plainly arguable that the "goodwill" of the business purchased by the plaintiff included the formulae and technique for the manufacture of a product known as x-ray flux, used in the mining industry in the course of x-ray analysis of rock samples. That this is so sufficiently appears from the fact that Price Waterhouse, a firm of accountants acting on behalf of the vendors, had, prior to any agreement being reached, provided to the plaintiff a written appraisal of the business which, under the heading "Goodwill", provided, inter alia, as follows:

"The goodwill figure [ultimately a figure of $1,200,000] is based on a number of factors as follows:

...

• The formulae and technique for the manufacture of x-ray flux have been developed by the firm over a number of years - most of the formulae are unique and the manufacturing technique is not generally known.

... "

13 While counsel for Mr and Mrs Brown suggested that this document was of no assistance having regard for the fact that one of the provisions of the offer to sell which was accepted by the plaintiff amounted to a so-called "entire agreement" clause, it seems to me to be plainly arguable, at the very least, that the appraisal comprises part of the objective factual matrix known to both parties at the time of contracting and that resort might be had to it in order to ascertain what was to be comprehended by the "goodwill" sold to the plaintiff (see Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 352 and cfBank of New Zealand v Simpson [1900] AC 182 at 187; MacDonald v Longbottom [1859] 1 EI & L 977; 120 ER 1177 and Sir William Gordon-Cumming v James Hamilton Houldsworth [1910] AC 537).

14 It appears from the evidence presently before me that the making of x-ray flux involves two stages. The first stage involves the purchase and mixing together, in accordance with the required formulae, of raw materials so as to produce a "mix" or "pre-mix". The second stage may or may not involve the addition of other materials but always involves the

(Page 10)

fusing of the mix at extreme temperatures and the grinding of those fused substances to form the flux.

15 Until about April 1992 both stages were effected by the plaintiff, by or under the direction of Mr Brown, at its premises. The fluxes were then produced from a mix of boric acid, lithium carbonate and lithium tetraborate. The use of those ingredients was, it seems, well known amongst the relatively small group of manufacturers of x-ray flux.

16 Mr Brown has deposed to the fact that, around mid to late 1991, when he was the plaintiff's managing director, it occurred to him "late one evening at home" that there "might be a different way to formulate certain raw materials used for x-ray flux manufacture". He said that, over the following months, he undertook various calculations in his own time with a view to proving his theory.

17 He says also that in late 1991 he discussed this concept with the then other director of the plaintiff, the tenth defendant Mr Paul Wojtysiak. He has gone on to say (and he is supported in this by Mr Wojtysiak who, I should add, has been dismissed by the plaintiff and is now on bad terms with those who own it) that:

"I told Paul [Wojtysiak] that I thought I might be able to formulate a new way of making x-ray fluxes which was less costly and that I wanted to supply them to ... [the plaintiff] from another company controlled by me. I asked Paul whether he saw any problems with this. He said this would be okay as long as there was no disadvantage to ... [the plaintiff]. I asked him what he meant by 'disadvantage' and he said as long as chemical quality was the same, that there was no major price disadvantage and that there would be benefits to ... [the plaintiff], then he was satisfied that I could supply my product to ... [the plaintiff] from a private company. I also raised with Paul a proposal whereby I would sell vitamin mineral mixtures from my own company."

18 Mr Brown says also that at about this time he caused the ninth defendant, Chemisales Pty Ltd ("Chemisales"), to be incorporated. His sister, Cicely Hericher (the fifth defendant), and her husband, Jean-Pierre Hericher (the fourth defendant), were its directors. The purpose of establishing this company was, he says, to market vitamin mineral mixtures and "to develop and hopefully commercialise my idea". As it turned out, he says, it was too hard to get the necessary authorisations

(Page 11)

regarding his vitamin mineral mixtures project and he abandoned "that aspect".

19 Then, at their own request, Mr and Mrs Brown were "released [by the plaintiff] ... from all previous employment conditions". This was done by way of the execution of two deeds dated 1 September 1991. The first was executed by David Brown Investments Pty Ltd, a company controlled by Mr and Mrs Brown, and the plaintiff. It provided for the appointment of David Brown Investments Pty Ltd "as managers to operate the business of ... [the plaintiff]". The second was executed by each of Mr and Mrs Brown and a company, W H Evans Pty Ltd, which was (and is) controlled by those persons who ultimately control the plaintiff. This second deed provided that, in consideration of David Brown Investments Pty Ltd "having been appointed and having agreed to act as independent managers of" the plaintiff, Mr and Mrs Brown and W H Evans Pty Ltd mutually released each other "from all previous employment conditions as from 1st January, 1992".

20 Mr Brown, or Chemisales, then leased premises in Wembley and, having bought and mixed the chemicals the subject of Mr Brown's "new idea", was by about April 1992 in a position to manufacture and supply what Mr Brown refers to as his "new product". Chemisales commenced manufacturing that product and supplying it to the plaintiff and this continued until about July 1999. Mr Brown's "new product" comprised the "mixes" or "pre-mixes" made in the first of the two stages to which I have referred but using only boric acid and lithium carbonate. The resulting products which, he says, did not exist prior to early 1992, were invoiced by Chemisales to the plaintiff as:

"(a) Lithium Pentaborate premix;

(b) Lithium Pentaborate Norrish mix;

(c) Lithium Pentaborate 57 mix;

(d) Lithium Pentaborate F3 mix;

(e) Lithium Pentaborate R.U. mix;

(f) Lithium Pentaborate type T mix;

(g) Lithium Pentaborate type M mix;

(h) Sodium Carbonate Anhydruns AR mix;

(Page 12)

(i) Lithium Pentaborate 80-20 mix; and

(j) Lithium Pentaborate type 50 mix."

21 Mr Brown has said that, throughout the period of supply by Chemisales to the plaintiff, he kept secret the formulae and processes which he used and the involvement of his family in Chemisales. He says that he did this in order to protect his discovery. He asserts that the formulae and processes belonged to him and not to the plaintiff. At no time until about July 1999 did any of the plaintiff's shareholders ever become aware of the Brown family's interest in Chemisales.

22 Chemisales has profited significantly from its supply of the mixes to the plaintiff. Computer printouts of the financial statements of the Chemisales Trust, for whose benefit Chemisales appears to have conducted its business, reflect that the Trust, and hence Chemisales, made a profit of $121,749 in 1995, $134,528 in 1996, $219,056 in 1997 and $259,296 in 1998. Figures for 1994 and 1999 have not been produced.

23 In 1998 Mr Brown resigned as a director of the plaintiff, having remained so until that time notwithstanding his resignation as its manager pursuant to the 1 January 1991 deed. He says that he resigned partly because of a deteriorating relationship with Mr Graham Justin Shann Evans ("Mr Evans"), a member of the family which controlled W H Evans Pty Ltd and also the plaintiff. Mr Evans had, by then, begun to take a much greater interest than previously in the running of the plaintiff's business.

24 Thereafter Mr Evans learned that Mr and Mrs Brown were the owners of Chemisales. In July 1999 he asked Mr Brown if he was involved in Chemisales. Mr Brown said that he was not. Mr Brown has since said in this respect that "I lied because I wanted to avoid confrontation and to protect the value of my asset".

25 Matters developed from there to the point at which proceedings were commenced by the plaintiff against Mr and Mrs Brown, David Brown Investments Pty Ltd, Mr and Mrs Hericher, Chemisales and Messrs Stephen, Jeffrey and Michael Brown, sons of Mr and Mrs Brown who had been employed by the plaintiff and who are the sixth, seventh and eighth defendants. The plaintiff sought various ex parte orders, including injunctions, against the defendants, an "Anton Piller" order and an order appointing Mr J F Totterdell as receiver and manager of Chemisales. Those orders were made by Anderson J on 23 June 2000. It

(Page 13)

is necessary, for present purposes, to set out in full order 6 thereof which read as follows:

"(1) That the Defendants and each of them, by himself, herself or itself and his her or its servants and agents be restrained until 30 June 2000 or further Order in the meantime from directly or indirectly informing any person company or firm in any manner whatsoever of the existence of these proceedings or of the provisions of this Order or otherwise warning any person company or firm that proceedings may be brought against him/her/it/them by the Plaintiff otherwise than for the purpose of such Defendant obtaining legal advice from his/her/its/their lawyers.

(2) That the Defendants and each of them, by himself, herself or itself and his her or its servants and agents be restrained until 13 July 2000 or further Order in the meantime from doing the following acts or any of them:-


(a) destroying, altering, defacing, copying, secreting, disposing of, dealing with or parting with possession of any of the Specified Articles [which were separately identified];

(b) using or imparting or disclosing to any person firm or company the Confidential Process as defined in Schedule C to this Order;

(c) manufacturing, selling, dealing with or disposing of any of the Confidential Products as defined in Schedule D to this Order.


(3) That the Ninth Defendant [Chemisales] by itself, its servants and agents be restrained until 13 July 2000 or further order from selling, dealing with, disposing of, charging or encumbering any of its assets or property without the written consent of the Plaintiff's solicitors or the leave of the Court.

(4) That until further order Geoffrey Frank Totterdell or some other appropriate person be appointed receiver and manager of the assets and undertaking of the Ninth Defendant without security."

(Page 14)

26 Schedules C and D respectively read as follows:

" SCHEDULE C

('The Confidential Process')

The purchase of raw materials, including, boric acid, lithium carbonate and lithium tetraborate (the Raw Materials) and the mixing of the Raw Materials according to twelve different formulae to produce the Confidential Products as defined in Schedule D of this order.

SCHEDULE D


('The Confidential Products')

(a) Lithium Pentaborate premix;

(b) Lithium Pentaborate norrish mix;

(c) Lithium Pentaborate 57 mix;

(d) Lithium Pentaborate F3 mix;

(e) Lithium Pentaborate R.U. mix;

(f) Lithium Pentaborate type T mix;

(g) Lithium Pentaborate type M mix;

(h) Sodium Carbonate Anhydrons AR mix;

(i) Lithium Pentaborate 80-20 mix;

(j) Lithium Pentaborate type 50 mix"

27 His Honour gave to the defendants liberty to apply to discharge or vary that order on 48 hours written notice to the plaintiff.

28 Then, on 21 July 2000, a hearing took place before Templeman J on the question, inter alia, whether or not the injunctions should be continued until the trial of the action. At the completion of the hearing his Honour made, inter alia, the following orders:

"1. The first to eighth defendants and each of them, by himself, herself or itself and his her or its servants and agents and the ninth defendant other than by the receiver

(Page 15)

appointed on 23 June 2000 be restrained and an injunction is hereby granted restraining them until the hearing of these proceedings or further Order in the meantime from doing the following acts or any of them:-

(a) destroying, altering, defacing, copying, secreting, disposing of, dealing with or parting with possession of any of the Specified Items as defined in Schedule A hereto in existence at the date of this Order;

(b) using or imparting or disclosing to any person (save for the Receiver and Manager of the ninth defendant) firm or company the Confidential Process as defined in Schedule B to this Order;

(c) subject to the undertaking in paragraph 3 hereof, manufacturing, selling, dealing with or disposing of any of the Confidential Products as defined in Schedule C to this Order save that the defendants (or any of them) be and hereby are authorised to provide co-operation and assistance to the Receiver and Manager of the ninth defendant to enable him to recommence the manufacturing operations of the ninth defendant for the production of the Confidential Products (as defined in Schedule D of the Orders made on 23 June 2000), inter alia, for sale to the plaintiff.

2. The ninth defendant by itself, its servants and agents (other than the Receiver and Manager) be restrained and an injunction is hereby granted restraining it until the hearing of these proceedings or further order from selling, dealing with, disposing of, charging or encumbering any of its assets or property without the written consent of the plaintiff's solicitors or the leave of the Court."

29 The undertaking to which his Honour referred in order 1(c) was one given by Mr Brown to the effect that he would, when reasonably requested to do so by the receiver and manager of Chemisales, attend at its premises "and manufacture such quantities of the Confidential Products from raw materials provided by the Receiver and Manager, as the Receiver and Manager may reasonably ask him to manufacture" in

(Page 16)

return for a reasonable remuneration. At that time no employee of the plaintiff was able to make the products to which his Honour referred.

30 Schedule A dealt with a wide range of books and documents relating to the manufacture and sale of the "Confidential Products" and to the processes which had been used in the course of the manufacture of those products. Schedules B and C were identical to Schedules C and D respectively of Anderson J's orders.

31 Templeman J's reasons for making the orders to which I have referred record that his Honour formed the view that:

"(1) there is a serious question to be tried as to whether the post-1991 formulae are materially different from the pre-1992 formulae;

(2) there is a serious question to be tried as to whether the first and second defendants [Mr and Mrs Brown] were in breach of fiduciary duties owed to the plaintiff in establishing the ninth defendant [Chemisales] and causing the plaintiff to purchase mixes from it; or as to whether they have misused confidential information ... ."

32 Then, in August 2000 the defendants applied to vary or discharge the orders made by Templeman J on 21 July 2000. That application was ultimately dismissed by his Honour on 23 August 2000. His Honour's decision in that respect is presently under appeal.

33 In his Honour's reasons for that decision he said that he considered that there was, in addition to the serious questions referred to in his earlier reasons, a "serious question to be tried as to the ownership of what, for present purposes, I accept to be confidential information as between the plaintiff and the first [Mr Brown] and perhaps the ninth [Chemisales] defendants."

34 His Honour went on to refer to a contention, by the defendants, that because the plaintiff could, by then, manufacture the mixes for itself, the injunction which restrained Chemisales from manufacturing was of no utility because it did no more than prevent it from carrying on its previous business. It is, I think, necessary to quote what his Honour then said at some length:

"I think it should be remembered that the situation which existed before Anderson J made his orders on 23 June was that

(Page 17)

the ninth defendant was doing business only with the plaintiff. Although it had an independent existence, its sole customer, as I understand it, was the plaintiff. The effect of the orders made on 21 July was to restore that status quo. In other words, it permitted the ninth defendant to continue doing business with the plaintiff, albeit with the intervention of the receiver, because, as I have said, quite reasonably in my view, the plaintiff did not want to do business directly with the defendants.

What is sought by way of a variation of the orders is that the ninth defendant be permitted to carry on business, in effect in competition with the plaintiff. There are two alternative orders sought, but it seems to me that they are both to that effect.

I asked Mr Le Miere QC, who appears for the defendants, what the position would be as he saw it if the first defendant had today left the employ of the plaintiff and had sought to set himself up in competition with the plaintiff in the way that the defendants now seek. Mr Le Miere submits that there is no restraint on the defendant from competing with the plaintiff and that he would be at liberty to do so.

I do not accept that. Given that the invention, the development, of the confidential formulae in 1991 was, as Dr Norrish described it and as I accept, a significant breakthrough, it seems to me that it would have been very strongly arguable that if Mr Brown had acted with perfect propriety until today, he could not then go and set himself up in business in competition with the plaintiff, making use of that information. If he did so, the plaintiff would be entitled to restrain him by injunction. There would then no doubt be a serious question to be tried and it would be a question of determining the balance of convenience.

However, Mr Brown, the first defendant, has not acted entirely properly. On his own evidence he concealed from the plaintiff the fact that the ninth defendant had been established and that it was doing business with the plaintiff. That, as I said in my earlier reasons, was a matter which Mr Brown regrets; that is to say, he regrets that he did not give truthful answer to that inquiry.

(Page 18)

It seems to me, although there are in this matter serious questions to be tried, there is nevertheless at the moment a strong prima facie case against the defendants of serious impropriety. The only answer that has been given, as I understand it, to the charges of breach of fiduciary duty or use of confidential information, particularly the breach of fiduciary duty, is that it was in some way approved by a co-director of Mr Brown's or a director of the plaintiff company. But it seems to me at the moment that that fact, if it be the fact, would not afford Mr Brown much in the way of a defence.

That is a matter which I am entitled to take into account in deciding how now to proceed. The important point, I think, the fundamental point, is that if there is a change of circumstances such as to warrant a variation of interlocutory orders, then it must be a change of circumstances relating to the grant of the orders in the first place.

What I did on 21 July was vary the orders of Anderson J to the extent necessary to avoid a stalemate and to enable the plaintiff to continue its business and to enable the ninth defendant to continue in existence to the benefit of all concerned.

Although it is true that the plaintiff can now manufacture the mixes to a certain extent, that does not in my view constitute a significant change in the circumstances because it does not alter the fact that there is still a strong prima facie case of misuse of confidential information and breach of fiduciary duty. Even if the defendant developed the significant breakthrough in his own time and in his own initiative, he was at the material time an employee of the plaintiff and he owed it fiduciary duties which should have prevented him from setting up in competition."

35 His Honour, after touching upon other matters, then mentioned that Mr Evans had said that the plaintiff intended to continue to place further orders with Chemisales, to which it had paid some $103,000 for mixes already supplied since the appointment of the receiver, and that this seemed to him to be a reasonable approach on behalf of the plaintiff. He said that he was not, in the circumstances, persuaded that he should vary his earlier orders save that he required the undertaking as to damages which had previously been given by the plaintiff to be supplemented by personal undertakings of Mr Evans and his father.
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36 On 25 October 2000 Mr Evans was telephoned by Mr Brown, who suggested a meeting at a coffee shop in Cottesloe. The meeting took place on that day. In the course of it Mr Brown handed to Mr Evans a letter which Mr Evans opened immediately after the meeting. The letter, which was dated 25 October 2000, opened with the following paragraphs:

"I wish to advise that in the course of the last two months, I have invented a new method of making x-ray flux without using either the pre or post 1992 formulae. The new method will be less expensive to manufacture and will produce a superior product.

I expect the new process will win substantial market share, because it is just as superior to the post 1992 formula as that formula was to the pre 1992 formula.

I have incorporated a new company, Xray Flux Corporation Pty Ltd to manufacture the new x-ray flux product.

Historically, Chemisales and Sigma benefited from an exclusive relationship. I would like to propose a similar relationship between Xray Flux Corporation and Sigma. An exclusive relationship will benefit both Sigma and Xray Flux Corporation allowing Sigma to concentrate on sales and distribution while Xray Flux Corporation remains focused on R&D and manufacturing.

... "

37 Later in the letter Mr Brown said that XFC would start promoting the new product in November 2000 and would commence production in the following month.

38 Annexed to the letter was a Certificate of Registration of the new company. Mr Brown is its sole director and shareholder.

39 Affidavit evidence has since been filed on behalf of the plaintiff and the defendants respectively in respect of Mr Brown's "new method".

40 Dr Keith Norrish, a respected scientist employed by the CSIRO, has sworn an affidavit dated 18 January 2001 which has been filed on behalf of the defendants. He has also provided a report dated 30 January 2001 which is, because of difficulties in obtaining an affidavit from Dr Norrish (who is presently in a remote location), exhibited to an affidavit sworn by

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Mr Brown. Dr Norrish's expertise extends to the use and manufacture of x-ray flux. In his affidavit he says that the flux is made by mixing together pure lithium borates or by mixing chemicals that contain lithium boron and oxygen. The mixture is then fused at about 1,000 degrees Centigrade and poured onto a cooling tray. When solid it is ground to a powder and bottled, ready for use. This method of preparation is, he says, universally recognised. He says that in 1974 CSIRO itself produced fluxes using lithium tetraborate and lithium carbonate and that the use of such raw materials to create flux was then well-known.

41 Dr Norrish also says that he had long been puzzled as to why it was that the plaintiff was able to produce fluxes with a very high purity level, and at a generally cheaper price, than other commercially available fluxes. He says that he has now learned from Mr Brown that Mr Brown did not, after 1992, use lithium tetraborate in the manufacture of flux. He says that the high purity of the plaintiff's product is the result of this "innovative change" and that, as far as he is aware, all other manufacturers continue to use lithium tetraborate as their base starting material, adding other chemicals to obtain the desired formulation of flux.

42 Dr Norrish says that in November 2000 he was told that Mr Brown proposed to use a new chemical (to which I shall refer as "chemical X") to replace lithium tetraborate as a source of lithium in making fluxes. While, he says, the resulting flux may be the same, this produces a different chemical reaction. One obvious difference is that, while the present process produces carbon dioxide as a by-product, that is not the case with the new process.

43 Dr Norrish says that the use of the new chemical as a source of lithium in flux manufacture has become possible because of its recent availability, at a reasonable price, in a highly pure form. This high purity, he says, makes it an attractive starting material for the manufacture of x-ray fluxes as analysts want fluxes with a minimum of contaminant elements.

44 In his later report Dr Norrish mentions some practical difficulties associated with chemical X but says that if these can be overcome it might be that use of the chemical to manufacture x-ray flux will be increased. He says also that he believes that the proposal to use the new chemical is "innovative" and that the formulae to make x-ray flux using it "can have been determined from the generally known information about the chemical composition of x-ray fluxes without having prior knowledge of David Brown's 1992 invention".

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45 Associate Professor Roger Watling has sworn an affidavit dated 24 January 2001 which has been filed on behalf of the plaintiff. He, too, is a respected scientist whose expertise extends to the formulation and use of flux materials. He has said that the new process amounts to the substitution, for a small part of one of the two existing products mixed, of the new chemical and a slight adjustment to the amount of the other. He says that it is true that this produces a different chemical reaction but adds that a more accurate way of stating what happens when the new chemical is used is that an additional reaction takes place with the two original chemicals continuing to react in the same way as before. He says that the use of chemical X offers no intrinsic practical advantage in respect of either the ease of the process of flux manufacture or the quality of the end product. He says that it is possible that, by using different grades of purity of chemicals, whether lithium carbonate, boric acid or the new chemical, one can produce both a flux mixture and an end product flux with different levels of impurities. He says, in any event, that the purity of the existing fluxes produced by the plaintiff is such that for the vast bulk of geological and geochemical applications there would be no practical benefit associated with an increase in purity.

46 Professor Watling also says that the production of carbon dioxide is a matter of no practical significance as it is produced in a gaseous form during the process of fusing the flux and escapes to the atmosphere. He says, in any event, that, on the percentages of the ingredients proposed to be used by Mr Brown in the new process, carbon dioxide will still be produced as part of the fusing process. He concludes by saying:

"11. The use of the new chemical will not require any change to the process of manufacture of the x-ray flux mixtures and will not result in any change to the x-ray flux produced. The use of the new chemical ... amounts to a minor ... change to the existing recipe of ingredients. Further, the addition of the new chemical, and the reaction of it with boric acid, are trite matters.

12. On the basis of the above I conclude that the only reason a flux would be made with the new chemical is to create a difference in ... the mix of chemical ingredients and to involve the use of a different chemical reaction upon production of the molten flux."

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47 It is against this background that the plaintiff seeks to join XFC as a defendant to the existing proceedings and to obtain injunctive relief against it. It seeks, in this last respect, the following orders:

"2. An order that Xray Flux Corporation Pty Limited by itself its servants and agents be restrained until the hearing and determination of these proceedings or until further order from manufacturing selling or offering for sale any x-ray flux of which lithium carbonate, boric acid or lithium tetraborate is an ingredient.

3. An order that Xray Flux Corporation Pty Limited by itself its servants and agents be restrained until the hearing and determination of these proceedings or until further order from manufacturing selling or offering for sale any x-ray flux made by the treatment or processing of any of the products identified in Schedule A hereto or of any product that contains the same raw materials combined in the same proportions as the products identified in Schedule A.

4. An order that Xray Flux Corporation Pty Limited by itself its servants and agents be restrained until the hearing and determination of these proceedings or until further order from selling or offering for sale any x-ray flux manufactured by it to any person, firm or company who or which purchased x-ray fluxes from the Plaintiff between 1 May 1986 and 26 June 2000.

5. An order that the First Defendant by himself, his servants and agents be restrained until the hearing and determination of these proceedings or until further order from providing or passing on to Xray Flux Corporation Pty Limited any information concerning the identities of persons, firms or companies who or which purchased x-ray fluxes from the Plaintiff between 1 May 1986 and 26 June 2000, the identities of the persons within the organizations of such purchasers who placed such orders and the identities of the particular x-ray fluxes purchased by such persons, firms or companies."

48 Schedule A to the summons is the same as Schedule D to the orders made by Anderson J and Schedule C to the orders made by Templeman J.
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49 The plaintiff also seeks two other forms of relief (a third, in the form of a "mareva" injunction against the first, second, third, sixth, seventh, eighth and ninth defendants has since been abandoned). The first of these is an order that the defendants, other than the tenth and eleventh defendants, forthwith deliver up to the receiver and manager of Chemisales specified property of Chemisales. The second is that those same defendants forthwith deliver up to the plaintiff's solicitor all papers, books, files, records and documents of every kind, the property of the plaintiff, that are in the possession, custody or control of all or any of those defendants.

50 I will deal with each of these claims in turn.

The joinder of XFC and the claims for injunctive relief

51 The alleged basis for the joinder of XFC and the injunctive relief sought by the plaintiff is essentially that Mr Brown, in setting up Chemisales to usurp, for his and Mrs Brown's benefit, an important part of the plaintiff's business, including the benefit of his 1992 innovation, breached fiduciary and other duties owed by him to the plaintiff, misused the plaintiff's confidential information and conspired with others, including Mrs Brown, to inflict economic harm on the plaintiff and that the formation of XFC by Mr Brown for the purpose of manufacturing and selling flux manufactured pursuant to the proposed formulae constitutes a continued breach of fiduciary duty and unlawful misuse of the plaintiff's confidential information in which XFC will, of necessity, be a knowing participant. The plaintiff contends that Mr Brown's latest "innovation" is, in truth, no innovation at all, but merely a ploy to create the appearance of a different product, when in reality there is none, in an attempt to defeat the effect of the existing injunction.

52 The defendants raise a number of suggested answers to the plaintiff's contentions. The first is that there has been no, or no continuing, breach of fiduciary or other duty, or misuse of confidential information by Mr or Mrs Brown and no, or no continuing, conspiracy to injure the plaintiff and hence that there is no need for an injunction. The second is that there has been, and will be, no loss by the plaintiff arising out of the activities complained of by it and that there is therefore no need for an injunction. The third is that there is, in any event, nothing to be gained by the joinder of XFC and the imposition of a further injunction as these will add nothing to the orders which have already been made. The fourth, and last, is that there have been non-disclosures by the plaintiff, in the course of the hearings before Anderson J and Templeman J (notwithstanding that, at the

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hearing before Templeman J, those affected by the orders then sought were represented), which are such as should result in an adverse exercise of discretion as regards the injunctive relief sought in this application.

53 I will deal with each of these suggested answers.

54 The questions whether there has been any breach, by Mr and Mrs Brown, of duties owed by them to the plaintiff and whether there has been any misuse by them of the plaintiff's confidential information have, to some extent, already been answered by Templeman J. It would not be appropriate for me to disturb his Honour's findings in that respect where, at least, the circumstances remain materially unaltered.

55 I have mentioned that his Honour, on 21 July 2000, decided that there was a serious question to be tried as regards the question whether Mr and Mrs Brown were in breach of fiduciary duties owed to the plaintiff in establishing Chemisales and causing the plaintiff to purchase mixes from it and also as regards the question whether those defendants had misused information which was confidential to the plaintiff. I have also mentioned that on 22 August 2000 his Honour added, to what he had earlier said, a finding to the effect that there was a serious question to be tried as regards the ownership of what, for present purposes, he accepted to be confidential information as between the plaintiff and Mr Brown and, perhaps, Chemisales. His Honour also then said that there was a strong prima facie case against the defendants of serious impropriety. He did not regard any approval given by Mr Wojtysiak as affording Mr Brown "much in the way of a defence" to the claim of breach of fiduciary duty.

56 Amongst the evidence then before Templeman J was an affidavit sworn by Mr Evans on 18 July 2000 to which was attached what Mr Evans described as a price list for x-ray fluxes issued by the plaintiff in July 1987. That price list dealth with eight different x-ray fluxes made by the plaintiff. In each case the raw materials comprising the mix were set out as was the percentage of the whole mix comprised by each component. So, for example, the first item is a "Type Standard Norrish Formula" flux which was said to comprise 47 per cent Lithium Tetraborate, 36.7 per cent Lithium Carbonate and 16.3 per cent Lanthanum Oxide. The defendants argued before me that the provision of this kind of information in a price list constitutes compelling evidence that the make-up of the mixes was not confidential to the plaintiff. However this evidence was, as I have said, before Templeman J at the time at which his Honour gave his decision and it was presumably taken into account by him, albeit he did not specifically refer to it. Moreover there is nothing to

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suggest that there was any disclosure to any third party of the 1992 innovation. It will be apparent from what I have said above that the plaintiff contends that none of its present employees became aware, until recently, of the make-up of the mixes used by Mr Brown to produce x-ray flux after the introduction of that innovation. I have earlier mentioned that Mr Brown contends that the 1992 innovation was his own confidential information.

57 Templeman J's conclusions were, as counsel for the defendants pointed out, arrived at in the absence of any argument as to the effect of article 75 of the plaintiff's articles of association, that provision not having been drawn to the attention of his Honour. His Honour's findings were also, of course, made in the context of injunctions against defendants other than XFC and at a time prior to the writing of the letter dated 25 October 2000.

58 I should say in this respect, firstly, that I am not persuaded that the existence of article 75, even if it can be regarded as a new circumstance, is such as to preclude a finding as to the existence of a triable issue as regards the alleged breach of fiduciary or other duties by Mr and Mrs Brown. While that article is, no doubt, relevant to any consideration of the duties owed by Mr Brown to the plaintiff, there is undoubtedly an argument that that provision is consistent with the continued existence of fiduciary duties owed by him to the plaintiff. That is to say, while article 75 permits a director, in any capacity, to enter into a contract, arrangement or understanding with the company and provides that no contract, arrangement or understanding shall be avoided, or rendered voidable, by reason that the director is or may be interested in that contract arrangement or understanding, it is arguable, at the very least, that that provision does not give to each director a license to breach fiduciary duties owed by him or her to the company with impunity from injunctive relief. Article 75(2) is, in my opinion, quite plainly open to the construction that its intended effect is no more than that no contract shall be avoided or rendered voidable by reason only that the director is or may be interested in that contract and that it does not have the effect of rendering any contract safe from challenge on any ground merely because a director is or may be interested in it.

59 Similarly, articles 75(3) and (4) do not have the effect of rendering a director immune from injunctive relief. Those provisions deal only with the issue of liability to account to the company for any profit realised by a director from any contract and with the consequence, so far as validity of a contract is concerned, of a failure to make or record the disclosure

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required by s 228 of the Code. While it is true, as counsel for the defendants pointed out, that disclosure was required only to be made to the directors and not to the shareholders (cf Centofanti v Eekimitor Pty Ltd (1995) 65 SASR 31), the fact is that this disclosure was required by s 228 of the Code to be made by way of declaration at a meeting of the directors and the evidence of Messrs Brown and Wojtysiak does not go so far as to suggest that there was any such disclosure in respect of any of the contracts (and I assume that there were many of these) pursuant to which Chemisales supplied mixes to the plaintiff. Rather, each deposes merely to an informal conversation (in the course of which, Mr Wojtysiak says, he was influenced by a concern that, if he endeavoured to restrict Mr Brown, the latter would leave the company and market his products independently) the content of which was never made known to the plaintiff's owners and could not have become known to them through a scrutiny of the minutes of the meetings of directors.

60 It is well settled that the relationship between director and company is a fiduciary relationship. As Ford's "Principles of Corporations Law", 8th ed, par 8.010 points out, the resulting standard of loyalty is reflected in both positive and negative obligations. One of the negative obligations is that directors are required to avoid conflicts of interest. They may not misuse their position for their own advantage, except with the company's fully informed consent, or misappropriate company property for their own benefit. (See Furs Ltd v Tomkies (1936) 54 CLR 583 at 592; Chan v Zacharia (1984) 154 CLR 178 at 198 and Cook v Deeks [1916] 1 AC 554.) It seems to me to be very much open to argument that nothing in article 75 is intended to detract from the continued existence of these duties.

61 Moreover, s 229(3) of the Code precluded an officer of a corporation from making improper use of information acquired by virtue of his position as such in order to gain an advantage for himself. The argument is open that nothing in article 75 was intended to detract from the effect of that provision. Rather, article 75 may have been intended to avoid, for example, the effect of the principle, enunciated in such cases as Phipps v Boardman [1967] 2 AC 46, that fiduciaries' liability to account is not eliminated by proof that the transaction in question was fair to the beneficiary of the fiduciary obligation or that that beneficiary could not itself exploit the profit-making opportunity although Deane J has since said, in Chan v Zacharia, above, at 204-205, that:

" ... It may still be arguable in this Court that, notwithstanding general statements and perhaps even decisions to the contrary in

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cases such a Regal (Hastings) Ltd v Gulliver [1962] 2 AC 134 and Phipps v Boardman [1967] 2 AC 46, the liability to account for a personal benefit or gain obtained or received by use or by reason of fiduciary position, opportunity or knowledge, will not arise in circumstances where it would be unconscientious to assert it or in which, for example, there is no possible conflict between personal interest and fiduciary duty and it is plainly in the interests of the person to whom the fiduciary duty is owed that the fiduciary obtain for himself rights or benefits which he is absolutely precluded from seeking or obtaining for the person to whom the fiduciary duty is owed (cf Peso Silver Mines Ltd v Cropper (1966) 58 DLR (2d) 1 at 8)."

62 It is also pertinent to mention, as was pointed out by counsel for the plaintiff, that Lord Templeman, in Guinness plc v Saunders [1990] 2 AC 663 at 692, said that equity "has no power to relax its own strict rule further than and inconsistently with the express relaxation contained in ... articles of association".

63 While I was referred to a number of other cases in this respect it seems to me that each of these turns upon its own peculiar facts and none detracts from anything which I have said above.

64 It consequently seems to me that there remain both of the serious questions to be tried identified by Templeman J, namely whether Mr and Mrs Brown have acted in breach of fiduciary duties owed by them to the plaintiff in establishing Chemisales and causing the plaintiff to purchase mixes from it for their own advantage and whether they have misused information confidential to the plaintiff in the course of doing so. (See, in this respect, The Worthington Pump Engine Company v Moore (1902) 19 TLR 84 at 85; British Syphon Coy Ltd v Homewood (No 2) [1956] RPC 225 at 230; Triplex Safety Glass Co Ltd v Scorah [1937] 4 All ER 693 at 698 - 699 and the discussion in Dean, The Law of Trade Secrets (1990) at 235 - 243.)

65 That brings me, next, to the question whether there is a serious question to be tried whether XFC is a knowing participant in an ongoing breach of fiduciary duties or in a misuse of confidential information. It seems to me that there is.

66 The argument is open that the so-called latest "innovation" is, in substance, not different from what had been done immediately prior to that innovation. While it is true, on the evidence of Dr Norrish and

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Professor Watling, that the latest process involves a different chemical reaction, there is an argument, at least on the present evidence of Professor Watling, that it is one which is of no more than cosmetic significance. The effect of what has been said by Professor Watling is that the latest formulae, while adding chemical X, still rely essentially upon the same mix as was used as a consequence of the first "innovation". He has also said that the use of the new chemical amounts to a minor change to the existing recipe which will not require any change to the process of manufacture.

67 It is, I think, also important to notice that Dr Norrish, in his latest report, says only that the formulae to make x-ray flux using the new chemical "can have been determined" from the generally known information about the chemical composition of x-ray fluxes without having prior knowledge of Mr Brown's "1992 invention". Consequently, the prospect remains that the formulae might ultimately be found to have in fact been based upon Mr Brown's prior knowledge of his "1992 invention". This is more particularly so in circumstances in which Professor Watling has, as I have mentioned, said that the change to the existing (1992) recipe is only a minor one.

68 It follows that if, as I have found, there is a triable issue as regards the question whether the new formulae are based upon Mr Brown's prior knowledge of his "1992 invention" and are not materially different to that "invention" and if, as Templeman J has found, there is a triable issue both as regards the plaintiff's ownership of that "invention" as its confidential property and as regards Mr and Mrs Brown's alleged earlier breaches of fiduciary duty in respect thereof, then there is also a triable issue as regards the question whether the proposed manufacture of flux by XFC in accordance with the 2000 formulae would amount to a further misuse of the plaintiff's confidential information by Mr Brown, its alter ego, and a continuing breach of the fiduciary duties owed by him to his former employer, in which XFC would necessarily be a knowing participant.

69 There remain the arguments advanced on behalf of the defendants that there is no need to join XFC as a twelfth defendant and to grant injunctive relief against it, the existing injunction being sufficient; that there is no need for any further injunction because the plaintiff has not been shown to have suffered or to be likely to suffer any loss as a consequence of the defendants' conduct; and that no additional injunction should now be granted having regard for what was said to be the non-disclosure on previous occasions.

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70 It seems to me that there is no substance to any of these contentions.

71 As to the first of them, the fact that Mr Brown has, notwithstanding the existing injunction, seen fit to incorporate XFC for the expressed purpose of manufacturing and selling flux, for its, and therefore Mr Brown's, own benefit in circumstances in which, as I have found, there is a triable issue that this will involve it in knowing participation in a continuing breach of fiduciary duty and misuse of confidential information is, in my opinion, plainly enough to justify the joinder of that company as a defendant and the grant of injunctive relief against it if, at least, the balance of convenience favours that course and there is no other reason for refusing injunctive relief.

72 It seems to me that the balance of convenience plainly does favour that course. XFC has yet to commence its business and Chemisales is, for the present, continuing to manufacture flux on behalf of the plaintiff. Also, should XFC ultimately be successful in its contention that no injunction should have been ordered it is able to call upon the undertakings which have been offered by the plaintiff, Mr Evans and Mr Evans' father. There is no suggestion that those undertakings, together, will prove to be inadequate albeit I accept that XFC's damages may be difficult to assess. On the other hand, if no injunction is ordered the plaintiff's existing market might seriously be undermined in circumstances in which it might be difficult to calculate its ensuing loss. I should add that there was no real contention by the defendants that they are favoured by the balance of convenience.

73 Next, I have considerable difficulty with the contention that the plaintiff has not suffered any loss or damage. If, as seems plain on the evidence, Chemisales, and consequently Mr and Mrs Brown, have profited from their activities, and if it be assumed that this is a profit which, were it not for breaches of fiduciary or other duties or misuse of confidential information, would have gone to the plaintiff (and there is, as I have said, a triable issue in that respect), then it must follow that the plaintiff has suffered loss and will continue to do so if XFC is permitted to embark upon the course proposed by it. Furthermore, I notice, in this respect, that Mr Evans, in a schedule attached to an affidavit sworn by him on 22 June 2000, has calculated a sum of $1,596,561.44 as being what he describes as the loss to the plaintiff caused by it purchasing products from Chemisales rather than purchasing for itself and then mixing the raw materials used in the first of the two stages to which I have earlier referred. I have, in any event, already said that there is the risk that the plaintiff's market will seriously be undermined if XFC should be

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permitted to use what might be found to be the plaintiff's confidential information in order to compete with the plaintiff.

74 As to the alleged non-disclosure the defendants rely upon the plaintiff's failure to disclose to Anderson J the terms of article 75 of the plaintiff's articles of association, the terms of the agreement pursuant to which the business was bought by the plaintiff (which terms, the defendants allege, were available to the plaintiff had reasonable enquiry been made, the then solicitors for the plaintiff having prepared the offer to sell), the fact that the restraint of trade agreed to by Mr Brown has long since expired, what they contend is the fact that the plaintiff's solicitors' file does not disclose any reference to the purchase of any formulae or technique for the manufacture of x-ray flux or any other confidential intellectual property rights which might have been a part of the sale of the business and the alleged disclosure to Mr Wojtysiak of Mr and Mrs Brown's interest in, and plans for, Chemisales.

75 The plaintiff, by its then solicitor, has deposed to the fact that, at the time of the application before Anderson J, it did not have the sale agreement (or, more accurately, the written offer to sell) in its possession and nor, to its knowledge, did its solicitors then have that document. In my opinion that is a sufficient explanation for the non-disclosure. I should say, in any event, that I am not persuaded that the failure to disclose that document in earlier proceedings is such as should result in a refusal of injunctive relief at this stage. It might be argued that the terms of the offer to sell, when read in the context of the Price Waterhouse report (which, as I have said, at least arguably formed part of the factual matrix), supports the position of the plaintiff rather than detracts from it.

76 Next, I assume that if the plaintiff did not then have the offer to sell in its possession it would also not then have had the annexures to that document in its possession, including the Service Agreement, the provisions of which, I might add, seem to me not to be determinative of any of the major issues arising in these proceedings.

77 As to the absence of any expressed reference, in the offer to sell, to the purchase of any formulae or techniques I have already said that there is a triable issue as regards the question whether the goodwill of the business sold to the plaintiff included relevant formulae or techniques.

78 As to the terms of article 75 it seems to me that no party has until now turned its mind to that provision and that, while unquestionably relevant, its terms are not such as should, in any event, have led to a

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different result. In those circumstances I am not persuaded that the failure to refer to it should lead, now, to a refusal of injunctive relief.

79 The defendants also contend that those who have sworn affidavits or made submissions on behalf of the plaintiff have, on a number of occasions, taken up conflicting positions most particularly in respect of the knowledge which the plaintiff had of the formulae used by Mr Brown while in its employ and as regards the novelty and confidentiality of those formulae. While it is, no doubt, true to say that there have been changes in the position taken up by or on behalf of the plaintiff it seems to me that these, generally, have been a product of its discovery of more information as matters progressed. I am not persuaded that there is anything in any of the matters to which I have been referred (and it is unnecessary to recite them all) which should result in an unfavourable exercise of discretion.

80 Finally, as to the proposition that the plaintiff did not disclose what is alleged to have been said by Mr Brown to Mr Wojtysiak (who is said to have been the director of the plaintiff nominated by Mr Evans' father to represent his interests in the company) or even the fact of Mr Wojtysiak's directorship, there is nothing, on the materials before me, to suggest that the plaintiff knew of Mr Wojtysiak's version of events as regards the discussion between him and Mr Brown. The evidence discloses that he had not told Mr Evans, or any other of the current representatives or owners of the plaintiff, of his knowledge of Mr Brown's interest in Chemisales. In those circumstances it does not seem to me, once again, that any non-disclosure of the fact of Mr Wojtysiak's discussion with Mr Brown, or of his directorship as a nominee of Mr Evans' father, is a matter which should result in an unfavourable exercise of discretion.

81 It consequently seems to me that the plaintiff is entitled to injunctive relief.

82 That said, I have raised with counsel for the plaintiff the proposition that the terms of the relief sought by it go too far, having the effect of preventing XFC from making x-ray flux at all, even according to formulae which are generally used by others in the industry. That has resulted in a reformulation of the relief sought by the plaintiff in a form which, it seems to me, is more appropriate and which, with some minor alteration (by me), reads as follows:

"XFC by itself its servants and agents be restrained until the hearing and determination of these proceedings or until further order from mixing together boric acid and lithium carbonate,

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either alone or with any other substance, for the purpose of manufacturing, after fusion of the mix, the same x-ray flux as, or any x-ray flux of a substantially similar quality and composition to, any x-ray flux produced by the fusion of any of the confidential products identified in Schedule D to the orders of Anderson J made on 23 June 2000."

83 Mr and Mrs Brown have undertaken (and I understood this undertaking to be confirmed, in effect, by their counsel) that they will not, until the hearing and determination of these proceedings or until further order, by themselves, their servants and agents provide or pass on to XFC any information concerning the identities of persons, firms or companies who or which purchased x-ray fluxes from the plaintiff between 1 May 1986 and 26 June 2000, the identities of the persons within the organisations of such purchasers who placed such orders and the kinds of x-ray fluxes purchased by such persons, firms or companies. It is consequently unnecessary to make any formal order in that respect.

84 I am not prepared to make the order sought by the plaintiff to the effect that XFC be restrained from selling or offering for sale any x-ray flux manufactured by it to any person, firm or company who or which purchased x-ray fluxes from the plaintiff between the stipulated dates. While it is appropriate that Mr Brown should undertake not to misuse confidential information in his possession, including the plaintiff's customer lists and the like (and he says that he had no intention of doing so, in any event), there is no basis for preventing XFC from selling products manufactured by it to ex customers of the plaintiff in circumstances in which that does not involve its knowing participation in a breach of fiduciary duty or the misuse of confidential information and in which it relies solely upon information obtained by it through its own efforts or knowledge.

The application for delivery up of books and records

85 I am not disposed to allow the application for an order that the named defendants should deliver up papers, books, records and the like in their possession which are the property of the plaintiff. That is because there is, on the affidavit evidence as it stands, no sufficient basis for alleging that any of them has any such documents in their possession. The application was based largely upon the evidence of the plaintiff's former solicitor to the effect that, while supervising the execution of the "Anton Piller" order, he observed a large number of documents and files

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in Mr and Mrs Brown's home which bore the plaintiff's name, of which only a small number has been produced.

86 However each of Mr and Mrs Brown has since sworn an affidavit saying that there are no such files and documents in their possession other than files and documents which pre-date the acquisition of the business by the plaintiff. That, in my opinion, is a sufficient answer, there being no evidence that any other of the named defendants has any such documents.

87 I should add that the fourth and fifth defendants have, in any event, undertaken, by their counsel, to deliver up to the plaintiff's solicitor, within seven days, all papers, books, files, records and documents of every kind, if any, which are the property of the plaintiff and which are in their possession, custody or control.

Delivery up of equipment and other property to the Receiver of Chemisales

88 There remains the claim for delivery up of Chemisales' property to its receiver and manager. It seems now to be common cause that the only outstanding items are a set of detailed design drawings for a prototype x-ray flux spray nozzle and a "Modutemp" furnace, model SCM964BVM.

89 The fourth and fifth defendants, while not conceding that either of those items is in their possession, custody or control (and it appears as though neither is in their possession, custody or control), have undertaken, by their counsel, to hand any property of Chemisales over to the receiver within seven days should it turn out that they have it or should any property of Chemisales come into their possession, custody or control.

90 The other defendants against whom this claim is brought have as their answer to it two propositions. The first is that the claim should properly have been brought by Chemisales' receiver and not by the plaintiff. The second is that the property in question is said by Mr Brown not to be that of Chemisales but that of Great Western Engineering Pty Ltd, a company of which the seventh defendant's wife is a director, and that company is not a party to these proceedings.

91 I am not persuaded that the first of these propositions provides a sufficient answer. In Corporate Affairs Commission (NSW) v Smithson [1984] 3 NSWLR 547 Waddell J, at 553, said that, where a receiver is appointed in circumstances other than pursuant to s 573 of the Companies (NSW) Code, if a party to the proceeding has been directed to deliver up property to the receiver and refuses to do so the receiver should report the

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refusal to the solicitor of the party having the conduct of the proceeding who should then take the necessary steps to enforce delivery up. In this case the receiver has been appointed in respect of the whole of the assets and undertaking of Chemisales pursuant to orders sought by the plaintiff and it seems to me that it is appropriate, in such circumstances, for the order to be made on the application of the plaintiff. (Cf Kerr: The Law and Practice as to Receivers, 17th ed, at 171 where it is suggested that an order for delivery up of possession of property will be made, and enforced, at the instance of the party having the conduct of the proceedings in which the receiver is appointed.)

92 However the second proposition seems to me to have more substance. If, as Mr Brown says, Great Western Engineering Pty Ltd has the outstanding items of property in its possession (and there is no evidence to the contrary) and claims to have the title to them then, it seems to me, the application for return of those items should properly be brought against it, if no other satisfactory means of resolving that dispute can be found. No basis has been shown for making an order for delivery up of these items against any of the defendants and no order should be made against Great Western Engineering Pty Ltd without affording to it an opportunity to be heard.

Conclusion

93 Consequently, upon the assumptions, which should be confirmed before any formal orders are made, that an undertaking in the terms mentioned above will be given by Mr and Mrs Brown as regards their maintenance of the confidentiality of the plaintiff's customer lists and the like and that the existing undertakings as to damages given by the plaintiff, Mr Evans and Mr Evans' father are to remain in effect, I propose to make the following orders:

(1) Xray Flux Corporation Pty Ltd be joined as the twelfth defendant in this action.

(2) Xray Flux Corporation Pty Ltd by itself its servants and agents be restrained until the hearing and determination of these proceedings or until further order from mixing together boric acid and lithium carbonate, either alone or with any other substance, for the purpose of manufacturing, after fusion of the mix, the same x-ray flux as, or any x-ray flux of a substantially similar quality and composition to, any x-ray flux produced by the fusion of




any of the confidential products identified in Schedule D to the orders of Anderson J made on 23 June 2000.


(3) The summons be otherwise adjourned for the making of further directions.

(4) There be liberty to apply generally on 48 hours notice.