Siemens (NZ) Limited v Stonehill Trustee Limited
[2016] NZHC 1710
•27 July 2016
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2016-404-1449 [2016] NZHC 1710
BETWEEN SIEMENS (NZ) LIMITED
Plaintiff
AND
STONEHILL TRUSTEE LIMITED First Defendant
GENERAL ELECTRIC INTERNATIONAL INC Second Defendant
CIV-2016-404-1450
BETWEEN SIEMENS (NZ) LIMITED Applicant
ANDCONTACT ENERGY LIMITED Respondent
Hearing: 25 July 2016 Counsel:
S E Fitzgerald and M F Mabbett for Plaintiff/Applicant
I Hikaka and S Y M Chew for First Defendant B J Upton and E C Gray for Second Defendant No appearance for Respondent
Judgment:
27 July 2016
REDACTED JUDGMENT OF WHATA J
This judgment was delivered by me on 27 July 2016 at 1.00 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Solicitors/Counsel:
Russell McVeagh, Auckland
Lee Salmon Long, Auckland
Simpson Grierson, Auckland
Buddle Findlay, Wellington
Date: ………………………….
SIEMENS (NZ) LIMITED v STONEHILL TRUSTEE LIMITED [2016] NZHC 1710 [27 July 2016]
Introduction
[1] Siemens (New Zealand) Limited (Siemens) builds and services turbines used in power generation. In 1997 they constructed and supplied a SGT5-400F gas turbine (the Turbine) to Contact Energy (Contact). Siemens serviced the Turbine until it was sold recently to General Electric International, Inc (GE). Siemens claims that the Turbine was sold to GE by Contact, in breach of an obligation of confidence to Siemens. An urgent application for interim injunction, preventing the transfer of the Turbine to GE, is now sought by Siemens. Apparently GE’s contractors are about to disassemble the Turbine which will have the result of disclosing allegedly confidential turbine workings to it. The parties have accordingly sought immediate resolution of whether there is a serious issue to be tried and whether injunctive relief should be granted.
Background
Plant Agreement
[2] On 16 April 1997 Contact entered into a Contract Agreement with Siemens in relation to the Otahuhu Combined Cycle Power Plant (the Plant Agreement). This agreement consisted of a number of documents, including the General Conditions of Contract and Special Conditions of Contract. The Plant Agreement refers to “the Contractor”, who is Siemens, and “the Employer” who is Contact.
[3] Relevantly, Siemens undertook to construct “Works” defined simply as:
…the Permanent Works and the Temporary Works or either of them as appropriate.
“Permanent Works” means the permanent works to be designed and
executed in accordance with the Contract.
“Temporary Works” means all temporary works of every kind (other than Contractor’s Equipment) required for the execution and completion of the Works and the remedying of any defects
[4] “Plant” and “Materials” are also defined:
“Plant” means machinery and apparatus intended to form or forming part of the Permanent Works, including the supply-only items (if any) which are to be supplied by the Contractor as specified in the Contract.
“Materials” means things of all kinds (other than Plant) to be provide and incorporated in the Permanent Works by the Contractor, including the supply-only items (if any) which are to be supplied by the Contractor as specified in the Contract.
[5] “Construction documents” means:
…all drawings, calculations, computer software (programs), samples, patterns, models, operation and maintenance manuals, and other manuals and information of a similar nature, to be submitted by the Contractor.
[6] Clause 1.10 addresses copyright of Construction Documents and other design documents as follows:
Copyright in the Construction Documents and other design documents made by or on behalf of the Contractor shall (as between the parties) remain the property of the Contractor. The Employer may, at his costs, copy, use and communicate any such documents (including making and using modifications) for the purposes of completing, operating, maintaining, altering, adjusting and repairing the Works. They shall not, without the Contractor’s consent, be used, copied or communicated to a third party by the Employer or the Employer’s Representative for other purposes.
[7] In clause 5.6 (as replaced by the Special Conditions), specific provision is then made for delivery of as-built drawings to Contact:
Prior to the issue of any Taking-Over Certificate, the Contractor shall submit to the Employer’s Representative the “as-built drawings” and any further Construction Documents specified in draft form, such drafts to be in sufficient detail as will enable Employer to operate, maintain, adjust, replace and repair all of the Works. The Contractor shall submit one electronic copy, one full-sized original copy and six printed copies of the final “as-built drawings” and Construction Documents to the Employer’s Representative within six months of the date of issue of the Taking-Over Certificate. …
[8] Clause 5.10 of the Plant Agreement also provides:
5.10 Ownership of Patent Rights
(a) Notwithstanding the provisions of Sub-Clause 1.10, in so far as the patent, copyright or other intellectual property rights in the Construction Documents or any know-how and information relating to the Works shall be vested in the Contractor, the Contractor grants to the Employer its successors and assigns a royalty-free, non-exclusive and irrevocable licence (carrying the right to grant sub-licences) to use and reproduce any of the Construction
Documents and any such know-how and information for all purposes relating to the Works (including without limitation the design, construction, reconstruction, completion, maintenance, reinstatement, extension, repair and operation of the Works).
(b) To the extent beneficial ownership of any such patent, copyright or other intellectual property right is vested in anyone other than the Contractor, the Contractor shall use its best endeavours to procure that the beneficial owner thereof shall grant a like licence to the Employer. Any such licence granted shall not be determined if the Contractor shall for any reason cease to be employed with the Works.
[9] Clause 7.6 then provides for the transfer of Plant and Materials to Contact at the earliest of either: delivery to site, when Siemens becomes entitled to payment or when the Plant and Materials are delivered to shippers free on board for delivery to New Zealand.
[10] Taken as a whole the Plant Agreement contemplates that Siemens will perform the requisite Works for Contact and all Plant and Materials (including the Turbine) will be transferred to Contact. Copyright in the Construction Documents (as defined) is, however, retained by Siemens, and Contact is licensed to use that material, together with any other information and intellectual property rights relating to the Works vested in Siemens. There is otherwise no express reservation of rights by Siemens to the Works or an express condition of confidentiality.
Maintenance and servicing
[11] There is no dispute that Siemens has been solely responsible for the maintenance and servicing of the Plant since construction. Indeed, there were no other service providers at the time of the Plant Agreement who could service the Plant. It appears that there are now at least four other entities that might provide maintenance services, but the probative evidence as to (a) the scope of the services
provided by them, or (b) the depth of their knowledge of the Turbine, is sparse.1
1 In effect, what has been produced is hearsay evidence, there being no direct evidence of the
entities’ knowledge or capabilities.
LTMA
[12] In 2014, Contact and Siemens entered into a Long Term Maintenance Agreement (LTMA). This contract contains express provisions dealing with the use of the intellectual property and technology associated with “Covered Equipment,” namely the Gas Turbine, the Steam Turbine and the Generator. There is no dispute that this included the Turbine subject to this proceeding.
[13] The Agreement refers to an “Existing LTMA” for long term services and parts entered into around 22 September 2004, but no copy of this agreement was provided to the Court.
[14] The Scope of Works (Works) is recorded in a Schedule and includes measures for major outage, including the replacement of parts.
[15] The LTMA addresses the protection of information relating to the Works in a detailed way.
[16] First, the LTMA defines “Intellectual Property Right” as:
…any copyright, patent, registered design, design right, trade mark, trade name, or any other legally protected intellectual property right.
[17] Second, clause 3.4.6 of the LTMA provides:
3.4.6 Know-how protection at Site
Subject to
a)the right of the Client’s personnel to observe the Services performed; and
b)the right of the Client’s personnel, provided both parties mutually agree and acting reasonably, to participate in the performance of the Services,
the observation of or attendance at any Services at Site by any person who is not Contractor’s personnel or Contractor’s subcontractor personnel and any recording of Services at Site using cameras, video or other media is subject to Contractor’s authorization. Contractor shall be entitled to suspend the Services in case unauthorized persons attend or observe; or any person records the Services as set out above.
[18] Third, clause 9.4 of the LTMA states:
9.4 Protection of Contractor’s Intellectual Property Rights
Client acknowledges and agrees that Contractor and its Affiliates have a considerable investment in its intellectual property rights and technology associated with the Covered Equipment and its related parts including program Parts. Client therefore agrees not to take any action, either directly or through an Affiliate, which would infringe or violate Contractor’s or its Affiliate’s rights in its patents, trademarks, copyrights or other intellectual property. Client further agrees to use its best efforts to ensure that its suppliers, contractors and other agents or third parties do not take any action inconsistent with Contractor’s or its Affiliate’s intellectual property rights.
No right, title or interest in any patents, copyrights, trademarks, service marks, trade names, trade secrets, or any intellectual property of or held by Contractor or its Affiliates is granted hereunder.
However, the Client shall be entitled to use (on a non-transferable, non- exclusive and royalty free basis) such Intellectual Property without payment of any additional fee for operation and maintenance of the Station.
[19] Fourth, clause 16.1 then provides:
16.1 Confidential Information
a)Drawings, documents and any other information, whether in writing or not, made available by one Party to the other Party in connection with the Agreement, including the content of this Agreement itself (“Confidential Information”), shall be treated as confidential also after termination or expiry of the Agreement and shall not be made available to third parties without the prior written approval of the Party who Confidential Information is to be disclosed or used by either Party other than for the purpose of fulfilling its obligations under the Agreement.
This obligation shall not apply to information which
(i) Is public knowledge at the date of receipt or thereafter becomes public knowledge without breach of this confidentiality undertaking; or
(ii) Is already in the possession the disclosing Party at the date of receipt or has thereafter been legally obtained from others; or
(iii) Is independently developed by the disclosing Party or by its employees who had no access to the information received hereunder.
b)Both Parties agree not to reverse engineer, copy, modify, improve, or make derivative works of the other Party’s Confidential Information, work or parts. Both Parties further agree not to seek any Intellectual Property Rights directly or indirectly based in
whole or part on the other Party’s Confidential Information, work or parts or modifications thereto without the other Party’s prior written consent. Both Parties further agree that if it obtains any such Intellectual Property Rights, it has acted or will act as an agent for the benefit of other Party for the limited purpose of obtaining and securing such Intellectual Property and assigning them to the other Party.
[20] The LTMA also provided for suspension and/or termination of this agreement for contractor’s default, convenience and decommissioning and client’s default. Relevant to the present litigation, a termination fee of [redacted] was payable to Siemens for “decommissioning intended to be a permanent shut down of the Power Station” (clause 12.2). Furthermore Siemens was able to suspend the provision of works or terminate the agreement:
…upon a change in the ownership or ultimate management control of Client, Contractor reasonably believes that this change could materially affect Contractor’s interests, including without limitation the sale of any ownership interest in Client or the Power Station to any entity in competition with Contractor…
[21] In the case of termination, a fee of [redacted] was payable by Contact.
[22] Clause 19 notes that, among other clauses, clause 9 of the LTMA survives the expiration or other termination of the Agreement.
[23] The significance of these provisions in terms of the allegation of breach of confidence is addressed below at [53]–[57].
Sale to Stonehill
[24] The sale of the land to Stonehill occurred in November 2015, with a settlement date of 19 February 2016.
[25] Clause 25.2 and 25.3 of the Sale and Purchase Agreement provided:
25.2 Sale of plant and equipment: The parties will, for a period of twelve (12) months from the settlement date, work together using reasonable endeavours to extract the best value from the plant and equipment located at the property as at the settlement date (excluding the 220kv station transformer which shall remain the property of the Vendor). The parties will work together and use reasonable endeavours to complete the sale of the plant and equipment on the following basis:
(a) the Purchaser will provide the Vendor with all necessary access to the property, and will ensure that appropriate health and safety protocols are complied with for the safety and protection of the Vendor’s staff and contractors on the property;
(b) the proceeds of the sale of such items will be apportioned on a 50/50 basis between the Vendor and the Purchaser;
(c) the sale process will at all times be conducted in good faith
and on an ‘open book’ transparent basis; and
(d) the ownership of any items of plant and equipment left on the property at the expiry of the 12 month period (and not subject to sale with a third party, in which case clause
25.2(b) shall apply) shall pass to the Purchaser, and the
Vendor shall provide no warranties in relation to the same.
25.3 Demolition: The Purchaser warrants that it will not, prior to the expiry of the 12 month period detailed in clause 25.2 above, commence demolition at the property or dispose of any plant and equipment (other than in accordance with clause 25.2).
[26] A Memorandum of Understanding (MoU) was entered into on the settlement date, setting out a process for the sale of the Plant and involving a partnering concept “designed to enhance the positive outcome for all the parties under [the] Agreement.” Title passed to Stonehill, who was then responsible for the security of the Plant (clause 8).
[27] Clause 6.2 of the MoU set up a joint account in which the sale proceeds are deposited:
6.2Contact will, promptly following the expiry or earlier termination of this Agreement:
(a) pay to Stonehill 50% of the value of the Joint Account
(being all Proceeds of Sale less all Recoverable OPEX); and
(b) retain 50% of the value of the Joint Account in satisfaction of the Purchase Price under the ASP.
[28] Clause 9 dealt with the marketing of the site. There are no specific limitations prospective purchasers, but cl. 9.4 of the MoU stipulates:
9.4Approval: No item of Plant or Equipment may be sold without the written approval of both Contact and Stonehill (not to be unreasonably withheld or delayed).
Siemens’ involvement in sale process
[29] Siemens was initially fully engaged in the sale process dealing with the Plant and provided a letter of support dated 8 March 2016. This letter stated:
1. Condition of the Plant
The gas turbine, steam turbine, and generator have been covered and maintained under a Siemens LTMA (Long Term Maintenance Agreement) since the plant was first commissioned.
The last overhaul was carried out at 97,535 EOH. The plant currently has
8,340 OH to the next required major overhaul of the gas turbine.
The steam turbine requires a major overhaul. It is currently released for further operation to align with the next gas turbine overhaul. The generator is due for a major inspection in 2018.
If the plant is to be relocated to another location, Siemens would recommend utilising this opportunity by implementing the major overhaul scopes at the time of the relocation so as to reset the major outage cycle, and to provide the new owner with a fully overhauled unit.
We note that by purchasing the new gas turbine rotor that has been offered by Siemens, the costs of the major overhaul will be significantly reduced.
In general the plant has been very well maintained and operated.
2. Sie mens ’ Relati onshi p wi t h Cont act Energy
Siemens has had a good and collaborative relationship with Contact Energy. This strong relationship and collaboration has resulted in very good plan availability and reliability, and in well executed maintenance outages.
3. Purchasers of the Otahuhu Power Plant
Siemens confirms that subject to the normal process of reaching suitable contractual arrangements and management approvals, we would be pleased to support a purchaser of the Otahuhu Power Plan in the disassembly and subsequent reassembly of the main turbine generator sets at a new location for the power plant, as well as in the ongoing maintenance of these machines.
Sale to GE
[30] In April 2016 GE learned that the Turbine was available for sale in New Zealand and Contact entered into a non-disclosure agreement on 20 April entitled a “Mutual Confidentiality Agreement” (MCA).
[31] The MCA records that the parties will not disclose any “confidential information” except for as provided in the agreement. “Confidential information” is defined in cl 1.1:
(i) all information (in any form) which is disclosed to Recipient by Owner relating to the Purpose, or to the business, operations or affairs of Owner, or of Owner’s related companies; and
(ii) any copies of any of the information described above or any material derived from that information;
(iii) the fact that discussions are taking place in connection with the
Purpose.
[32] An Agreement for the Sale and Purchase of the Equipment (ASPE) was entered into on 13 May. The definitions sections of the ASPE provides, inter alia:
“Equipment” means the Equipment specified in Schedule 1, comprising the
Gas Turbine and the Spare Parts and Consumables.
“Final Removal Date” means December 31st, 2016 or such date as extended by the Vendor (in its sole discretion).
[33] Clause 3.1 provides:
3.1 The Vendor shall sell and the Purchaser shall purchase the
Equipment for the sum of [redacted].
[34] Clause 3.6 provides:
3.6The Purchaser will ensure that in future the Equipment will not be used (either by the Purchaser or any subsequent purchaser) for the purposes of generating electricity in New Zealand.
[35] Clause 5.4 provides:
5.4The Purchaser agrees not to knowingly or negligently infringe or violate, either directly or indirectly through a Related Company, Siemens (NZ) Limited’s or any of its Related Companies’ patents, trademarks, copyrights or other intellectual property rights in respect of the Equipment. The Purchaser further agrees to use its best efforts to ensure that its third parties, including its suppliers, contractors, agents and any purchaser of the Equipment from the Purchaser do not infringe or violate Siemens (NZ) Limited’s or any of its Related Companies’ intellectual property rights in respect of the Equipment. The Purchaser shall use best efforts to impose the obligations in this clause 5.4 (with necessary modifications, and
including this provision) upon any subsequent purchaser of the
Equipment from the Purchaser.
[36] Clause 5.5 states:
5.5The Purchaser will indemnify the Vendor and the Covenantor against any liability, loss, damages, costs or expenses incurred by or ordered against the Vendor, the Covenantor or any Related Company of either of them arising from a breach of clause 5.4 by the Purchaser, and against any liability, loss, damages, costs or expenses incurred by or ordered against the Vendor, the Covenantor or any Related Company of either of them arising from any claim by Siemens (NZ) Limited or any of its Related Companies alleging that the treatment or use of the Equipment by the Purchaser or any of its Related Companies or its third parties, including its suppliers, contractors, and any purchaser of the Equipment from the Purchaser infringes or violates a patent, trademark, copyright or other intellectual property rights in respect of the Equipment (“Siemens Claim”) except to the extent that the Siemens Claim results from a breach by the Vendor or the Covenantor of the warranties in clause 3.5. If the Vendor or Covenantor (as applicable) (the “Indemnified Party”) receives a Siemens Claim, the Indemnified Party shall (a) promptly notify the Purchaser in writing of the Siemens Claim; (b) make no admission of liability in relation to the Siemens Claim, and not take any position adverse to the Purchaser without the prior written consent of the Purchaser (such consent not to be unreasonably withheld or delayed); (c) if the Purchaser elects, give the Purchaser sole authority to control defence and settlement of the Siemens Claim; and (d) provide the Purchaser with such disclosure and assistance as reasonably required to defend the Siemens Claim (at the Purchaser’s cost). Where the Purchaser elects to defend the Siemens Claim under clause 5.5(c) above, the Purchaser will act reasonably and keep the Indemnified Party reasonably informed on progress in respect of the Siemens Claim, and will consult with the Indemnified Party in good faith from time to time above the Purchaser’s conduct of the defence of the Siemens Claim.
[37] Mr Stamatiadis says that he had no notice/knowledge of Siemens’ objections:
[14] At no time during the discussions with Contact was there any suggestion that either Contact or Stonehill were restricted in any way in their dealings with the Turbine, spare parts and consumables. In fact, having reviewed the contractual documents exhibited by Mr Bielinski on behalf of Siemens, I do not understand how Siemens can prevent the sale of the Turbine or any spare parts and related consumables to third parties. The only document I saw from Siemens was the letter of support dated 8 March
2016 provided by Siemens (Exhibit "MB-4" to Mr Bielinski's affidavit). During the negotiations, Contact requested the inclusion of an indemnity
provision in the contract in case GE infringed Siemens’ intellectual property
rights in the purchased equipment. I was not opposed to the inclusion of wording to that effect in the contract. To my understanding, any intellectual property rights in the purchased equipment are exhausted under the so-called “first sale doctrine” and GE made an unrestricted purchase that did not and
would not result in the misappropriation of any Siemens intellectual property rights.
[38] GE has paid the purchase price and now has title to the Turbine.
The evidence
[39] The evidence produced on this matter was not voluminous (sans the contractual material and other annexures). Michael John Bielinski, for Siemens, addressed the background to the supply of the Plant to Contact, the contractual framework and the confidential nature of the information supplied by Siemens for the purposes of construction and maintenance of the plant, including the turbine. He refers to Siemens’ concerns about GE as a purchaser, particularly as a trade competitor and its capacity to reverse engineer the turbine workings. He also describes the events leading up to this application, including only indirect notice that GE was a purchaser of the turbine and that, as late as mid-June 2016, Contact refused to confirm or deny that GE was the purchaser. Mr Bielinski also replies to evidence given for Contact that a number of service providers would likely have access to and knowledge of the turbine workings. He denies that they would have had such knowledge.
[40] Messrs Geoghan, Sibley and Renhart, for Contact, provide evidence as to the background to the Plant and market knowledge. The general thrust of Mr Geoghan’s evidence is that Contact purchased a valuable asset without apparent restriction and only used Siemens to service the Turbine at the time of purchase because it was the only service provider then on the market. Mr Renhart and Mr Sibley provide evidence as to after-market service providers, identifying four such providers that might have access to similar turbines and related information. Mr Renhart noted, for example, that RWE NPower (RWE) was engaged to provide advice in relation to the scope of the maintenance that should be carried out by Siemens in the context of a planned outage and, he says, it was able to do so because of its extensive knowledge of the turbines of the same type as the turbine in dispute. He also notes that user groups, comprising owners of the same turbine, have been formed in Europe, Asia, Australia and New Zealand, and which further suggests, in his view, that information relating to the Siemens’ turbine is known and shared.
[41] Mr Stamatiadis, overseas counsel for GE, provides evidence as to GE’s plans following the sale, including the removal of the Turbine to Europe at an estimated cost of €1.5m. He notes that a project team, comprising approximately 40 people, will be involved in the transfer. He notes that the purpose of obtaining the Turbine is to further advance GE’s maintenance business, and expresses concern that any delay will cause irrecoverable losses. He says that Siemens is trying to impede legitimate competition that GE is entitled to undertake. Lars Hagen Loberg, a senior project leadership manager, employed by GE, also provides evidence as to a site visit on 16 and 17 June 2016, that during which he met a gentleman who was wearing a jacket with a Siemens logo, and that he told this gentleman that he was working for GE in Switzerland. Christian Karl Arnold, an engineer for GE, also gave evidence of a site visit to the Otahuhu Power Station on 20 April 2016. He was not able to formally inspect the Turbine. The purpose of his visit was to confirm the version and general condition of the Turbine. He says that he was unable to derive any technical knowledge about the operation of the Turbine from the materials that he was shown
during the visit.2
[42] Peter John Bishop, a director of Stonehill, provided an affidavit explaining that Stonehill purchased Otahuhu Power Plant site in order to develop a new commercial business park and that Stonehill has no interest in keeping any of the plant, including the Turbine. Mr Bishop describes the process of selling the Turbine to GE and Stonehill’s lack of knowledge that the Turbine was confidential information. Mr Bishop states that if an injunction is granted requiring the Turbine to remain on the site, this will directly affect Stonehill’s ability to develop it and effectively bring its business park project to a halt.
The “Confidential” information
[43] Ms Fitzgerald for Siemens identifies two types of information3 that are claimed to be confidential given that the Turbine was constructed and serviced only
by Siemens, namely:
2 There is further evidence from a clerk at Simpson Grierson attaching copies of the relevant contracts.
3 A third pleaded type dealing with servicing manuals was not pursued, given undertakings by
Contact in respect of them.
(a) The information contained within the Turbine or “Turbine
Workings”:
(i)The precise structures and dimensions for the blades and vanes in the Turbine (being the size, shape, materials used (both to construct the blade itself and on any surface coating) and precise location and fit of the blade within the Turbine);
(ii)The precise structures and dimensions for the burners in the Turbine (being the size, shape, materials used and precise location and fit of the burners within the Turbine);
(iii)The precise structures and dimensions for the combustion chamber, casings, rotor, bearings and auxiliary systems in the Turbine (being the size, shape, materials used and precise location and fit of these components within and associated with the Turbine); and
(iv) The precise dimensional measurements of how the Turbine was constructed.
(b)Servicing information, including upgrades to the Turbine over time during outages.
[44] Mr Gray for GE contends that this information is in the market place, noting that:
(a) Several after-market service providers have sent Contact comprehensive materials setting out their knowledge and expertise in relation to turbines of the same type as the Turbine.
(b)In 2010, Contact engaged RWE to advise on the scope of maintenance that should be carried out by Siemens in the context of a planned outage. RWE could provide that advice because of its extensive knowledge of turbines of the same type as the Turbine.
(c) Information relating to Siemens turbines is known and shared amongst users of Siemens turbines, with Siemens’ knowledge and participation. For example, Contact is a member of a user group for owners of STG5-4000F turbines (the same model as the Turbine). Siemens attends this group’s meetings. Siemens also attends and provides presentations at an Asia-Pacific user group for STG5-4000F turbines, along with competing oOEM (other Original Equipment Manufacturer) providers.
(d)Mr Renhart understands that some of the other users of these turbines do not have maintenance agreements with Siemens.
(e) There is a well-established secondary market for these types of turbines. For example, Mr Sibley has identified current offers for sale of such turbines, including one of the same type and class as the Turbine. GE is unaware of any restrictions on who is permitted to purchase these turbines.
[45] Mr Gray further notes that there have been no outages since the LTMA and so there is no subsequent confidential servicing information subject to it.
Interim injunction principles
[46] Siemens’ application is brought pursuant to r 7.53 of the High Court Rules. I
adopt the orthodox two-pronged test for interim injunctions, namely:4
(a) there must be a serious issue to be tried; and
(b)I must be satisfied that the balance of convenience lies with the grant of the injunction.
[47] On whether there is a serious question to be tried, it was observed in
American Cyanamid that:5
4 Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 129 (CA).
5 American Cyanamid Co v Ethicon Ltd [1975] AC 396 (HL) at 406.
...where the legal rights of the parties depend upon the facts that are in dispute between them, the evidence available to the court at the hearing of the application for an interlocutory injunction is incomplete... It is no part of the court's function at this stage of the litigation to try to resolve conflicts of evidence on affidavit as to facts on which the claims of either party may ultimately depend, nor to decide difficult questions of law which call for detailed argument and mature consideration.
[48] Nevertheless, as stated by the Court of Appeal in Roseneath Holdings v
Grieve:6
It is basic that:
"…before any question of balance of convenience can arise the party seeking the injunction must satisfy the court that his claim is neither frivolous or vexatious; in other words that the evidence before the court discloses that there is a serious question to be tried….": Eng Mee Yong v Letchumanan s/o Velayutham [1980] AC
331 at p 337 per Lord Diplock.
(emphasis added)
A serious issue?
[49] The central issue in this case is whether Contact was subject to an obligation of confidence in relation to the Turbine Workings and servicing information. It is common ground that there are three key elements to be proven by Siemens, namely:7
(a) first, the information the plaintiff is seeking to protect must be of a confidential nature;
(b)second, the information must have been communicated in circumstances importing an obligation of confidence; and
(c) third, there has been an unauthorised use or disclosure of that information, to the detriment of the party communicating it.
6 Roseneath Holdings v Grieve [2004] 2 NZLR 168 at [35].
7 AB Consolidated Limited v Europe Strength Food Pty Limited [1978] 2 NZLR 515 (CA) at 520.
Confidential?
[50] The confidential nature of the Turbine Workings and servicing information is centrally a question of fact. As Ms Fitzgerald submitted, the test is fourfold, citing Megarry VC: 8
First, I think that the information must be information the release of which the owner believes would be injurious to him or of advantage to his rivals or others. Second, I think the owner must believe that the information is confidential or secret, that is that it is not already in the public domain. It may be that some or all of his rivals already have the information: but as long as the owner believes it to be confidential I think he is entitled to try and protect it. Third, I think that the owner's belief under the two previous heads must be reasonable. Fourth, I think that the information must be judged in the light of the usage and practices of the particular industry or trade concerned.
[51] The present evidence is that only Contact and Siemens have had material access to the inner workings of the Turbine, and only the latter has the expertise to use that information in any meaningful sense. There is broad brush evidence of access by other providers to the model of Turbine in dispute and that there are other providers who service this type of Turbine. As noted the extent of such knowledge is unclear and plainly there is a serious evidential issue to be tried as to whether the specific information relating to the Otahuhu Turbine reasonably remains confidential to Siemens.
[52] I acknowledge that relevant issues of law on the nature of confidential information are raised by the proceeding, namely whether confidential information can be embedded in an object and whether the sale of a product on the open market extinguishes confidentiality. These are thorny matters. There can be no breach of confidence in revealing to others something which is already in the public domain9 and transfer of ownership of a chattel ordinarily includes an entitlement to dismantle it to find out how it works for reverse engineering purposes.10 But whether something is in the public domain, or whether this is a case of the ordinary sale kind,
must be determined on the facts, there being cases of apparently publically available
8 Thomas Marshall (Exports) Ltd v Guinle [1978] 3 All ER 193 (Ch) at 209–210.
9 Coco v AN Clark Engineers Ltd [1968] FSR 145 (Ch).
10 Mars UK v Teknowledge [1999] EWHC 226; for contrary authority see Hynix Inc. v Vannex
International Limited & Anor [2015] HKCFI 788 at [35].
information and/or sales of product that have attracted an obligation of confidence.11
Alfa Laval Cheese Systems v Wincanton Engineering Ltd12 is helpfully illustrative of both outcomes. Morritt J observed that there was an arguable case that the inner workings of a cheese forming machine remained confidential because the design concept can only be ascertained by dismantling the tower.13 But he rejected the confidentiality claim in relation to pipe work that was plain for all to see.14
Circumstances importing an obligation of confidence?
[53] Ms Fitzgerald relies on the LTMA to show that the Turbine Workings and servicing information was subject to an express obligation of confidence. Clause 9.4 is said to protect this information as Siemens’ “intellectual property and technology”. Mr Gray contends that:
(a) There are no express confidentiality obligations under the LTMA in relation to the pre-existing Turbine Workings sold to Contact in 1997.
(b) Rather, clause 9.4 protects orthodox intellectual property and clause
16 protects confidential information related to the servicing of the
Plant, provided under the LTMA.
(c) Contact owned the Turbine, contracted on the basis that it could deal with the Turbine as it thought fit (referring to affidavit evidence of Mr Geoghan).
(d)The LTMA expressly acknowledges that Contact may use other service providers and or sell the Turbine to a competitor – referring to clause 12.4 (see [20] above) – so that there could be no reasonable expectation of confidence in light of Contact’s ownership rights and
contractually envisaged power to sell the Plant to a trade competitor.
11 Ackroyds (London) Limited v Islington Plastics Limited [1962] RPC 97 (QB); Aquaculture Corporation v New Zealand Green Mussel Co Ltd 5 IPR 353 (HC); Hynix Inc. v Vannex International Limited, above.
12 Alfa Laval Cheese Systems v Wincanton Engineering Ltd [1990] FSR 583 (Ch).
13 At 590.
14 At 591.
[54] This issue involves a debate about contractual interpretation and whether clauses 9.4 and 16.1 cover the Turbine Workings (including information conveyed by the Turbine itself) and the servicing information. It cannot be robustly resolved summarily on the evidence before me.15 As discussed further below at [55], Clause
9.4, on its face, arguably protects all forms of Siemens’ intellectual property (including confidential information) in the Turbine Workings and the servicing information, given the express acknowledgement that Siemens has made considerable investment in the “intellectual property rights and technology associated with the Covered Equipment and its related parts including program Parts.” The resolution of the issue of contractual interpretation therefore requires a careful examination of the broader factual matrix, particularly as it relates to the basis upon which the Plant was transferred to Contact, intervening steps taken by Siemens in terms of servicing the Plant and any prior servicing agreements (referred to in the LTMA and by Mr Geoghan but not produced in evidence), and the immediate context to the LTMAs in order to objectively assess whether, as claimed, the reference to “intellectual property and other technology” at clause 9.4 embraces the confidential information associated with the Turbine Workings and servicing information.
[55] On the evidence and argument before me I am also satisfied that, as (effectively) submitted by Ms Fitzgerald, there is a proper arguable basis for the obligation of confidence:
(a) There is sufficient evidence to infer that the inner workings of the Turbine remain confidential to Siemens (and not in the public domain), including upgrades to the Plant known only to Siemens.
(b)The Plant Agreement anticipates both copyright and other forms of intellectual property entitlements vesting in Siemens and confers a
limited use right only, namely for the specific purpose of the operation
15 On the evidence before me this is not a matter where it can be said on the balance of probabilities that the claim cannot succeed: Westpac Banking Corporation v MM Kembla New Zealand Ltd [2001] 2 NZLR 298 (CA) at [64]. Nothing I say here should be seen to foreclose or determine an application, properly made, for summary judgment.
and maintenance of a Power Station – see clauses 1.10 and 5.10 at [6]
and [8] above.
(c) The Plant has been serviced only by Siemens pursuant to consecutive versions of an LTMA which was first negotiated in parallel with the Plant Agreement.16 The prior iterations of the LTMA will need to be examined to assess whether the imposition of protections of intellectual property and confidential information were in place from the outset.17
(d)The 2014 LTMA “acknowledges” Siemens’ significant investment in “its intellectual property rights and technology associated with the Covered Equipment and its related parts including program Parts,” supporting an inference that the protection afforded by clause 9.4 of the LTMA extended to technology embedded in the Turbine.18
(e) Clause 9.4 imposes an express obligation on Contact “not to take any action” that would “infringe or violate” Siemens’ rights in its patents, trademarks, copyrights or other intellectual property.” There is authority for the proposition that confidential information may qualify
as intellectual property19 and there is nothing to suggest within the
LTMA that a limited conception of intellectual property was in contemplation.20
(f) A broad protection of “Confidential Information” is also expressly envisaged by clause 16.1 which includes “any” information made available by Siemens to Contact and records an agreement “not to
reverse engineer” from Confidential Information. Presumably, the
16 A point made by Mr Geoghan of Contact.
17 Mr Gray submitted that I should draw an adverse inference from the absence of the earlier agreements – i.e. on the basis that if they assisted Siemens then they should have been produced.
But this belies the urgent nature of the proceedings and the reverse is also true – if they had been helpful to GE (or Contact) then they could have been produced.
18 See [18] above.
19 Coogan v News Group Newspapers Ltd [2012] 2 WLR 848 (EWCA) at [39].
20 See discussion [17]-[19] above.
information includes the physical Turbine Workings from which to reverse engineer. 21
[56] I accept that the Turbine was transferred to Contact and that the potential servicing and acquisition of the Turbine by competitors appears to have been anticipated by the LTMA. A reasonable expectation of confidence is difficult to mount in that context.22 But this simply begs the question as to the reconcilability of the express contractual provisions dealing with intellectual property and confidentiality on the one hand, and termination of the agreement on the other, and
the reasonable expectation of the parties in light of the agreement as a whole and the broader factual matrix.
[57] For argument’s sake, the protection afforded by clause 9.4 is reconcilable with prospect of future observation and/or use by trade competitors: provided access is afforded solely for the purpose of operating the Power Station, no obvious inconsistency arises. Furthermore, best endeavours in the context of sale may well be to simply give notice to Siemens of the intention to sell to a trade competitor so it can take whatever steps it can to maintain the confidentiality of the information (including by acquisition). In any event, this is the type of granular analysis that needs to be undertaken in order to properly resolve the issues presented by Siemens’ claim.
Unauthorised use and disclosure?
[58] Siemens provided assistance with the sale process. But that was clearly premised on the basis that the sale was for the purpose of subsequent power generation, not for the purpose of surrendering its technology to a trade competitor. The negotiations with GE were also undertaken confidentially, Mr Gray noted, to avoid interference by Siemens. Plainly the sale of the Turbine, and the inevitable
disclosure of the turbine workings, was not authorised by Siemens.
21 See [19] above.
22 Ms Fitzgerald contended that breach of confidence is not about a reasonable expectation, but rather whether the elements underpinning the obligation of confidence are present. It is not a matter requiring determination by me for present purposes, but as Megarry VC observed in Thomas Marshall (Exports) Ltd v Guinle, above n 8, a central issue is whether the claimant reasonably believed that the information was confidential.
[59] As with the preceding elements, difficult issues of law and fact need to be addressed under this heading, including whether a breach of confidence claim can extend to a third party purchaser. The leading authority appears to be Hunt v A which adopts the principle of unconscionable conduct, that is whether the recipient acted unconscionably. The critical factor is the state of the third party’s knowledge.23 Mr Stamatiadis (for GE) disclaims relevant prior knowledge, but state of mind issues (particularly involving a potentially large number of people) are quintessentially issues of fact to be determined on the evidence. For present purposes it is sufficient
to refer to Contact’s agreement with GE and the express provision for (a) acknowledgment of Siemens’ intellectual property and (b) an indemnity for breach. Mr Stamatiadis explains that he took a relaxed approach to this because Siemens’ rights were exhausted by the first sale doctrine and that GE made an unrestricted purchase that could not result in misappropriation of Siemens’ right. But a reasonable inference can be drawn that GE knew that Siemens might have an actionable claim in respect of intellectual property and carried on in any event. The extent of that knowledge and whether it was unconscionable can only be sensibly resolved at a full trial.
Conclusion
[60] Given the foregoing, I am satisfied that there is a serious issue to be tried in relation to each of the elements of the breach of confidence claim.
The balance of convenience
[61] The following factors are relevant to the balance of convenience assessment: (a) The effect of granting an injunction:
(i)On Stonehill is significant in terms of holding costs and the deferred development of the Otahuhu site;
(ii)GE will be deprived of its rights to use the Turbine information, including for the purpose of its maintenance
23 Hunt v A [2007] NZCA 332, [2008] 1 NZLR 368 at 384 and see in particular [92]-[94].
business – this will include loss of opportunity to expand this business and/or sale of parts;
(iii)Wasted costs, including costs already incurred in relation to the removal of the Turbine to Europe and any costs arising from the delay in transferring the Turbine to Europe;
(iv)GE is exposed to the risk that Stonehill will exercise its rights to sell the Turbine in December 2016.
(b)If an injunction is not granted, Siemens will be unable to protect its confidential information with, among other things, potential corresponding losses in terms the use of that information by GE to its detriment in the same servicing and maintenance market.
(c) The undertaking as to damages is not supported by security in New Zealand (though there is clear evidence that Siemens is a company of considerable substance in terms of earnings and access to funds).
(d)The substantive proceedings (including appeals) could take several years to resolve, with the potential to substantially diminish the value of the Turbine Workings to GE.
(e) The potential for permanent injunctive relief is unclear, especially as the LTMA imposes a best endeavours requirement only.
(f) Allegations that Siemens is acting in anti-competitive manner and, conversely, that GE has knowingly acted surreptitiously are not capable of resolution in this context.
(g)Quantification of damages is problematic both for GE and Siemens; but that is a natural corollary of the nature of the claim – namely for breach of confidence and the use to which that confidential information can be put in the future by either of them.
(h)The relatively short delay in commencing proceedings is explained by the late notice given to Siemens of the sale to GE. In this regard, GE’s strategy of avoiding interference by Siemens succeeded insofar as it was able to document and execute the transfer without hindrance.
Outcome
[62] In the result, having weighed these factors, the clear tipping point is that if Siemens’ claim is correct, Contact will have breached an obligation of confidence and GE will have improperly obtained confidential information to the corresponding detriment of Siemens’ business. While this may be cured in part by damages, Siemens will be unable to recover the lost information improperly transferred to a trade competitor so as to fully remedy the breach. In short, this is the paradigm case
where the equitable remedy for the breach of confidence, if proven, should apply24
and can only be realistically achieved if the status quo is preserved pending resolution of the substantive claim. Accordingly, I am prepared to make orders preventing the transfer of the Turbine to GE subject to the following conditions:
(a) As offered by Siemens, arrangements must be put in place for the removal of the Turbine from Stonehill’s property (and to the extent necessary there shall be orders requiring the removal of the Turbine).
(b)Siemens must provide a form of security, for example in the form of a bank guarantee, in a sum to be agreed, or if not agreed, to be fixed by the Court.
(c) Leave is granted to the parties to have the injunction reconsidered in the event of undue delay in the resolution of the proceedings.
[63] The parties have 5 working days to agree the terms of the injunctive relief and, failing that, to file submissions including draft orders. The parties should give
24 As Lord Goff noted in Attorney-General v Guardian Newspapers (No 2) [1990] 1 AC 109 (HL) at 281: “I realise that, in the vast majority of cases, in particular those concerned with trade secrets, the duty of confidence will arise from a transaction or relationship between the parties– often a contract, in which event the duty may arise by reason of either an express or an implied term of that contract. It is in such cases as these that the expressions ‘confider’ and ‘confidant’ are perhaps most aptly employed”.
consideration to the costs associated with the removal and storage of the Turbine. My current view is that these costs should be carried by Siemens, but on the basis that they may be recovered in the event the breach of confidence claim is proven.
Costs
[64] Costs should follow the event, but I understand the parties wish to be heard. Submissions on costs, no longer than 3 pages, are to be filed within 5 working days.
3