Artedomus (Aust) Pty Ltd v Del Casale & Ors [2007] NSWCA 172 | Case summary

Artedomus (Aust) Pty Ltd v Del Casale & Ors [2007] NSWCA 172 | Case summary | Zoe

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Amber Size & Chemical Co. Limited v. Menzel [1913] 2 Ch. 239 Artedomus (Aust) Pty Ltd v Del Casale & Ors (2006) 68 IPR 577 Balston Limited v. Headline Filters Limited [1987] FSR 330 Beach Petroleum v. Kennedy [1999] 48 NSWLR 1 Blyth Chemicals Ltd v Bushnell (1933) 49 CLR 66 Boucaut Bay Co Ltd v The Commonwealth (1927) 40 CLR 98 BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 Bridge v Campbell Discount Co Ltd [1962] AC 600 Butt v. Long (1953) 88 CLR 476 Byrne v Australian Airlines Ltd (1995) 185 CLR 410 Cactus Imaging Pty Limited v Glenn Peters [2006] NSWSC 717 Cash Orders (Amalgamated) Ltd v Haynes (1937) 37 SR (NSW) 157 Cassis v. Kalfus (No.2) [2004] NSWCA 315 Coco v. A.N. Clark (Engineers) Limited [1969] RPC 41 Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 Corrs Pavey Whiting & Byrne v. Collector of Customs (Vic) (1987) 14 FCR 434 Cream v. Bushcolt Pty. Limited (2004) ATPR 42-004, [2004] WASCA 82 Deta Nominees Pty Ltd v Viscount Plastic Products Pty Ltd [1979] VR 167 E. Worsley & Co. Limited v. Cooper [1939] 1 AllER 290 Faccenda Chicken Limited v. Fowler [1987] Ch. 117 Guildford Motor Company Limited v. Horne [1933] 1 Ch. 935 H & R Block Limited v. Sanott [1976] 1 NZLR 213 Half Court Tennis Pty Ltd v Seymour (1980) 53 FLR 240 Haynes v Doman [1899] 2 Ch 13 Herbert Morris Limited v. Saxelby [1915] 2 Ch. 57 Heyman v Darwins Ltd [1942] AC 356 ICT Pty. Limited v. Sea Containers Limited (1995) 39 NSWLR 640 In Re Irish, Irish v Irish (1888) 40 Ch D 49 Industrial Rollformers Pty. Limited v. Ingersoll-Rand (Australia) Limited (2001) Aust. Contract R 90-129, [2001] NSWCA 111 John Fairfax Publications Pty Ltd v Birt [2006] NSWSC 995 Kirchner v Gruban [1909] 1 Ch 413 CASES CITED: Lamb v Evans [1893] 1 Ch 218 Lansing Linde Ltd v Kerr [1991] 1 All ER 418 Lister v Romford Ice & Cold Storage Co Ltd [1957] AC 555 Liverpool City Council v Irwin [1977] AC 239 McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 Moorgate Tobacco Co Ltd v Philip Morris Ltd (No 2) (1984) 156 CLR 414 Morison v Moat (1851) 9 Hare 241; 68 ER 492 National Education Advancement Programs (NEAP) Pty Ltd v Ashton (1995) 128 FLR 334 National Engineering Limited v. Chilco Enterprises Pty. Limited [2001] NSWCA 291 Nocton v. Lord Ashburton [1914] AC 932 Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co [1894] AC 535 NP Generations Pty Ltd v Feneley (2001) 80 SASR 151 O'Brien v Komesaroff (1982) 150 CLR 310 Ormonoid Roofing and Asphalts Ltd v Bitumenoids Ltd (1930) 31 SR (NSW) 347 Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 Printers & Finishers Ltd v Holloway [1964] 3 All ER 731; [1965] RPC 239 Reid & Sigrist Ltd v Moss and Mechanism Ltd (1932) 49 RPC 461 Riteway Express Pty Ltd v Clayton (1987) 10 NSWLR 238 Robb v Green [1895] 2 QB 1 Robb v. Green [1895] 2 QB 315 Saltman Engineering Co Ltd v Campbell Engineering Co Ltd [1963] 3 All ER 413 Scheckter v. Kolbe [1955] 3 SAf LR 109 Sir W C Leng & Co v Andrews [1909] 1 Ch 763 Smith Kline & French Laboratories (Australia) Limited v. Secretary, Department of Community Services & Health (1990) 22 FCR 73 Smith v. Hancock [1894] 2 Ch 377 at 385 T.W. Cronin Shoe Pty. Limited v. Cronin [1929] VLR 227 The Commonwealth v John Fairfax and Sons Ltd (1980) 147 CLR 39 Thomas Marshall (Exports) Ltd v Guinle [1979] 1 Ch 227 Tuck & Sons v Priester (1887) 19 QBD 629 United Indigo Chemical Co. Limited v. Robinson (1939) 49 RPC 178 Weldon & Co Services Pty Ltd v Harbinson [2000] NSWSC 272 Wright v. Gasweld Pty. Limited (1991) 22 NSWLR 317

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HELD (granting leave to appeal and allowing the appeal in part) (per Hodgson JA with McColl JA agreeing) (1) During the course of employment, confidential information is protected by an implied term of good faith in the employment contract: Robb v Green [1895] 2 QB 315. (2) Once employment ceases, in the absence of an express contract dealing with the matter, the issue of confidentiality is generally best dealt with under the general equitable principles and not through implied terms in the employment contract. (3) There are two classes of confidential information, one of which cannot be used by ex-employees, and the other of which can be used, unless there is a valid contractual restraint. Faccenda Chicken Limited v Fowler [1987] Ch. 117; Wright v Gasweld (1991) 22 NSWLR 317. (4) The factors to be taken into account when deciding which category commercially sensitive information belongs to include the extent to which it is known inside and outside the business organisation, the value of the information to competitors, the effort spent in developing the information and the difficulty in acquiring or duplicating it. If the confidential information can be readily distinguished from an employee's general know-how and is not ascertainable by enquiry or experiment, then it is more likely to be treated as confidential. Here, it was difficult to separate out the appellants' general know-how in relation to the stone from the information sought to be protected, and in the absence of contractual constraint this information could be used by the appellants. E. Worsley & Co. Limited v Cooper [1939] 1 AllER 290; Balston Limited v Headline Filters Limited [1987] FSR 330; Wright v Gasweld (1991) 22 NSWLR 317. (5) (Obiter) A distinction may be drawn between ex-employees disclosing information for others to use and actually using it themselves, so that in certain circumstances, equitable relief could be granted against the former but not the latter. (6) On the contract claim, there was no disclosure by the first appellant of the commercially sensitive information, but the conduct of the first appellant amounted to competition with the respondent, and thus he breached the Agreement. (7) Improper use under s.183 of the Act encompasses breach of an equitable obligation. As there was no such breach here, there was no improper use of the information. (8) The permanent injunctions were in any event excessive. (per Campbell JA with McColl JA agreeing) (9) An analysis under implied contractual duty of good faith would end in a test of its necessity for the effective operation of the contract of employment. Lamb v Evans [1893] 1 Ch 218. BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266. Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337. Byrne v Australian Airlines Ltd (1995) 185 CLR 410.

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Wednesday 18 July 2007 DEL CASALE & ORS. V. ARTEDOMUS (AUST) PTY. LIMITED Judgment 1 HODGSON JA: On 29 March 2006, Burchett AJ made orders in proceedings in which the opponent Artedomus had sued the claimants Mr. Del Calsale, Mr. Savini and Stone Arc alleging misuse of confidential information, and in which he had given reasons for judgment on 13 March 2006. The orders he made were: The Court declares that: 1. The plaintiff imparted information in confidence to the First and Second Defendants while both were employees and/or directors of the Plaintiff concerning the source of the stone products sold in Australia known as Isernia, being Pietra di Modica, and that information had the necessary quality of confidence. 2. The First and Second Defendants utilised improperly and contrary to the obligations binding them in equity the confidential information referred to in paragraph 1 so as to obtain suppliers of the stone known as Isernia which is also known as Pietra di Modica or Pietra di Ragusa or Timpa for the Third Defendant. 3. Pietra di Modica (Isernia) and Timpa or Pietra di Ragusa although extracted and sold by different suppliers are the same material. 4. The conduct of the First and Second Defendant referred to in paragraph 2 above was a breach of the fiduciary duty they owed the Plaintiff and a breach of s 183 of the Corporations Act 2001. 5. The Third Defendant knowingly profited from the First and Second Defendants' breaches of confidence, and the Second and Third Defendants were involved in the First Defendant's breaches of s 183 of the Corporations Act. 6. The conduct referred to in paragraph 2 above also constituted a beach, by the First Defendant, of his contractual obligations as to confidential and commercially sensitive information pursuant to clause 7 of the Share Sale Agreement. 7. The first defendant also contravened by arranging and effecting the importation of Pietra di Modica by whatever name through the Third Defendant his obligation pursuant to the said clause 7 not to compete with the Plaintiff for a period of three years from 4 December 2002 in New South Wales. The Court Orders that: 8. The Defendants are permanently restrained from utilising the confidential information they have regarding the source of the stone products referred to in Order 1 so as to obtain supplies of this material for themselves or others. 9. An account of profits be taken by an Associate Justice to determine the profits made by each of the Defendants arising from their breaches referred to in the declarations above. 10. The Defendants pay to the Plaintiff the amount of profits assessed pursuant to the account ordered to be taken. 11. The Defendants pay the Plaintiffs costs of the proceedings to date and such costs be assessed and payable forthwith."

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CIRCUMSTANCES 3 Artedomus is an importer of stone and ceramic products for the building industry, having a turnover of about $10 million per year. 4 In recent years, its largest selling product (making up about 30% of total sales) has been a stone that it sells under the name "Isernia", which is a stone of type known as modica (or Pietra di Modica) obtained from the Ragusa district in Sicily, which Artedomus purchases from an Italian concern called Arredo Italia. 5 Mr. Schepsis (who became the managing director of Artedomus when it was formed in 1998) had first seen this stone exhibited by Arredo Italia at a trade fair in Verona, Italy in 1991. Over the following year or two, he tried to obtain samples from Arredo Italia, but it was not until 1993 that he obtained the first container-load of samples. In about 1995 or 1996, the stone started to achieve some popularity with architects and designers in Australia, and thereafter its popularity continued to grow. Up to 2002, Mr. Schepsis and (from 1998) Artedomus were the sole importers of modica stone into Australia. 6 Although it could readily be ascertained that modica stone came from the Ragusa region, it could not easily be ascertained that Isernia was modica stone, and Artedomus went to some lengths the conceal this. Only directors of the company, the warehouse manager and those responsible for payments to suppliers were given this information. 7 From 16 April 1998, Mr. Del Casale was a director of Artedomus, and in May 1998 he became the manufacturing manager of Artedomus. From 11 June 1999, Mr. Savini was a director of Artedomus. Mr. Schepsis repeatedly emphasised to each of them, during their time with Artedomus, that the source of products such as Isernia was not to be disclosed. 8 On 28 June 2002, Mr. Del Casale's employment with Artedomus was terminated, due to the closure of the company's manufacturing division. On 17 July 2002, Mr. Savini resigned as a director of Artedomus. 9 Mr. Del Casale (or rather a company Coghill Pty. Limited) and also a company Savini Pty. Limited owned shares in Artedomus; and in August 2002 Mr. Del Casale made it known that he wished to sell his shares. At around the same time, he was doing some work concerning a proposed business project concerning car telephones under the name Car Baby; and on 2 September 2002 he set up the company Stone Arc. 10 On 6 September 2002, Mr. Savini resigned from his employment at Artedomus, his actual employment ceasing on 27 September 2002. During September he did some work with Mr. Del Casale on the Car Baby project, and on 19 September 2002 he became a director of Stone Arc. 11 On 2 October 2002, Mr. Savini went to Italy; and on 4 and 5 October 2002, he met suppliers of stone from the Ragusa region at a Verona trade fair, the particular suppliers being Avola Stone and Italia Lithos. In mid-October, he visited the Ragusa region in Sicily where this stone is found. 12 During October 2002, there were negotiations for an agreement whereby Mr. Del Casale and Mr. Savini would sever their connections with Artedomus. 13 This agreement was made on 31 October 2002, being an agreement whereby companies associated with Mr. Del Casale and Mr. Savini sold shares in Artedomus and associated shares and trust units to parties associated with Artedomus for about $120,000.00 (in the case of the company associated with Mr. Savini) and about $420,000.00 (in the case of companies associated with Mr. Del Casale). The agreement also provided for repayment of loan accounts, and contained the following provision concerning Mr. Del Casale, described as the Officerholder: Resignation of and Payment of Redundancy to Office Holder 7. In consideration for the payment to him by the Company of a redundancy payment of $40,000 (forty thousand dollars) by bank cheque on the Settlement Date contemporaneously with other payments due to the Vendors pursuant to this Agreement on that date the Officeholder hereby agrees to tender his resignation as a Director and Secretary of the Company and the Trustee. The Officeholder agrees not to compete with the Company for a period of three years nor to pursue any legal claim against the Company or hold himself out as an employee or officer of the Company and to keep confidential any commercially sensitive information he may be in possession of or have become aware of during his employment by the Company and the Trustee. 14 On 5 November 2002, Mr. Del Casale went to Italy. Two days later he received a message from a person associated with Artedomus, and he arranged to have communications with that person sent to an associate in Indonesia, rather than to Italy. 15 Late in November, Mr. Del Casale and Mr. Savini went together to the Ragusa region in connection with their contacts with suppliers of stone from that region. 16 On 27 November 2002, the agreement of 31 October 2002 was settled, and Mr. Del Casale resigned as a director of Artedomus. 17 On 3 December 2002, Mr. Del Casale resigned as a director of Stone Arc, and sold his shares in Stone Arc to Mr. Savini and a trust. 18 On 12 December 2002, Stone Arc received a sample crate of stone including modica stone from Avola; and on 19 December 2002, it received a sample crate of stone from Italia Lithos. 19 These proceedings were commenced on 16 January 2003, and interlocutory injunctions were granted on 23 January 2003.

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DECISION OF PRIMARY JUDGE 21 The primary judge found to the effect that the information that Artedomus's successful stone Isernia was modica stone, and thus sourced from the Ragusa region of Sicily, was highly confidential information in the nature of a trade secret. Accordingly, he found there was an obligation on Mr. Del Casale and Mr. Savini to keep this information confidential, even after termination of their relationship with Artedomus. He distinguished Wright v. Gasweld Pty. Limited (1991) 22 NSWLR 317. 22 The primary judge rejected Mr. Savini's evidence that his trip to Italy on 2 October 2002 was a holiday, and that it was by chance that he contacted two suppliers of Ragusa stone at the Verona trade fair. He held that Mr. Del Casale's arrangement about communications to Indonesia was a device to conceal the fact that he was in Italy. He also rejected the contention of the appellants that the stone supplied by Italia Lithos was not modica stone and was different from Isernia. Accordingly, the primary judge found that Mr. Del Casale and Mr. Savini had used the confidential information in breach of their obligation when they located so rapidly the origin of stone of the same type as Isernia, and alternative suppliers of that stone. He held that Artedomus was entitled to succeed in its claim for breach of confidence against them, and also against Stone Arc which knowingly profited from their breach of confidence. 23 As regards the contractual provision binding Mr. Del Casale, the primary judge held that, despite his resignation as a director and his sale of shares in Stone Arc, his continuing participation in that company's activities breached the covenant not to compete with Artedomus, referring to Heydon The Restraint of Trade Doctrine (2nd Ed. 1999) at 243-4; Guildford Motor Company Limited v. Horne [1933] 1 Ch. 935; Smith v. Hancock [1894] 2 Ch 377 at 385; Scheckter v. Kolbe [1955] 3 SAf LR 109; H & R Block Limited v. Sanott [1976] 1 NZLR 213. 24 On the question whether this contractual term was invalid as a restraint of trade, the primary judge held to be relevant the principle that contracts for the sale of goodwill are regarded less strictly than contracts of service, referring to T.W. Cronin Shoe Pty. Limited v. Cronin [1929] VLR 227; Butt v. Long (1953) 88 CLR 476; Cream v. Bushcolt Pty. Limited (2004) ATPR 42-004, [2004] WASCA 82; Industrial Rollformers Pty. Limited v. Ingersoll-Rand (Australia) Limited (2001) Aust. Contract R 90-129, [2001] NSWCA 111. Accordingly, he held that the restraint against competition and use of confidential information for three years was reasonable, provided it was confined to New South Wales. 25 The primary judge held that a case was therefore made out for liability under the contract, and he also held that a case was made out for liability under s.183 of the Corporations Act; but by reason of his findings as to breach of confidentiality, these matters did not add to the relief otherwise granted.

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GROUNDS OF APPEAL 26 The claimants rely on the following grounds of appeal: A. His Honour erred in finding that the geographical location of the limestone known as Pietra di Modica (referred to by His Honour as "the source") was capable of being "confidential information" that equity would prevent the Appellants from utilising for their own purpose. B. His Honour should have held that as the geographical location of Pietra di Modica was information freely available in the market place then this information could not be considered "confidential" so as to preclude the Appellants from utilising this information for their own purposes. C. His Honour failed to provide sufficient reasons for His Honour's conclusion that the Appellants had utilised the "confidential information" regarding the geographical location of Pietra di Modica in locating the alternative supplier of Pietra di Modica for the Third Respondent. D. His Honour should have concluded that their (sic) was insufficient evidence from which he could infer that the Appellants had utilised the "confidential information" regarding the geographical location of Pietra di Modica in locating the alternative supplier of Pietra di Modica for the Third Respondent (particularly as this proposition was never put to any of the Appellants in cross examination). E. Given that the geographical location of Pietra di Modica was information freely available in the market place His Honour erred in finding that the First Appellant had breached clause 7 of the Share and Unit Purchase Agreement by disclosing "commercially sensitive information". F. His Honour erred in finding that the First Appellant had disclosed confidential information by disclosing the geographical location of Pietra di Modica as there was no evidence to support that finding. G. His Honour erred by failing to find that the restraint of trade (prohibiting the First Appellant from competing with the Respondent) imposed on the First Appellant was not a restraint imposed on him as an employee of the Respondent. H. His Honour erred by failing to find that the restraint of trade prohibiting the First Appellant from competing with the Respondent was void because: i) it prohibited an employee from competing with his former employer; ii) the Respondent had not established that it protected a legitimate business interest of the employer; iii) it was not the least restraint necessary to protect a legitimate business interest of the employer I. His Honour erred by finding that because the First Appellant was "an important member of the Third Appellant" (which company imported Pietra di Modica in competition to the Respondent) then that meant he had breached clause 7 of the Share and Unit Purchase Agreement which only precluded him from personally competing with the Respondent. J. In the alternative, his Honour erred in permanently restraining the Appellants from utilising the confidential information they have regarding the source of the stone products sold in Australia known as Isernia, being Pietra di Modica, so as to obtain supplies of this material for themselves or others. K. Further to ground J above, his Honour should not have restrained the Appellants from utilising the confidential information at all because there was insufficient evidence before him from which he could find that such an injunction was necessary to negate the advantage obtained by the Appellants from the use of the confidential information. L. In the alternative, his Honour should have found that the period of restraint necessary to negate the advantage obtained by the Appellants from the use of the confidential information was no longer than 3 years. 27 The last three grounds were sought to be added at the hearing; and although their addition was opposed, Counsel for Artedomus did not suggest any prejudice arising from their late inclusion. 28 I will deal in turn with the following issues: 1. Was the relevant information confidential to the extent that it would be protected after cessation of employment and/or directorship, without express contractual restraint? 2. Was it proved that Mr. Del Casale and/or Mr. Savini used that information in breach of confidence? 3. What was the effect of the contractual promise by Mr. Del Casale? 4. The application of s.183 of the Corporations Act. 5. What, if any, relief was appropriate?

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WAS THE INFORMATION SUCH AS WOULD BE PROTECTED WITHOUT AN AGREEMENT? 29 In finding the information in this case was such as would be protected without any agreement, the primary judge relied on the persistence, time and effort devoted by Mr. Schepsis to setting up the importation of modica stone from Sicily to Australia, the use of the name Isernia to conceal the source of the stone, the lengths to which Mr. Schepsis and Artedomus went to maintain that concealment, and the difficulty of ascertaining without assistance the fact that Isernia was in fact modica stone. Mr. Moses for the opponent submitted that the primary judge was not shown to be in error in so finding. 30 Mr. Ashhurst for the claimants submitted that, even if the information was confidential to the extent that an employee would have to treat it as confidential during employment and may be restrained by contract from using it after the employment has ended, it did not have the degree of confidentiality that would attract protection after the employment had ended in the absence of a contractual agreement. He pointed out that in Wright v. Gasweld, it was held that the information ascertained by trial and error over a number of years, that four particular Taiwanese suppliers, out of 3,000 suppliers of certain products, were reliable was not a trade secret that would attract equitable protection after employment had ended, in the absence of a contractual agreement; although by majority, it was held to be sufficiently confidential to be capable of protection by such an agreement. 31 I find this question not an easy one to resolve. Although criteria for confidentiality were discussed in Wright v. Gasweld, there is not in that case or in any of the cases to which we have been referred a clear elaboration of what would determine whether the confidentiality went beyond that which could be protected by agreement so as to be such as to continue to affect the employee after the employment had ended, without the need for an agreement. Another difficulty is that it is not entirely clear whether the implication of terms in the employment contract has any relevance to the issue; and it is not entirely clear whether equitable principles concerning confidential information apply in the case of employment in the same way as they apply in other areas where one party gives confidential information to another party, in circumstances of confidence, so as to give rise to an obligation of confidence that equity will enforce. 32 In the first place, it is clear that a contract of employment generally includes an implied term imposing a duty of good faith on the employee, and that this turn carries with it an obligation on the employee not to divulge confidential information or to use it in a way that could be detrimental to the employer: Robb v. Green [1895] 2 QB 315. The content of this duty will vary according to the position of the employee: generally, more senior employees, having access to more confidential information, will be subject to greater restraint than more junior employees. 33 If this obligation is breached during employment, for example by copying customer lists or even deliberately memorising them so that they can be used after the employment comes to an end, that breach of contract may justify the grant of relief when the employee seeks to use that information after the employment has come to an end. There is no suggestion in this case that the claimants obtained confidential information, during their employment, in breach of this implied term. 34 There is authority for the proposition that this implied term imposing a duty of good faith continues to operate after the employment comes to an end, albeit in a more restricted way: Faccenda Chicken Limited v. Fowler [1987] Ch. 117 at 136. I am doubtful that this is so as a general rule, at least in so far as it suggests there may be a remedy in contract that goes beyond such remedy as may be available on the basis of general equitable principles of confidentiality. It is clear that there can be terms of an employment contract that continue to operate after the employment comes to an end; but generally that will be because they are express terms which so provide. Implied terms may also operate in that way if the nature of the employment is such as to clearly require a term operating after the end of employment, as could be the case where a person is employed as an in-house professional adviser to whom confidential information is given for the purpose of obtaining professional advice, such as legal advice. Apart from such special cases, in my opinion the difficulty illustrated by the Faccenda Chicken case of determining the extent of any obligation of confidentiality, extending after the end of employment, counts against such obligation being implied, either as an incident of the relationship or a matter of business efficacy. 35 In my opinion, generally questions concerning an employee's obligation of confidentiality after employment has come to an end, in the absence of an express contract dealing with the matter, are best dealt with as part of the general law concerning confidentiality of information, both because it is very doubtful what, if any, term can be implied into a contract, and also because it is very unlikely that relief obtainable pursuant to any such implied term would go beyond relief obtainable on general equitable principles. There is the theoretical difference that damages may be obtainable for breach of contract; but this is unlikely to make the remedy available in contract more extensive than that based on general equitable principles, because it seems clear that compensation is available for breach of fiduciary duty (and thus probably is available for breach of a duty of confidentiality): Nocton v. Lord Ashburton [1914] AC 932, Beach Petroleum v. Kennedy [1999] 48 NSWLR 1, Cassis v. Kalfus (No.2) [2004] NSWCA 315. 36 In Coco v. A.N. Clark (Engineers) Limited [1969] RPC 41 at 47, Megarry J specified three elements as necessary to an action brought on equitable grounds (apart from the effect of any contract) for breach of confidence: First, the information itself, in the words of Lord Greene M.R., in the Saltman case [ Saltman Engineering Co Ltd v Campbell Engineering Co Ltd (1948) 65 RPC 203] on page 215, must 'have the necessary quality of confidence about it.' Secondly, that information must have been imparted in circumstances importing an obligation of confidence. Thirdly, there must be an unauthorised use of that information to the detriment of the party communicating it.

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In Corrs Pavey Whiting & Byrne v. Collector of Customs (Vic) (1987) 14 FCR 434 at 443 and Smith Kline & French Laboratories (Australia) Limited v. Secretary, Department of Community Services & Health (1990) 22 FCR 73 at 86-7, Gummow J identified a further requirement, namely that the plaintiff must be able to identify with specificity, and not merely in global terms, that which is said to be the information in question. 37 However, in applying these general equitable principles to the particular case of post-employment use, by an ex-employee, of the confidential information of an employer obtained during employment, there are particular considerations which tend to qualify their operation. They are that very often an employee will necessarily through employment come to have knowledge which the employer would prefer not to have generally known, that often such knowledge will become part of the employee's know-how (which the employee should be able to use after employment ceases), that very often it is difficult or impossible to isolate from the employee's general know-how particular pieces of confidential information which the employee is not permitted to use while otherwise being free to use know-how generally, and that competition should not be prevented by preventing ex-employees using their know-how. 38 Considerations such as these have led to a distinction being drawn, in cases such as Faccenda Chickens and Wright v. Gasweld (1991) 22 NSWLR 317, between two classes of confidential information, one of which an ex-employee cannot use (even in the absence of contractual restrictions), and the other of which an ex-employee can use, at least unless there is a valid contractual restraint. There is some variation in the naming of these two classes. For example, there is a question whether both are properly called trade secrets, with the latter being a particular class of trade secrets which is also given the appellation "know-how"; or whether only the former class should be called trade secrets. In either event, the latter class is often called "know-how". 39 It is clear that information may be confidential, even if it is known to persons other than the person claiming confidentiality: it may be sufficient that the information is not freely available, particularly if it is not freely available to competitors of the employer. There is no challenge to what the primary judge said about this matter at pars.[24]-[26] of his judgment, at [2006] NSWCA 146. There is no real dispute that the information identified by the primary judge is confidential in the sense of falling into one of these classes; and the substantial question is whether it falls into the former class or latter class. 40 In Wright v. Gasweld, at 334, Kirby P listed some factors that helped in determining whether information may be considered confidential. That list has been expanded by R. Dean, The Law of Trade Secrets and Personal Secrets, (2002) 2nd Ed., at 190 to include: 1. The extent to which the information is known outside the business. 2. The extent to which the trade secret was known by employees and others involved in the plaintiff's business. 3. The extent of measures taken to guard the secrecy of the information. 4. The value of the information to the plaintiffs and their competitors. 5. The amount of effort or money expended by the plaintiffs in developing the information. 6. The ease or difficulty with which the information could be properly acquired or duplicated by others. 7. Whether it was plainly made known to the employee that the material was by the employer as confidential. 8. The fact that the usages and practices of the industry support the assertions of confidentiality. 9. The fact that the employee has been permitted to share the information only by reason of his or her seniority or high responsibility. 10. That the owner believes these things to be true and that belief is reasonable. 11. The greater the extent to which the "confidential" material is habitually handled by an employee, the greater the obligation of the confidentiality imposed. 12. That the information can be readily identified. 41 In my opinion, the stronger these factors are in any particular case, the more likely it is that the particular information will be treated as a trade secret that the ex-employee is not entitled to use or divulge; but in my opinion, there is another factor or class of factors which is also extremely important to this question, namely the extent to which the particular information can be readily isolated from the employee's general know-how which the employee is entitled to use after the end of employment. 42 In cases where the confidential information is of the nature of a secret formula or process, involving a number of elements such that independent discovery by enquiry or experiment is unlikely to occur, that confidential information can quite readily be distinguished from an employee's general know-how. In those cases, the courts are ready to restrain use of that information by an ex-employee: see for example Amber Size & Chemical Co. Limited v. Menzel [1913] 2 Ch. 239. 43 However, where the confidential information is something that is ascertainable by enquiry or experiment, albeit perhaps substantial enquiry or experiment, and the know-how which the ex-employee is clearly entitled to use extends to knowledge of the question which the confidential information answers, it becomes artificial to treat the confidential information as severable and distinguishable from that know-how; and in that kind of case, courts have tended not to grant relief. 44 In E. Worsley & Co. Limited v. Cooper [1939] 1 AllER 290, an ex-employee's knowledge of the sources of particular types of paper sold by the employer was treated in that way. In a passage at 308 (quoted by Gleeson CJ in Wright v. Gasweld at 325-6), Morton J noted that the information in question was "information which a determined and persistent trade rival, with sufficient skill and knowledge of the paper business, could have ascertained at the cost of considerable enquiries of considerable length"; and he went on to say that if a customer came to the ex-employee and asked if he could supply paper the same as a particular type of paper sold by the employer, it could not be wrong for the ex-employee to tell the truth and say he could. I note however that it was not suggested in that case that the ex-employee had been warned during employment that this particular information was confidential. 45 In Balston Limited v. Headline Filters Limited [1987] FSR 330, the relevant confidential information was knowledge of the satisfactory degree of dilution of a standard solvent for a particular purpose; and Scott J at 344 noted the hopeless artificiality of suggesting that the ex-employee should be required to carry out experiments to ascertain the satisfactory degree of dilution when he had that information from his employment. The ex-employee could not be prevented from using his know-how to the effect that the particular purpose could be served by the standard solvent diluted to some degree or other, so it was unrealistic in the extreme to suggest he could be prevented from using his recollection as to the satisfactory degree of dilution. 46 Although the consideration was not spelt out precisely in this way in Wright v. Gasweld, I think it was implicit in the view of Gleeson CJ at 325-6, Kirby P at 334-5 and Samuels JA at 341, that the confidential information in that case was not such that the employee would be prevented from using it after the termination of employment, in the absence of a contract to that effect. The information in that case, that four suppliers in Taiwan of particular types of goods, out of a total of about 3,000 suppliers, had proved reliable, was very difficult to isolate from the ex-employee's general experience and know-how. The four suppliers could not be prevented from dealing with the ex-employee, nor would it be reasonable (without a contract to that effect) to preclude the ex-employee altogether from dealing with those suppliers; so again, there would be the artificiality of requiring the ex-employee to engage in some exercise of trial and error to ascertain reliable suppliers, in circumstances where the ex-employee already had the knowledge that these four suppliers were reliable. 47 Before considering the circumstance of this case, I would note that this line of reasoning may justify a distinction being drawn in cases such as these between an ex-employee using this information as part of the know-how acquired from the employment, on the one hand, and disclosing it to other persons on the other hand. In Worsley v. Cooper at 308-9, Morton J placed some reliance on the circumstance that the ex-employee in that case was merely using the information, not disclosing it; and he referred to statements to similar effect in the judgment of Joyce J in the Court of Appeal in Herbert Morris Limited v. Saxelby [1915] 2 Ch. 57 at 88 and Bennet J in United Indigo Chemical Co. Limited v. Robinson (1939) 49 RPC 178 at 187. In my opinion, it may well be the case that equitable relief could be granted against an ex-employee disclosing confidential information in some cases where it would not be granted against the ex-employee using it. 48 Turning to the circumstances of this case, it seems to me very difficult to separate out, from the general know-how in relation to stone acquired by Mr. Del Casale and Mr. Savini, as a severable piece of confidential information, the information that Isernia is modica stone. Certainly, subject to any contract that may have existed, they were entitled to compete with Artedomus in the stone business after their employment had come to an end, and they were entitled to obtain stone for that purpose from any source. They were entitled to go to a trade fair, and to look for suppliers of stone at that fair, including suppliers of stone similar to Isernia. What restraint of use of this particular piece of confidential information would require is that in doing so, they somehow blot out their knowledge that Isernia was modica stone and undertake the attempt to find similar stone under those artificial circumstances. 49 The degree of confidentiality of the information in this case was quite high, having regard to the criteria mentioned above; but not it seems to me higher than that in Wright v. Gasweld; and as I have explained, it does not seem to me that this information is information that can realistically be separated out from the general know-how in relation to the stone business acquired by Mr. Del Casale and Mr. Savini. It is to be remembered that they were not merely employees of Artedomus, but directors; but subject to the effect of s.183 of the Corporations Act, to which I will come, I do not think that makes any difference in principle to the considerations I have discussed: these considerations apply similarly to directors as to other very senior employees. 50 For those reasons, in my opinion the primary judge was in error in finding that the information was confidential to the extent that its use would be prohibited after cessation of the employment and/or directorship of Mr. Del Casale and Mr. Savini, in the absence of express contractual restraint.

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EFFECT OF MR. DEL CASALE'S CONTRACT 52 One aspect of Mr. Del Casale's contract was a promise to "keep confidential" commercially sensitive information; and while I would accept that the information that Isernia was modica stone was commercially sensitive information within the meaning of this contract, I would not be satisfied that the use of this information, to the extent that use by Mr. Del Casale was proved, would be a breach of this contract. It was Mr. Savini who, on the evidence, located the suppliers of modica stone; and in any event, there was no disclosure to other people by either of them of this information. 53 On the other hand, it is clear in my opinion that Mr. Del Casale's conduct did amount to competing with Artedomus, within the meaning of the contract. Furthermore, in my opinion it was open to the primary judge to find that his divesting himself of shares in Stone Arc and his resignation as a director of that company did not bring his competition to an end. It was open to the primary judge to find that Mr. Del Casale's continuing activities did amount to Mr. Del Casale competing with Artedomus; and this view is supported by the authorities referred to by the primary judge and mentioned in par.[24] above. 54 Mr. Ashhurst submitted that the primary judge did not give reasons for his finding that the term of three years was not excessive. 55 In my opinion, the primary judge did give adequate reasons for this finding. He pointed out that this was the period chosen by the parties (par.[36] of his judgment), he pointed out that the clause was related to the preservation of goodwill (par.[36]-[38]), and he expressed the view that Mr. Del Casale's position was such as to require the period for the reasonable protection both of Artedomus and the purchasers of the shares (par.[42]). 56 In my opinion, the circumstance that Mr. Del Casale personally was not the vendor of the shares, and the circumstance that the purchasers of the shares were not parties to this litigation, do not remove from consideration of the reasonableness of the period of constraint the interest of the purchasers, who paid a very substantial amount of money for those shares, in maintaining their value by preventing what might be considered unfair competition from Mr. Del Casale. 57 The assessment of the reasonableness of a period of restraint is very much a matter of impression. I am not able to say that the primary judge's view of this matter was clearly wrong, in such a way as to attract appellate intervention; and I am not able to say that the reasons he gave were inadequate. 58 For those reasons, in my opinion the primary judge was correct to find that Mr. Del Casale did act in breach of this contract.

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APPROPRIATE RELIEF 61 In my opinion, it is clear that, even on the primary judge's findings, the relief which he granted of a permanent injunction against use of the information was excessive. Having regard to the nature of the confidential information, the circumstance that it could have been ascertained by dint of some work, and the fact that in any event it has been fully disclosed to the world by these proceedings, a permanent injunction could not be justified. Accordingly, grounds J and L in the Amended Notice of Appeal would succeed, if that amendment is permitted. Since no prejudice arising from the late inclusion of these grounds has been suggested by Artedomus, I would permit them to be raised. However, because of the lateness of the raising of these grounds and the limited success that upholding them would involve, the claimants do not contend that success on these grounds alone could make any difference on the question of the costs below or the costs of the appeal. 62 For the reasons I have given so far, in my opinion leave to appeal should be granted; and it follows from those reasons that the declarations numbered 2, 4, 5 and 6 made below should be set aside. In my opinion, declarations 1 and 3 should also be set aside, because of the ambiguity of "necessary quality of confidence" in declaration 1, and because declaration 3 is not relevant to any substantive relief. Declaration 7 should remain. 63 Order 8 should be set aside; and although there would have been justification for an order restraining Mr. Del Casale from competing for a period of three years, that period has expired. Accordingly, there should be no order against Mr. Del Casale in substitution for order 8. 64 Order 9 should be set aside, because there was no breach of equitable obligation justifying an account of profits. 65 This leaves the remaining questions to be determined: 1. Should an enquiry as to damages against Mr. Del Casale be ordered, in relation to his breach of contract? 2. Should this Court make any ruling as to the effect of the undertaking as to damages given by Artedomus for its interlocutory relief, in that the injunctions granted by way of interlocutory relief may have gone beyond the entitlement as established by this decision. 3. What order for costs should be made in relation to the first instance proceedings? 4. What order should be made in relation to the costs of the appeal? 66 As regards the first question, it would appear that Artedomus is entitled to an enquiry as to damages, because it seems to be common ground that the trial was conducted on the basis that Artedomus need lead no evidence as to damage. As I pointed out in National Engineering Limited v. Chilco Enterprises Pty. Limited [2001] NSWCA 291 at [2]-[8], the Court will not ordinarily order an enquiry as to damages unless it is shown to be of utility by evidence that some substantial damage has been suffered: cf. ICT Pty. Limited v. Sea Containers Limited (1995) 39 NSWLR 640 at 660. If the proceedings are to be conducted on any other basis, an order should be made for the determination of a separate question, so that it is entirely clear precisely what is the subject of the separate hearing. Unfortunately, it appears that that was not done in this case; and it appears that the consequence must be, even if there is no likelihood that Artedomus will establish any significant damage from Mr. Del Casale's breach, it is entitled to an enquiry as to damages. 67 However, if Artedomus pursues this entitlement, plainly it will be at its own risk as to costs. 68 As regards the second matter, we received no argument on this question. It seems unlikely that any restraint on Mr. Del Casale was in any practical sense greater than the restraint to which I have found Artedomus was entitled. I am inclined to the view that the participation of the other parties in Mr. Del Casale's breach of his contract would probably have justified a short injunction against their taking advantage of this: cf. H. & R. Block Limited v. Sannott (1976) 1 NZLR 213. It is possible that Mr. Savini and Stone Arc could show some loss by reason of the restraint being wider than that to which Artedomus was entitled, and that in those circumstances they could have some rights flowing from Artedomus's undertaking as to damages. 69 As regards the third matter, again there has been no argument directed to the appropriate order in the circumstances where Artedomus has been found entitled only to the very limited relief I have identified. 70 On the basis of my decision, it would appear that Artedomus was entitled to an injunction against Mr. Del Casale restraining him from competing for a period of three years. However, it would have been entitled only to very limited relief, at most, against Mr. Savini and Stone Arc; and it would not have been entitled to any injunctive relief extending beyond the time of the first instance judgment. It seems unlikely that it will establish entitlement to any substantial damages. In the absence of submissions, I would very tentatively take the view that there should be no order as to costs in relation to Artedomus's claim against Mr. Savini and Stone Arc; and that Mr. Del Casale should be ordered to pay one-half of Artedomus's costs at first instance. 71 As regards the costs of the appeal, my tentative view would be that Mr. Savini and Stone Arc have had substantial success, while Mr. Del Casale has had limited success. They were all represented by the same solicitors and Counsel. My tentative view is that Artedomus should pay one-half of the claimants' costs of the appeal, and have a certificate under the Suitors Fund Act. 72 The only orders I would propose making immediately are that leave to appeal be granted and that the claimants bring in short minutes of orders giving effect to this decision (including orders as to costs); and if there is not agreement as to the short minutes, then the claimants should provide submissions on the areas of disagreement, and that Artedomus should reply submissions in response. I would propose a time limit of 21 days for the proposed short minutes and submissions of the claimants, and a further 14 days for the submissions in response. If it is necessary for there to be any submissions in reply, they should be provided within a further 7 days. 73 McCOLL JA: I have had the privilege of reading the judgments of Justices Hodgson and Campbell. I agree with their Honours' reasons for disposing of the appeal. 74 CAMPBELL JA: The facts are sufficiently set out in the judgment of Hodgson JA. While I have come to the same conclusion as Hodgson JA, I have come to the conclusion that there is no relevant breach of an obligation of good faith or confidentiality by a different route. I will therefore set out my reasons for reaching that conclusion. 75 Artedomus put its case alleging breach of an obligation concerning confidential information on two separate bases. One was that there was an implied term in the contract of employment of Mr Del Casale and Mr Savini that required them to keep secret and not use for their own purposes, even after the employment had ended, the information that Isernia was in reality Pietra di Modica. The other was that there was an equitable obligation of confidentiality to the same effect.

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Implied Obligation of Good Faith 76 There is an implied term in any contract of employment whereby the employee "... shall honestly and faithfully serve his master; that he shall not abuse his confidence in matters pertaining to his service, and that he shall, by all reasonable means in his power, protect his master's interests in respect to matters confided to him in the course of his service": Robb v Green [1895] 2 QB 1 at 10-11. 77 That obligation "lasts until the last hour of his service" (Robb v Green [1895] 2 QB 1 at 14), and it is a breach of it for the employee to copy customer lists, or memorise them, while the service is on foot, with a view to dealing with those people on his or her own account once the service is over: Robb v Green [1895] 2 QB 1 at 10-11, 14-15; affirmed Robb v Green [1895] 2 QB 315; Kirchner v Gruban [1909] 1 Ch 413 at 422. But unless restrained by an express term of a contract, an employee who leaves his employment may lawfully set up a business of the same nature as that carried on by his or her former employer, in the same locality, and canvass the same customers whose names and addresses he or she has learned, bona fide accidentally, during the period of his service: In Re Irish, Irish v Irish (1888) 40 Ch D 49; Robb v Green [1895] 2 QB 1 at 13; Ormonoid Roofing and Asphalts Ltd v Bitumenoids Ltd and Others (1930) 31 SR (NSW) 347 at 354-6 (Harvey CJ in Eq); Faccenda Chicken Ltd v Fowler [1987] 1 Ch 117 at 136; Riteway Express Pty Ltd v Clayton (1987) 10 NSWLR 238 at 240 (McLelland J); Weldon & Co Services Pty Ltd v Harbinson [2000] NSWSC 272 at [68]-[72] (Bryson J). 78 In Faccenda Chicken Ltd v Fowler [1987] 1 Ch 117, Neill LJ held that the implied term of good faith in a contract of employment operated, though in a restricted fashion, after the employment had terminated. He said, at 136-137: "The implied term which imposes an obligation on the employee as to his conduct after the determination of the employment is more restricted in its scope than that which imposes a general duty of good faith. It is clear that the obligation not to use or disclose information may cover secret processes of manufacture such as chemical formulae (see Amber Size and Chemical Co Ltd v Menzel [1913] 2 Ch 239), or designs or special methods of construction ( Reid & Sigrist Ltd v Moss and Mechanism Ltd (1932) 49 RPC 461), and other information which is of a sufficiently high degree of confidentiality as to amount to a trade secret. The obligation does not extend, however, to cover all information which is given to or acquired by the employee while in his employment, and in particular may not cover information which is only 'confidential' in the sense that an unauthorised disclosure of such information to a third party while the employment subsisted would be a clear breach of the duty of good faith. This distinction is clearly set out in the judgment of Cross J in Printers and Finishers Ltd v Holloway [1964] 3 All ER 731; [1965] 1 WLR 1; [1965] RPC 239 where he had to consider whether an ex-employee should be restrained by injunction from making use of his recollection of the contents of certain written printing instructions which had been made available to him when he was working in his former employers' flock printing factory. In his judgment, delivered on 29 April 1964 (not reported on this point in [1965] 1 WLR 1), he said ([1964] 3 All ER 731 at 738n; [1965] RPC 239 at 253):

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80 I consider first those cases that Neill LJ mentioned. 81 In Amber Size and Chemical Company Ltd v Menzel [1913] 2 Ch 239 Astbury J restrained a former employee from using the whole or a material part of a particular secret method of manufacture, and from disclosing to any other person any information with respect thereto. It is not clear from the report what jurisdictional basis for the grant of the injunction was being invoked. Astbury J stated the relevant principles, at 244-245, to be: "The Court will restrain an ex-servant from publishing or divulging that which has been communicated to him in confidence or under a contract by him, express or implied, not to do so: Morison v Moat 9 Hare 241, and generally from making an improper use of information obtained in the course of confidential employment: Tuck & Sons v Priester (1887) 19 QBD 629, and, further, from using to his late master's detriment information and knowledge surreptitiously obtained from him during his, the servant's, employment: Robb v Green [1895] 2 QB 1, 315." 82 There is no more specific identification of the basis on which the decision proceeds. I will consider in turn the three cases to which Astbury J referred. 83 Astbury J cites Morison v Moat (1851) 9 Hare 241; 68 ER 492 as applying when the information in question was communicated "in confidence or under a contract…". That equivocation seems to be because in Morison v Moat (1851) 9 Hare 241 at 255; 68 ER 492 at 498 Sir George Turner V-C is indifferent to where such an obligation to protect confidences comes from: "Different grounds have indeed then assigned for the exercise of that jurisdiction. In some cases it has been referred to property, in others to contract; and in others, again, it has been treated as founded upon the trust or confidence, meaning, as I conceive, that the Court fastens the obligation on the conscience of the party, and enforces it against him in the same manner as it enforces against a party to whom a benefit is given the obligation of performing a promise on the faith of which the benefit has been conferred; but, upon whatever grounds the jurisdiction is founded, the authorities leave no doubt as to the exercise of it." 84 Tuck & Sons v Priester (1887) 19 QBD 629 decided that if a printer is engaged to make a specified number of copies of a picture that belongs to the plaintiff, in order that the plaintiff could sell those copies for his own profit, there is an implied term that the printer is not to make any other copies for his own benefit, breach of which will be restrained by injunction, regardless of any question of ownership of the copyright in the picture (at 635, 639, 646). It is therefore not an authority about contracts of employment. 85 As Astbury J acknowledged, Robb v Green [1895] 2 QB 1 related to information surreptitiously obtained while the employment was still on foot, and thus not to the continuance of any obligation of good faith after the employment had ended. 86 Thus, Amber Size does not provide clear authority for the existence of the implied term. 87 Turning now to the other cases on which Neill LJ relied, Reid & Sigrist Ltd v Moss and Mechanism Ltd (1932) 49 RPC 461 concerned the enforcement of an express obligation in a contract of employment that "All work whilst in our service to be secret and confidential and the property of the Company" (473). At 480, Luxmoore J paraphrased (without acknowledgment) the extract from Morison v Moat that I have set out above, and stated "In the present case the matter rests on express contract". Being a case concerned with an express term, it cannot be an authority about the existence of an implied term. 88 Printers & Finishers Ltd v Holloway [1964] 3 All ER 731; [1965] RPC 239 concerned an employee who had learned, while in the employ of the plaintiff, numerous practical details of a technical process called flock printing. There was every reason to believe that he would, unless restrained, make that information available to a new employer. Though it is not altogether clear from the report, it appears that the jurisdictional bases on which the injunction was sought included an allegation of breach of contract (All ER at 734; RPC at 252) (though the particular breaches identified occurred while the employment was still on foot). However, Cross J saw the jurisdiction being invoked in relation to the trade secret as being an equitable one. His Honour said, at 256-257: "If Mr Elliott is right in thinking that there are features in his process which can fairly be regarded as trade secrets and which his employers [sic] will inevitably carry away with them in their heads, then the proper way for the plaintiffs to protect themselves would be by exacting covenants from their employees restricting their field of activity after they have left their employment, not by asking the court to extend the general equitable doctrine to prevent breaking confidence beyond all reasonable bounds." 89 E Worsley & Co Ltd v Cooper [1939] 1 All ER 290 was a case in which relief was sought against former employees who had set up business in competition with their former employer, in the exact same line of goods. One of the bases upon which the plaintiff sought relief was (294) "that the defendants have disclosed confidential information, or have made an improper use of such confidential information in breach of duty or an implied contract." Thus, the case against them was put on the basis of both an equitable duty of confidence, and a breach of an implied contractual obligation. In the reasons for judgment, Morton J did not state on what basis he was proceeding. 90 I mention also that Ormonoid Roofing & Asphalts Ltd v Bitumenoids Ltd (1930) 31 SR (NSW) 347 concerned an employee who was not subjected to any express post-employment contractual restraint, and who, in the ordinary course of his employment, had come to know details of the plaintiff's manufacturing processes. The employee, and a new employer to which he had gone, were sued, alleging that disclosure of that information would amount to "breach of trust, or… breach of an implied contract" (348). The reasons for judgment of Harvey CJ in Eq did not indicate which of those bases he was adopting. 91 Thus, the basis in specific authority for the implied duty of good faith to continue, even in attenuated form, to apply after the employment contract has ended seems thin. I turn to consider whether, as a matter of general principle, such a term exists. 92 For many terms of a contract, the termination of the contract discharges the parties from their obligations to perform the duties arising under those terms: McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 at 469-470, 476-477. However, if parties intend that a particular term will survive termination of the contract, it can do so. Thus liquidated damages clauses (Boucaut Bay Co Ltd v The Commonwealth (1927) 40 CLR 98; Bridge v Campbell Discount Co Ltd [1962] AC 600), arbitration clauses (Heyman v Darwins Ltd [1942] AC 356), exclusion clauses (Photo Production Ltd v Securicor Transport Ltd [1980] AC 827), and restraint of trade clauses that express themselves to operate after termination of employment (Cash Orders (Amalgamated) Ltd v Haynes (1937) 37 SR (NSW) 157) can survive termination. In principle, if the parties to an employment contract intend (or, in the case of an implied term, are taken, in accordance with the same rationale that leads to the implication of the term, to have intended) some aspect of a contractual duty of good faith to survive termination of the contract, that intention can be given effect to. 93 The contract in the present case was not wholly in writing, and hence the test for implication ad hoc of terms that is contained in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 282-283 is not applicable to it. A term can be implied ad hoc in a contract that is not wholly in writing "… by reference to the imputed the intention of the parties if, but only if, it can be seen that the implication of the particular term is necessary for the reasonable or effective operation of a contract of that nature in the circumstances of the case. That general statement of principle is subject to the qualification that a term may be implied in a contract by an established mercantile usage or professional practice or by a past course of dealings between the parties.": per Deane J, Hawkins v Clayton (1988) 164 CLR 539 at 573, adopted in Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 422 by Brennan CJ, Dawson and Toohey JJ. 94 Terms can also be implied by law into a contract where such an implication is a necessary incident of a class of relationship: Lister v Romford Ice & Cold Storage Co Ltd [1957] AC 555 at 576; Liverpool City Council v Irwin [1977] AC 239; Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 at 345-346. 95 As Gummow and McHugh JJ said in Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 450: "Many of the terms now said to be implied by law in various categories of case reflect the concern of the courts that, unless such a term be implied, the enjoyment of the rights conferred by the contract would or could be rendered nugatory, worthless, or, perhaps, be seriously undermined. Hence the reference in the decisions to "necessity"." 96 An example of such a principle for implication of a term applying is that a person engaged as an agent to canvass orders is not entitled to use materials obtained in the course of the agency against the interests of the employer even when the agency is over. In Lamb v Evans [1893] 1 Ch 218 Lindley LJ said, at 226: "Such a use is contrary to the relation which exists between principal and agent. It is contrary to the good faith of the employment, and good faith underlies the whole of the agent's obligations to his principal." 97 Lindley LJ did not differentiate between whether that obligation of good faith was one that arose as a matter of common law or equitable obligation. Bowen LJ, at 229, said: "… there is no distinction between law and equity as regards the law of principal and agent. The common law, it is true, treats the matter from the point of view of an implied contract, and assumes that there is a promise to do that which is part of the bargain, or which can be fairly implied as part of the good faith which is necessary to make the bargain effectual. What is an implied contract or an implied promise in law? It is that promise which the law implies and authorises us to infer in order to give the transaction that effect which the parties must have intended it to have and without which it would be futile." 98 That passage was quoted with approval by Lord Esher MR in Robb v Green [1895] 2 QB 315 at 317, a case that is concerned with a contract of employment. 99 Bowen LJ, in Lamb v Evans [1893] 1 Ch 218 at 231, gives an example of "what the parties must have intended if the transaction is to have any business-like efficacy at all". His example is of a pupil who goes to a conveyancer, and takes away precedents with the intention of using them in his practice for his own profit. The pupil is entitled to do so because that was the understanding between the parties, but the pupil is not entitled to publish those precedents as a book. That conclusion is arrived at because the evident purpose of the arrangement was to enable the pupil to gain knowledge he could use later, and conveyancing documents are the sort of thing where the detail of the wording is important but not readily held in the memory in the way more general skills and principles can be. 100 Any implied contractual obligation of good faith that there might be in a contract of employment, that survives termination of the contract, would need to meet this sort of test of necessity. That is so whether it is regarded as implied by ad hoc implication, or by law as an incident of a category of contract.

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The Equitable Obligation of Confidence 101 It is now established that, for an equitable obligation of confidence, "its rational basis does not lie in proprietary right. It lies in the notion of an obligation of conscience arising from the circumstances in or through which the information was communicated or obtained": Moorgate Tobacco Co Ltd v Philip Morris Ltd (No 2) (1984) 156 CLR 414 at 438 per Deane J, with whom Gibbs CJ, Mason, Wilson and Dawson JJ agreed. 102 The conditions for the existence of an equitable obligation of confidence, independently of contract, were identified by Megarry J in Coco v A N Clark (Engineers) Ltd [1969] RPC 41 at 47: "First, the information itself … must "have the necessary quality of confidence about it." Secondly, that information must have been imparted in circumstances importing an obligation of confidence. Thirdly, there must be an unauthorised use of that information to the detriment of the party communicating it." 103 On Megarry J's account, the information is "of a confidential nature" if it is not "public property and public knowledge", or if it is "constructed solely from materials in the public domain", to which "the skill and ingenuity of the human brain" has been applied (47). This is a fairly undemanding test. 104 Concerning the requirement that "the information must have been communicated in circumstances importing an obligation of confidence", Megarry J says, at 47-48: "However secret and confidential the information, there can be no binding obligation of confidence if that information is blurted out in public or is communicated in other circumstances which negative any duty of holding it confidential. From the authorities cited to me, I have not been able to derive any very precise idea of what test is to be applied in determining whether the circumstances import an obligation of confidence. … It may be that that hard-worked creature, the reasonable man, may be pressed into service once more; for I do not see why he should not labour in equity as well as at law. It seems to me that if the circumstances are such that any reasonable man standing in the shoes of the recipient of the information would have realised that upon reasonable grounds the information was being given to him in confidence, then this should suffice to impose upon him the equitable obligation of confidence. In particular, where information of commercial or industrial value is given on a business-like basis and with some avowed common object in mind, such as a joint-venture or the manufacture of articles by one party or the other, I would regard the recipient as carrying a heavy burden if he seeks to repel the contention that he was bound by an obligation of confidence … I doubt whether equity would intervene unless the circumstances are of sufficient gravity; equity ought not be invoked merely to protect trivial tittle-tattle, however confidential." 105 This account has been adopted in Australia: The Commonwealth v John Fairfax and Sons Ltd (1980) 147 CLR 39 at 51 (Mason J as a single judge of the High Court); Half Court Tennis Pty Ltd v Seymour (1980) 53 FLR 240 at 255 (Dunn J); O'Brien v Komesaroff (1982) 150 CLR 310 at 326 per Mason J (with whom Murphy, Aickin, Wilson and Brennan JJ agreed); Corrs Pavey Whiting & Byrne v Collector of Customs (Vic) (1987) 14 FCR 434 at 443 (Gummow J); Smith Kline & French Laboratories (Aust) Ltd v Department of Community Services and Health (1990) 22 FCR 73 at 86-87 (Gummow J). That adoption might be subject to a question about whether detriment is an element of the cause of action (Smith Kline & French at 111-112; NP Generations Pty Ltd v Feneley (2001) 80 SASR 151 at 157-158; [2001] SASC 185 at [21]), but no question arises in the present case that depends on whether detriment is indeed an element of the cause of action. 106 There is also a partial adoption of such a test in Moorgate Tobacco Co Ltd v Philip Morris Ltd (No 2) (1984) 156 CLR 414 where Deane J, at 438, identified two necessary conditions for the grant of relief concerning an equitable obligation of confidence: "Relief under the jurisdiction is not available, however, unless it appears that the information in question has "the necessary quality of confidence about it" (per Lord Greene MR, Saltman [ Saltman Engineering Co Ltd v Campbell Engineering Co. Ltd ] (1947) 65 RPC 203, at p. 215) and that it is significant, not necessarily in the sense of commercially valuable (see Argyll v Argyll [1967] Ch 302, at p. 329) but in the sense that the preservation of its confidentiality or secrecy is of substantial concern to the plaintiff."

[44]

and information that "falls within the implied term so as to prevent its use or disclosure by an employee after his employment has ceased" (at 137). 111 Neill LJ says, at 137, "in order to determine whether any particular item of information falls within the implied term so as to prevent its use or disclosure by an employee after his employment has ceased, it is necessary to consider all the circumstances of the case". 112 He then proceeds, at 137-138, to give a list of factors, said to be "among those to which attention must be paid" (emphasis added) - ie, not purporting to be exhaustive. These factors are the nature of the employment, the nature of the information itself, whether the employer impressed on the employee the confidentiality of the information, and whether the relevant information can be easily isolated from other information which the employee is free to use or disclose. 113 Concerning the nature of the information itself, Neill LJ said, at 137: "… the information will only be protected if it can properly be classed as a trade secret or as material which, while not properly to be described as a trade secret, is in all the circumstances of such a highly confidential nature as to require the same protection as a trade secret eo nomine." 114 He continued, at 138: "It is clearly impossible to provide a list of matters which will qualify as trade secrets or their equivalent. Secret processes of manufacture provide obvious examples, but innumerable other pieces of information are capable of being trade secrets, though the secrecy of some information may be only short-lived. In addition, the fact that the circulation of certain information is restricted to a limited number of individuals may throw light on the status of the information and its degree of confidentiality." 115 In Faccenda at first instance (Faccenda Chicken Ltd v Fowler [1985] 1 All ER 724), the notion of a trade secret was also used. Goulding J provided the now-familiar tripartite categorisation of information acquired by an employee in the course of his employment. I will set out the way in which that categorisation was explained by Neill LJ in the Court of Appeal ([1987] 1 Ch 117 at 133 -134), largely by quotation from Goulding J. The passage starts with a quotation from Goulding J: "'Let me now deal with the alleged abuse of confidential information. I must make it clear that anything I say about the law is intended to apply only to cases of master and servant. In my view information acquired by an employee in the course of this service, and not the subject of any relevant express agreement, may fall as regards confidence into any of three classes. First there is information which, because of its trivial character or its easy accessibility from public sources of information, cannot be regarded by reasonable persons or by the law as confidential at all. The servant is at liberty to impart it during his service or afterwards to anyone he pleases, even his master's competitor. An example might be a published patent specification well known to people in the industry concerned … Second, there is information which the servant must treat as confidential, either because he is expressly told it is confidential, or because from its character it obviously is so, but which once learned necessarily remains in the servant's head and becomes part of his own skill and knowledge applied in the course of his master's business. So long as the employment continues, he cannot otherwise use or disclose such information without infidelity and therefore breach of contract. But when he is no longer in the same service, the law allows him to use his full skill and knowledge for his own benefit in competition with his former master; and … there seems to be no established distinction between the use of such information where its possessor trades as a principal, and where he enters the employment of a new master, even though the latter case involves disclosure and not mere personal use of the information. If an employer wants to protect information of this kind, he can do so by an express stipulation restraining the servant from competing with him (within reasonable limits of time and space) after the termination of his employment.'

[47]

'I think that I shall not be stating the principle wrongly, if I say this with regard to the use of confidential information. The information, to be confidential, must, I apprehend, apart from contract, have the necessary quality of confidence about it, namely, it must not be something which is public property and public knowledge. On the other hand, it is perfectly possible to have a confidential document, be it a formula, a plan, a sketch, or something of that kind, which is the result of work done by the maker on materials which may be available for the use of anybody; but what makes it confidential is the fact that the maker of the document has used his brain and thus produced a result which can only be produced by somebody who goes through the same process.'" 117 I mention this for two reasons. The first is that the edited out part imposes a qualification of some significance on what counts as the content of the first class of information acquired by an employee in the course of his employment. That qualification was adopted by Megarry J in Coco v A N Clark (Engineers) Ltd [1969] RPC 41. The second is that Saltman was concerned solely with an equitable obligation of confidence, but Goulding J applied it in an action where the only cause of action sued on was for breach of contract. That was recognised by counsel and the Court in the Court of Appeal, as one of the submissions made to the Court of Appeal is recorded as being: "… though the obligations of an employee [concerning confidence] were based on an implied term of the contract of service, this was immaterial because the scope of the implied term was coextensive with the obligations imposed by equity on a person to whom confidential information was entrusted in circumstances where no contract existed between the parties." (134) 118 If there was a contractual obligation that covered the topic, there would, of course, be no occasion for equity to intervene to impose its own obligation. That was recognised by Megarry J in Coco when he said, at 47: "In cases of contract, the primary question is no doubt that of construing the contract and any terms implied in it. Where there is no contract, however, the question must be one of what it is that suffices to bring the obligation into being…" 119 The judgment of Neill LJ implicitly accepts the submission that it is an implied term of the contract that governs the post-employment obligations of confidentiality. It holds that the implied term of good faith that survives termination of the contract is one whereby the employee cannot use "trade secrets" after termination.

[48]

"Trade Secret" as a Guide to Validity of a Restrictive Covenant 120 There is another, and quite separate, use of the notion of "trade secret" in connection with ascertaining the validity of an express covenant that restricts the activities of an employee after the employment has ended. For example, in Herbert Morris Ltd v Saxelby [1916] 1 AC 688 the sole question at issue concerned whether a contractual obligation restricting the activities of an employee, once the employment had ended, was valid. It was for the purpose of inquiring "what are the interests of the employer that are to be protected, and against what is he entitled to have them protected" (701) that Lord Atkinson said, at 702: "He is undoubtedly entitled to have his interest in his trade secrets protected, such as secret processes of manufacture which may be of vast value. And that protection may be secured by restraining the employee from divulging those secrets or putting them to his own use." (emphasis added) 121 It was in that same context that Lord Atkinson, at 704, quoted with express approval from the judgment of Farwell LJ in Sir W C Leng & Co v Andrews [1909] 1 Ch 763 at 773-4. Farwell LJ, in considering the doctrine laid down by Lord Macnaghten in Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co [1894] AC 535 whereby a restraint of trade can be justified only if it is reasonable in the interests of the parties and reasonable in the interests of the public, said: "That doctrine does not mean that an employer can prevent his employee from using the skill and knowledge in his trade or profession which he has learned in the course of his employment by means of directions or instructions from the employer. That information and that additional skill he is entitled to use for the benefit of himself and the benefit of the public to gain the advantage of his having had such admirable instruction. The case in which the Court interferes for the purpose of protection is where use is made, not of the skill which the man may have acquired, but of the secrets of the trade or profession which he had no right to reveal to any one else - matters which depend to some extent on good faith." (emphasis added) 122 It was, likewise, for the purpose of considering the validity of a restrictive covenant that Lord Parker of Waddington said in Herbert Morris Ltd v Saxelby [1916] 1 AC 688 at 709: "It is quite different in the case of an employer taking such a covenant from his employee or apprentice. The goodwill of his business is, under the conditions in which we live, necessarily subject to the competition of all persons (including the servant or apprentice) who choose to engage in a similar trade. The employer in such a case is not endeavouring to protect what he has, but to gain a special advantage which he could not otherwise secure. I cannot find any case in which a covenant against competition by a servant or apprentice has, as such, ever been upheld by the Court. Wherever such covenants have been upheld it has been on the ground, not that the servant or apprentice would, by reason of his employment or training, obtain the skill and knowledge necessary to equip him as a possible competitor in the trade, but that he might obtain such personal knowledge of and influence over the customers of his employer, or such an acquaintance with his employer's trade secrets as would enable him, if competition were allowed, to take advantage of his employer's trade connection or utilise information confidentially obtained." (emphases added)

[49]

" Trade Secret" as an Express Term in a Contract 123 Another usage again is that there is sometimes an express agreement by an employee that he will not disclose trade secrets. 124 Thomas Marshall (Exports) Ltd v Guinle [1979] 1 Ch 227 concerned an express covenant by a company executive not, "during the period of his appointment or after the termination thereof to disclose any confidential information relating to the affairs customers or trade secrets of the group …" (232). 125 In that context, Sir Robert Megarry V-C said, at 248: "… four elements may be discerned which may be of some assistance in identifying confidential information or trade secrets which the court will protect. I speak of such information or secrets only in an industrial or trade setting. 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, i.e., 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. Further, 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. It may be that information which does not satisfy all these requirements may be entitled to protection as confidential information or trade secrets: but I think that any information which does satisfy them must be of a type which is entitled to protection." 126 Lansing Linde Ltd v Kerr [1991] 1 All ER 418 was a case where a former employer sought to injunct an employee's activities immediately after departing his employment. The basis of that action was an express covenant not to divulge trade secrets or confidential information. At 425-426 Staughton LJ referred to Goulding J's classification, and said: "It appears to me that the problem is one of definition: what are trade secrets, and how do they differ (if at all) from confidential information? Mr Poulton suggested that a trade secret is information which, if disclosed to a competitor, would be liable to cause real (or significant) harm to the owner of the secret. I would add first, that it must be information used in a trade or business, and secondly that the owner must limit the dissemination of it or at least not encourage or permit widespread publication.

[53]

How "Trade Secret" Is Used Re Restrictive Covenants 130 When one is deciding whether a piece of information counts as a "trade secret" for the purpose of deciding the validity of a restrictive covenant, deciding whether it is a "trade secret" is but one stage in deciding the validity of the restrictive covenant. It is recognised that covenants that restrict the activities of an employee after the employment ends can protect various different interests of the employer. One recognised category of interest is the interest of an employer in protecting the trade connection that he or she has with his or her existing customers (John Fairfax Publications Pty Ltd v Birt [2006] NSWSC 995 at [30] and cases there cited); another recognised category of interest is in protecting the trade secrets of the employer (Haynes v Doman [1899] 2 Ch 13 at 28); and (though it is not necessary to decide its correctness for the purpose of this appeal) there is some support for the proposition that another recognised category of interest is the interest of the employer in protecting his or her existing connection with his or her staff: Cactus Imaging Pty Limited v Glenn Peters [2006] NSWSC 717 at [43]-[59]. This list of potentially relevant types of interest is not a closed one. 131 What is particularly relevant for present purposes is that, once one has identified a particular piece of information that the employer seeks to protect as a "trade secret", it is not as though any covenant that aims to protect that "trade secret" is valid. 132 Concerning what counts as a reasonable restraint of trade designed to protect a trade secret, there is a range of different clauses any of which might be a reasonable protection. The first question for the court, when considering the reasonableness of the restraint at common law, is whether the particular restriction that the parties have agreed, imposed upon that particular employee, to protect that particular "trade secret" falls within the range of reasonableness. The second question is whether, if it does not pass the reasonableness test, it can be severed, by the rather mechanical test of severance that the common law uses, to cut out words so that what remains after the cutting out has occurred is reasonable and not of a different nature to the clause upon which the parties had actually agreed. The question for the court, when considering the reasonableness of a restraint under the Restraints of Trade Act 1976, is whether the particular action alleged to be a breach falls within the scope of the clause that the parties actually agreed upon, and whether, if these particular parties had made an agreement that specifically prohibited the carrying out of the particular action alleged to be a breach, they would have been acting reasonably in their own interests, and in the interest of the public, to protect the particular trade secret that is in question. Because of this focus on the particular restriction, the particular parties, and the particular trade secret that is sought to be protected, it does not matter that "trade secret" is a fairly imprecise term, when it is used in this way.

[54]

How "Trade Secret" Is Used Re Equitable Obligation of Confidence 133 When one is deciding whether a piece of information is the subject of an enforceable equitable obligation of confidence, the first step of the inquiry described by Megarry J in Coco v A N Clark (Engineers) Ltd [1969] RPC 41 is directed to whether the information has the fairly low level of intrinsic confidentiality that his Honour identified. The "second step" identified by Megarry J in Coco, really has two quite distinct elements. The first element amounts to whether the information was imparted in circumstances where a reasonable person must have realised, on reasonable grounds, that he or she was not free to deal with the information as his or her own, or must have realised that he or she could deal with the information only within certain limitations. The second element has nothing to do with the circumstances of imparting the information but involves a return to the intrinsic nature of the information itself. It involves whether the information has the degree of intrinsic importance to warrant equitable intervention. 134 There is no question, in the first element of this "second step", of there being ranges of reasonableness within which a restriction might fall. The circumstances have to be such that the court can conclude it would have been clear to a reasonable person, on reasonable grounds, that he or she was not free to deal with the information as his or her own, or could only deal with it subject to certain limitations. Information that can fairly be described as a "trade secret" as a matter of ordinary English will sometimes meet that test. But being a "trade secret" is no part of the test that is used. It is quite conceivable that a particular piece of information could have a degree of confidentiality sufficient to warrant protection by a particular restrictive covenant, in a particular contract entered into between particular parties, but not be information of a sufficient degree of confidentiality or importance to have an equitable obligation of confidence attach to it.

[57]

Use to be Made of Lists of Factors 138 In judgments dealing with the law of confidential information it is common to encounter a list of factors, said to be ones that can be taken into account in deciding whether a particular piece of information is confidential, or is a trade secret. As mentioned at [112] above, Neill LJ did so in Faccenda. Hodgson JA does so at [40] in his judgment in the present case. Such a list of factors can be helpful in deciding whether a particular piece of information is subject to an implied contract forbidding its disclosure, or to an equitable obligation of confidence, or is an interest that might be legitimately protected by a restrictive covenant. Such lists of factors are useful aids to decision-making, because they act as reminders of matters that might, depending on the facts of the case, need to be taken into account for the purpose of deciding whether any of these different types of obligation concerning confidentiality arise in the case that is being considered. But such lists are not a substitute for the different legal tests by which the existence of those different obligations are decided. Such lists should not distract attention from what is the true object of each of those separate inquiries. As Fullagar J said in Deta Nominees Pty Ltd v Viscount Plastic Products Pty Ltd [1979] VR 167 at 193, in a context of considering whether an equitable obligation of confidence existed, it is wrong to suggest "… that one should slavishly check off the factors against the information, as if one were counting spots on some strange creature to see if it was indeed the species of leopard illustrated in the picture book. The question to which each learned judge was directing his ultimate inquiry was: Would a person of ordinary intelligence, in all the circumstances of the case, including, inter alia , the relationship of the parties and the nature of the information and the circumstances of its communication, recognise this information to be" [information that met what Fullagar J regarded as the criterion for existence of an equitable obligation of confidence].

[61]

It is clearly impossible to provide a list of matters which will qualify as trade secrets or their equivalent. Secret processes of manufacture provide obvious examples, but innumerable other pieces of information are capable of being trade secrets, though the secrecy of some information may be only short-lived. In addition, the fact that the circulation of certain information is restricted to a limited number of individuals may throw light on the status of the information and its degree of confidentiality" 140 This Court has already held that, contrary to the first two paragraphs just quoted, an employer can protect the use of information in the second category by means of a restrictive covenant: Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317 per Gleeson CJ at 329, Kirby P at 335, and Samuels JA at 340-341. In England the passage I have just quoted has also been doubted. In Balston Limited v Headline Filters Limited [1987] FSR 330 at 347-348, Scott J doubted that Neill LJ could have intended to say what he apparently did say. Scott J pointed out that, on the analysis Neill LJ gave, an express restrictive covenant would not be needed to protect third category trade secrets, because the implied term would already do it. Scott J continued, at 348: "Moreover, the criteria that determine whether or not an express covenant in a contract of employment restricting the use or disclosure of particular information after the determination of the employment is enforceable are very different from the criteria that determine whether or not an obligation restricting the use or disclosure of that information can be implied into the contract. The implied obligation will always, I think, be unlimited in time and probably in the area as well. It is difficult to construct a case in which an obligation could be implied that restrained disclosure for, say, one year only or restrained use in, say, the Home Counties. If the information sought to be protected is not fit for protection, unlimited by time or area, it is very difficult to see how protection can be supplied by an implied term. On the other hand, an express covenant against use or disclosure is very likely to be limited both as to time and as to area." 141 The reason, it seems to me, why Neill LJ fell into error in the passage I have quoted from pages 137-138 is that he failed to appreciate that "trade secret" is an ambiguous expression. Goulding J was using "trade secret" as meaning the type of information that an employee was prohibited from disclosing or using after termination of the employment even if there was no express contractual prohibition. However, Lord Parker was using "trade secret" as meaning confidential information of a sufficient degree of importance to be able to be protected by an express covenant that applied after termination of the employment. Those two meanings of "trade secret" are not the same. The reasoning of Neill LJ would be valid only if those two meanings were the same.

[62]

More on the Post-Employment Implied Obligation of Good Faith 142 There is one respect in which I have a doubt about the passage that I have quoted from Scott J. It seems to proceed on the basis that any relevant implied term of the contract of employment that outlasts termination of the contract must be one that spells out the use that can be made of particular information. I doubt that that is what Neill LJ was intending in Faccenda. Rather, it seems to me that what he was postulating was that an implied obligation of good faith could survive termination of the contract. The obligation that so survives is nothing more complicated, or more detailed, than an obligation to act in good faith to the (former) employer. But what Neill LJ is postulating is that the circumstances that would count as a breach of that obligation after termination would be less extensive than the circumstances that would count as a breach prior to termination. 143 The test of necessity, by reference to which the scope of implied obligations in such a contract is determined, comes to be applied not only to determine the existence of the obligation, but also the sort of circumstance that would count as a breach of it. That was the way it was used, for instance, in Lamb v Evans [1893] 1 Ch 218 (para [96]-[99] above). Similarly, it was used by Dixon and McTiernan JJ to determine whether there was a breach of an employment contract that was still on foot in Blyth Chemicals Ltd v Bushnell (1933) 49 CLR 66 at 81-82: "Conduct which in respect of important matters is incompatible with the fulfilment of an employee's duty, or involves an opposition, or conflict between his interest and his duty to his employer, or impedes the faithful performance of his obligations, or is destructive of the necessary confidence between employer and employee, is a ground of dismissal ( Boston Deep Sea Fishing and Ice Co v Ansell (1888) 39 Ch D 339, at pp 357-8 and 362-4; English and Australian Copper Co v Johnson (1911) 13 CLR 490; Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359). But the conduct of the employee must itself involve the incompatibility, conflict, or impediment, or be destructive of confidence. An actual repugnance between his acts and his relationship must be found. It is not enough that ground for uneasiness as to its future conduct arises." 144 The way in which one would ascertain whether particular conduct of a former employee was in breach of the implied obligation of fidelity that survived termination of the contract would be by asking whether it is necessary, for the effective operation of the contract of employment that was once on foot, that the former employee not be at liberty to engage in that particular conduct.

[63]

Application to the Facts 145 I will not seek to resolve the question of whether, in this case, any obligations of confidentiality that Mr Del Casale and Mr Savini continued to be subject to after termination of their employment ought properly be analysed as arising under the implied contractual duty of good faith, or as arising in equity's exclusive jurisdiction. Rather, I shall consider each alternative. In so doing, I will not make use of whether the information imparted to them is, or is not, a "trade secret", but will seek to apply directly the tests for whether those two separate types of obligation exist. 146 I will deal first with whether any contractual duty of good faith extends to prohibit the particular type of use made by Mr Del Casale and Mr Savini of the information that Isernia is the same product as Pietra di Modica. It was readily foreseeable that the contract of employment of each of the men might come to an end before they died or retired. They each had skills connected with the stone industry, and it was readily foreseeable that, if they were to leave the employ of Artedomus, they might wish, or need, to continue to work in the stone industry. Isernia was just one of the products in which Artedomus dealt, though it was a significant product. While the men would have been aware that efforts were made to keep the source of the product a secret from customers and competitors, and were told that the information was confidential, no express attention was paid to whether that meant that in no circumstances could they use that information after they left the employment. It was the sort of information that was part of their everyday mental equipment in carrying out their respective jobs for Artedomus. It is information that is really simple, and readily remembered. It related to a product that had been marketed in Australia since about 1995 or 1996, but a product of a type that is to some extent the subject of fashion, and thus the sort of information that is intrinsically likely at some stage to become commercially stale. 147 Attention also needs to be paid to the particular use that was made of the information, for the purpose of deciding whether there has been a breach of the attenuated obligation of good faith. The speed with which Mr Savini was able to locate a supplier of Pietra di Modica was attributable to his knowing that Isernia was Pietra di Modica, that Isernia was a worthwhile commercial product, and that there were likely to be other suppliers in Italy of Pietra di Modica besides the supplier that Artedomus used. He did not seek to use the name "Isernia" in negotiations to obtain the stone in Italy - indeed, that name is not known in Italy as being a type of Pietra di Modica. There is no case made against the Appellants that in the Australian market they have passed their product off as being Isernia. Rather, they marketed it under the name "Timpa" - itself a word designed to disguise the origin of the stone. The use that they have made of the information alleged to be confidential is little different in substance to using information that is in no way confidential, namely that Pietra di Modica is a worthwhile commercial product, of which there are several suppliers in Italy. Indeed, Pietra di Modica was a well-known product in the stone industry, on exhibition at trade fairs relating to that industry, and readily obtainable from a variety of suppliers. It was a generic name for a product of a type concerning which no-one had any intellectual property rights. A supplier of stone to the Australian market who was making a cold start could locate a supply of Pietra di Modica in the same way that Mr Schepis (who is Artedomus' Managing Director) had earlier done. 148 In these circumstances, I consider first whether if (in accordance with Scott J's view, but contrary to my view) the test of necessity is used to decide the term that the contracts would contain after the employment ended, there is any term that can be implied. I do not conclude that it was necessary for the reasonable or effective operation of the contracts of employment of Mr Savini and Mr Del Casale that they be totally disentitled, for all time, from using, anywhere in the world, the particular information that Isernia was Pietra di Modica. Nor is it possible to reach any conclusion that any more restricted use of the information, restricted in either geographical scope or time, was necessary for the reasonable or effective operation of their contracts of employment. It is the sort of information concerning which a restrictive covenant might well have been able to be validly agreed upon, but that is a different question. 149 If one applies the test of necessity to decide whether the actual circumstances alleged to be a breach involved a lack of the degree of good faith that an ex-employee necessarily must owe to his former employer, I conclude that it does not. The alleged breach is little different in substance to the use of information that was readily commercially available. 150 So far as any obligation in equity's exclusive jurisdiction is concerned, the same result follows. I accept that the information that Isernia was the same as Pietra di Modica had, at least, the fairly low level of confidentiality that Megarry J identified in Coco. I also accept that the information was conveyed in circumstances where a reasonable man standing in the shoes of Mr Del Casale and Mr Savini would have realised, upon reasonable grounds, that the information was given to them in confidence. Thus there is an obligation of confidentiality attaching to it. But the question then is: what is the scope of that obligation of confidentiality? It must be, it seems to me, that it cannot be disclosed or used for purposes that either the recipient of the information actually realised, or a reasonable and honest person, in the position of the recipient of the information must have realised, were not permitted. There was no express discussion of what use could be made of the information if the men were to leave. It seems to me that, for the same reasons that I have mentioned in explaining why there is no breach of any implied duty of good faith attaching to the information, the information was of a nature where a reasonable and honest person could have been, at the least, in doubt about whether he or she was entitled to use the information after leaving the employ of Artedomus. 151 The situation is like that involved in E Worsley & Co Ltd v Cooper [1939] 1 All ER 290. In that case, the plaintiff was a paper merchant. It sold paper under various made-up names, and, so far as was possible, kept secret the names of the mills from which the papers came. The defendants had been both employees and directors of the plaintiff. They left to set up their own business in the same line of goods. One of the bases upon which the plaintiff sought relief was (294) "that the defendants have disclosed confidential information, or have made an improper use of such confidential information in breach of duty or an implied contract." Thus, the case against them was put on the basis of both an equitable duty of confidence, and a breach of an implied contractual obligation. 152 In Worsley, secrecy concerning the source of the papers was not total. Morton J said, at 306, that a "… paper merchants would not wish the source from which each one of their whole range of papers came to be disclosed to their customers, who are generally printers, or to their competitors. However, they might, in an individual instance, tell a good customer, if he wanted to know, where a particular paper came from." 153 By comparison, in the present case, there was no instance of deliberate disclosure to a customer of the source of Isernia. 154 In Worsley, "… no warning was ever given to Mr Cooper that information as to the source from which the paper came was to be treated as confidential, from the point of view either that it was not to be disclosed during his employment or that it was not to be disclosed subsequently." (307).

Artedomus (Aust) Pty Ltd v Del Casale & Ors

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