Bluescope Steel Limited (ACN 000 011 058) v Kelly - [2007] FCA 517 - FCA 2007 case summary — Zoe

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Bluescope Steel Limited (ACN 000 011 058) v Kelly

[2007] FCA 517

Federal Court of Australia|2007-04-12|Before: Emmett J

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Court

Federal Court of Australia

Decision date

2007-04-12

Before

Emmett J

Source

Original judgment source is linked above.

Judgment (53 paragraphs)

[1]

REASONS FOR JUDGMENT INTRODUCTION STEEL MANUFACTURE PROJECT M FORMATION OF CASTRIP INVOLVEMENT OF MR KELLY WITH BLUESCOPE AND IN PROJECT M THE CONSULTANCY AGREEMENT BETWEEN DANIELI AND K.CON DISCLOSURES PURSUANT TO THE CONSULTANCY AGREEMENT Written Disclosures June Questions and Answers July Questions and Answers September Questions and Answers October Questions and Answers August Drawings and Notes September Drawings and Notes Design Specifications Quality Manual Oral Disclosures Visit 13 December 2000 to 21 December 2000 Visit 22 January 2001 to 26 January 2001 Visit 19 February 2001 to 27 February 2001 Design Review Meetings in Australia May 2001 Meeting on 4 June 2001 to 8 June 2001 and subsequent discussions Other Disclosures THE CLAIMS BY BLUESCOPE AND IHI Copyright Infringement Breach of Contract Breach of Confidence DISCLOSURE OF CONFIDENTIAL INFORMATION Evidence as to Confidentiality Specific Items in Exhibit 4.1 Items 1 and 2 Item 3 Item 8 Item 9 Item 14 Item 19 Item 27 Item 48 Items 63 and 64 Item 68 Items 69 to 71 Items 89 to 91 Item 110 Item 130 Whether Information Disclosed was Confidential Conclusion as to Breach of Confidence RELIEF Injunctions Account of Profits CROSS CLAIM CONCLUSION INTRODUCTION 1 The first respondent, Brian Francis Kelly, has had over 40 years experience in the steel and associated industries, most of it with the first applicant, Bluescope Steel Limited (Bluescope). The second respondent, K.Con Pty Limited (K.Con), was formed by Mr Kelly following cessation of his employment by Bluescope. Mr Kelly is the only director of K.Con and is its secretary. 2 From 1988, Bluescope and Ishikawajima-Harima Heavy Industries Co Limited (IHI) commenced work on a research and development project under the name "Project M". Mr Kelly was heavily involved in Project M. Subsequently, Bluescope and IHI assigned to the second applicant, Castrip LLC (Castrip), certain information arising from Project M, which Bluescope and Castrip claim is confidential. 3 Bluescope and Castrip claim that Mr Kelly and K.Con have disclosed part of that confidential information to Danieli & Co (Danieli). Danieli is engaged in the design and manufacture of machinery used in steel making, including steel casting machinery. Bluescope and Castrip say that such disclosure occurred in breach of fiduciary and contractual obligations that they claim Mr Kelly owed to them. They also claim that Mr Kelly and K.Con have infringed copyright in certain works related to the confidential information. 4 When the proceeding was commenced, Bluescope was the only applicant. The respondents included parties other than Mr Kelly and K.Con. Subsequently, Danieli was also joined as a respondent and Castrip was joined as an applicant. However, when the proceeding came on for hearing, the claims against all respondents other than Mr Kelly and K.Con had been compromised and the only questions remaining for the Court are whether Bluescope and Castrip are entitled to succeed against Mr Kelly and K.Con and, if so, what relief should be granted by way of injunctions and account of profits. 5 There is no dispute that Mr Kelly and K.Con conveyed a great deal of information to Danieli. Mr Kelly and K.Con contend, however, that the information disclosed was not confidential information belonging to Bluescope and Castrip. They say that the information was either in the public domain or had become part of the skill and knowledge acquired by Mr Kelly in the course of his employment by Bluescope, which he was permitted to use for his own benefit following cessation of his employment with Bluescope.

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STEEL MANUFACTURE 6 There are two kinds of steel, carbon and stainless. Carbon steel is an alloy of iron, carbon and other elements. Stainless steel is an alloy of iron, chromium and other elements. Only 2% of all steel produced in the world is stainless steel. The remainder is carbon steel. 7 There are many different end products manufactured from steel, such as: · plate steel, consisting of thick sheets; · rods; · bars; · hot rolled coiled steel; · cold rolled steel. 8 Hot rolled coiled steel is a continuous sheet of steel of a defined thickness and width, presented as a coil. Hot rolled coiled steel is typically 2 mm to 10 mm thick. Each coil may weigh up to 25 tonnes. Hot rolled coiled steel is used in the construction of trains, ships and motor vehicles, as well as pipes and general engineering. 9 Cold rolled steel is made by further processing hot rolled coiled steel through rolling stands after cooling. It generally has a thickness of less than 2 mm. Cold rolled steel is used for roofing and sheeting for buildings, concrete decking and motor vehicle panels. 10 The steel industry involves large scale production facilities, which have high capital costs, requiring significant investment in technology and equipment. Production plants are physically large and generally have a large skilled workforce. 11 Development of new technology typically involves testing through a small experimental pilot plant and then a commercial scale pilot plant before the technology is implemented on a commercial level. Each of those stages requires major expenditure. Once a new technology is developed, it is gradually adopted by major producers over the following 10 to 20 years. A fully integrated steel plant capable of producing in the order of 5 million tonnes of steel per annum would cost somewhere between $US4 billion to $US6 billion to establish. Such a plant, once established, would be expected to operate for 20 to 40 years. 12 The production of hot rolled coiled steel and cold rolled steel have been the subject of several technological developments since the 1970s. Prior to 1970, the manufacture of hot rolled coiled steel involved the following stages: (a) smelting of iron from iron ore; (b) production of molten crude steel from the smelted iron; (c) casting the molten crude steel into ingots; (d) reheating the ingots after cooling and processing them into semi-finished steel products in various shapes, including slabs of 200 mm to 300 mm in thickness; (e) reheating the semi-finished steel slabs after cooling and then rolling and shaping them into hot rolled coiled steel by hot rolling. Significant reductions in the amount of energy and capital and operating costs required to produce hot rolled coiled steel would be achieved by replacing one or all of the last three stages just described. The savings would be achieved by making the molten crude steel into a product as close in dimension as possible to the end product. 13 An improvement of that kind occurred when continuous casting technology was implemented by steel producers. Continuous casting allows molten steel to solidify directly into semi-finished products, thereby improving the efficiency of the process by removing the step consisting of casting molten crude steel into ingots. Rather, the molten steel is cast directly into a slab. The slabs produced in continuous casting have a thickness of 200 mm to 300 mm. At the end of the continuous casting process, the slabs are rolled in a hot strip mill to produce hot rolled coiled steel with a thickness of 2 mm to 10 mm. 14 In the early 1980s, a number of steel manufacturers around the world commenced research and development work on a process known as strip casting. That process is designed to manufacture, directly from molten steel, hot rolled coiled sheet, of typically less than 5 mm in thickness. As developments occurred, it became evident that it was possible by that process to produce a strip very similar in character to cold rolled steel. Such a strip is known as "cold rolled replacement strip". Strip casting eliminates the reheating involved in thin slab casting. It also eliminates the need for subsequent cold rolling. In strip casting, the initial casting and the final rolling steps are done in one continuous operation. 15 Strip casting is the latest technology presently known for production of cold rolled replacement strip. Strip casting uses a ladle filled with molten crude steel, which flows into a reservoir called a tundish, in which the steel's temperature and chemical composition are controlled. The tundish feeds the molten steel through a nozzle into a molten pool in contact with one or two casting rolls. Each casting roll is internally cooled. As the molten steel comes into contact with the rolls, it solidifies into steel strip as the casting rolls rotate. The steel strip is then rolled through an inline roll stand into cold rolled replacement strip. Such a strip casting machine, with two casting rolls, is called a twin-roll strip caster. 16 The commercial implementation of strip casting technology had been unsuccessful by reason of significant technical difficulties relating to the following: · solidification; · lack of control of metal delivery; · melt-refractory interactions; · casting roll distortion; · microstructure evolution and properties. 17 Solidification of molten steel occurs within 200 milliseconds of coming into contact with the cooled casting rolls. The way in which solidification occurs has a profound impact on the characteristics of the cold rolled replacement strip. Matters affecting solidification include rolled surface textures, melt chemistry, casting speeds, melt temperature and other process variables. 18 Metal delivery systems control the passage of molten steel from nozzles to the casting rolls. Matters affecting metal delivery include meniscus area flow control, bulk flow control and edge flow control. Edge flow control relates to the area at each end of the roll, where ceramic plates, referred to as "side dams", are located to prevent outflow and leakage of molten steel from the molten pool. 19 Melt-refractory interactions occur when the nozzle delivering the molten steel comes into contact with the surface of the solidifying steel on the casting rolls. The melt-refractory interactions can cause defects in the cold rolled replacement strip. 20 Casting roll distortion consists of variations in the dimensions of the roll that occur during transient casting events, which impact on the thickness of the cold rolled replacement strip. In order to be commercially usable, the thickness of cold rolled replacement strip needs to remain consistently within a strict range and not vary excessively. 21 Microstructure evolution and properties affect the quality of the cold rolled replacement strip, including its strength. The microstructure of the cold rolled replacement strip can change during the production process.

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PROJECT M 22 Work on Project M commenced in 1988 and was conducted by Bluescope and IHI pursuant to memoranda of understanding entered into between them. The basis of the memoranda was that each of Bluescope and IHI would jointly own the intellectual property resulting from the research and development, and would jointly contribute to the costs. 23 Mr Walter Nicholas Blejde was project manager of Project M from October 1989. As project manager, the role and responsibilities of Mr Blejde included the following: · The development and implementation of a strategy for the development of strip casting technology; · The development and implementation of a research program; · The development of a substantial patent portfolio to protect the intellectual property developed in the course of Project M; · Assisting senior Bluescope management in the development of a strategy for the commercialisation of the technology developed in Project M; · The commercialisation of the technology developed in Project M; · The development and maintenance of a plan to keep Project M technology confidential. Mr Blejde was intimately familiar with the development and implementation activities that generated information concerning Project M technology, plant designs, casting processes and metallurgical research. 24 On 22 September 1993, Bluescope and IHI entered into a commercialisation agreement for strip casting, which provided for the sharing between the parties of revenue to be gained from licensing the resulting intellectual property. During the course of the research and development phase of Project M, which concluded in December 1999, technology was successfully developed for producing cold rolled replacement strip less than 2 mm thick by the process of strip casting. The machinery used in Project M was a twin roll strip caster. 25 Up to late 1989, the work under Project M consisted of the design and construction in Japan of a 5 tonne twin roll strip caster pilot plant. The pilot plant was then installed at Unanderra, New South Wales. The initial aim of Project M in relation to the pilot plant was to develop strip casting technology that would produce Grade 304 Stainless hot rolled coiled steel 800 mm wide and 2 mm thick. Grade 304 Stainless is a product grade name that is used worldwide to specify the most common austenitic grade of stainless steel, which contains 18% chrome and 8% nickel. 26 Initial tests on strip casting using the pilot plant began in January 1990. After successfully casting Grade 304 Stainless hot rolled coiled steel, work began on casting low carbon, hot rolled coiled steel. The technical difficulties of strip casting such steel were much greater than with stainless steel. After about three years of research and development, low carbon hot rolled coiled steel with dimensions of 2 mm by 1300 mm was cast successfully using the pilot plant. 27 In August 1993, authority was given by Bluescope for the construction of an industrial scale development plant for strip casting at Port Kembla, New South Wales. The total cost of the design, fabrication, erection and hot commissioning of the proposed industrial scale development plant was approximately $A120 million. The transition from the pilot plant to the industrial scale development plant required a large increase in manpower. The staff of Project M increased from 8 to approximately 110. The total number of staff employed in Project M varied from time to time and at some stages there were 150 staff working on Project M. The industrial scale development plant commenced operation in February 1995. 28 By the end of 1998, the industrial scale development plant successfully produced commercial quality, low carbon, hot rolled coiled steel 2 mm thick. Work on Project M then turned to producing cold rolled replacement strip 1 mm in thickness. The first 1 mm coils were successfully produced in July 1999. The industrial scale development plant ceased operation and was closed in December 1999. At that stage, Project M had achieved its initial research and development objectives. The next step was to implement the technology commercially.

[4]

FORMATION OF CASTRIP 29 On 29 March 2000, Bluescope, IHI and Nucor Corporation (Nucor), a United States corporation, entered into an agreement to incorporate a limited liability company (the Formation Agreement). The Formation Agreement recited that Bluescope and IHI had been conducting a joint research and development program relating to thin strip casting technology and had solicited proposals from qualified companies to join them in further developing that technology to commercial practice. It recited that Nucor had subsequently joined with Bluescope and IHI to pursue the commercialisation of the thin strip casting technology and to form a licensing company to licence and continue to develop that technology around the world. 30 By clause 3.1, the parties agreed to form a limited liability company, under the law of the State of Delaware, with the name "Castrip LLC". Each of Bluescope, IHI and Nucor was to be a member of Castrip. Bluescope and IHI were to contribute certain intellectual property consisting of: · Thin strip casting patents, except those filed in Australasia and · All of the thin strip casting proprietary information owned by Bluescope and IHI, being all information relating to the process for the production of flat steel products through thin strip casting using a twin-roll caster. Nucor was to contribute capital in the sum of $2 million to meet the operating needs of Castrip. 31 IHI was to be granted an exclusive licence to manufacture and sell all equipment used in connection with the thin strip casting technology from the tundish to the entry of the rolling mill. IHI was also to be granted licences to use the thin strip casting patents that were to be assigned to Castrip, to the extent that such patents would be required for the manufacture or sale of certain equipment. 32 Bluescope, however, was to retain the right to use, develop and exploit technology and propriety information relating to thin strip steel casting in Australasia. Improvements for the patents and further developments of the thin strip casting technology were to be made available to Bluescope and IHI licensees. Bluescope and IHI, in turn, were to collect and disclose to Castrip improvements to the patents and developments of the technology that occur in Australasia. 33 In contemplation of the Formation Agreement, Bluescope and Castrip entered into a contribution and subscription agreement, whereby Bluescope agreed to assign the thin strip casting proprietary information to Castrip in consideration of the allotment of a 47.5% shareholding in Castrip. Bluescope and IHI entered into a licence with Nucor for the construction of the first commercial plant in the United States. Pursuant to that licence, Nucor constructed a commercial strip casting plant at Crawfordsville, Indiana, USA. The commercial strip casting plant was the first in the world to produce low carbon steel strip casting on a commercial basis. 34 The total expenditure by Nucor on the commercial strip casting plant was in the vicinity of $US 150 million. As at December 1999, the total expenditure by Bluescope on strip casting was in excess of $AUS 300 million.

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INVOLVEMENT OF MR KELLY WITH BLUESCOPE AND IN PROJECT M 35 Mr Kelly joined Bluescope directly after leaving school and, as I have said, has had over 40 years experience in the steel and associated industries. During that time, he was involved in a variety of steel making and steel casting processes (both ingot and continuous) and, to a lesser extent, iron making. The activities in which he has been involved include operations maintenance, technology, refractories, financial, industrial relations, human resources and safety and occupational health, both from a hands-on and a supervisory and managerial perspective. 36 Since 1981, Mr Kelly has travelled overseas for Bluescope on a number of occasions, to visit other steel making and casting plants, industry suppliers, industry experts and to attend conferences. He has visited Japan more than twenty times, France five times, the United Kingdom and the United States four times, Canada, Italy and Germany twice, as well as visiting Belgium, Spain, South Africa and Korea. 37 From 1985 to 1999, Mr Kelly was chairman of three Bluescope technical committees, being the Continuous Casting, Operations Improvement and Electric Arc Furnace Committees. His responsibilities included the coordination of technology, operation and maintenance development. 38 Mr Kelly's experience with continuous casting began in 1967, when Bluescope's first continuous casting plant was commissioned in Newcastle, New South Wales. In 1980, Mr Kelly was appointed to a committee to examine the development of continuous casting by Bluescope at Newcastle. That involved the examination of appropriate technology options, as well as assessing potential suppliers of know how and equipment. In 1983, it was decided to call for tenders for the supply of a continuous caster for Bluescope's plant at Newcastle. One of Mr Kelly's responsibilities was to write the functional specification for the tender document. He was subsequently responsible for assessing the operational, maintenance and technology aspects of the tenders that were submitted. 39 In 1985, Mr Kelly spent five weeks training on the continuous caster at Kobe Steel's plant in Kakagawa, Japan. On his return to Australia, he was placed in charge of the commissioning of the continuous caster at Newcastle. As part of the continuous caster project, Mr Kelly was responsible for negotiating an agreement with Nomura Platting, a Japanese company, to manufacture and repair continuous casting copper mould plates supplied from Europe. 40 In 1989, Mr Kelly was appointed Primary Plant Manager at New Zealand Steel. That position involved overall responsibility for the operation, maintenance and technology of the iron and steelmaking facilities of New Zealand Steel. Within three years, New Zealand Steel achieved required production levels at a world competitive production cost. While in New Zealand, Mr Kelly managed the technology assistance agreement with a Japanese steelmaker. 41 In 1993, Mr Kelly returned to Australia and worked at Bluescope's Port Kembla plant to assist with its slab making operation. He provided consultancy assistance in the areas of continuous casting and business planning. At that time, he expressed an interest in being involved with strip casting. Mr Kelly had first become aware of developments in strip casting in the 1980s, when he was briefed on a pilot plant in South America. In 1985, he had visited research facilities near Metz in France, where he had private discussions on current strip casting research. Mr Kelly joined Project M as Production Manager in late 1993. 42 On 8 November 1993, Mr Kelly entered into an agreement with Bluescope and IHI entitled "Confidential Disclosure Agreement" (the Confidentiality Agreement). The Confidentiality Agreement recited that Bluescope had been undertaking an extensive research and development program for metal strip in collaboration with IHI. The program was defined as Project M. The Confidentiality Agreement also recited that Bluescope may disclose information relating to Project M to Mr Kelly, subject to certain conditions. Mr Kelly agreed to treat all information received directly or indirectly from Bluescope or IHI as confidential and not to use any such information in any way, other than for the purpose of Project M. Mr Kelly was not to disclose any of such information to any other related or unrelated party whatsoever, other than an employee of Bluescope who was subject to a similar obligation of confidentiality. 43 However, the obligations of Mr Kelly were not to extend to information that, at the time of disclosure to Mr Kelly, was in the public domain or after disclosure becomes part of the public domain. Clause 6 provided that such information was not to be deemed to be within any of those exceptions merely because it was embraced by more general information within one of those exceptions. In addition, any combination of features was not to be deemed to be within such exceptions merely because individual features were in the public domain, but only if the combination itself and its principle of operation were in the public domain. 44 For the purpose of the Confidentiality Agreement, the term "information" was to include: "all technical, engineering, operation (including unpatented and/or secret methods, process, apparatus, equipment and formulae), commercial or other information which is or has been communicated or in any way provided to [Mr Kelly] in any form whatsoever, and all information which [Mr Kelly] obtains by observation or in any other manner whether developed or possessed by BHP… or IHI pertaining to Project M." 45 During his time at Project M, from 1993 to 1999, Mr Kelly held the following positions: · Production Manager, reporting to Bluescope's Group General Manager of Technology; · Assistant Manager Project M (from about January 1996), reporting to Mr Blejde; · Manager EAF Tech Group (from about mid 1998), dealing with electric arc furnaces. 46 As Production Manager at Project M, Mr Kelly was responsible for the setting up and management of the operations and maintenance of the steel making and casting facilities. When Assistant Manager, the casting facility was brought under the development group and Mr Kelly was given responsibilities in relation to finance, information technology, refractories and office administration. Because the early focus of Project M development was to build a number of plants around the rim of the Pacific Ocean, it was thought that the most likely form of steel making to feed such plants would be by means of an electric arc furnace. 47 Because of the swiftness of the planned development and a world wide shortage of people with required skills, it was apparent that the expertise to run the plants would not be available from within Bluescope. It was thought that the lack of expertise would impede the development of Project M plants. As a consequence, an electric arc furnace technology working group was established and Mr Kelly was asked to chair the group and to lead a focussed technology project relating to electric arc furnaces. 48 In the mid 1990s, there was a proposal to build a stainless steel manufacturing plant to feed the Project M caster. Mr Kelly was asked to study the requirements necessary for the production of stainless steel. That involved Mr Kelly educating himself on that topic and, to that end, he visited stainless steel manufacturing plants in Japan, Korea, the United Kingdom, Belgium and South Africa. 49 Shortly after being appointed as Production Manager at Project M, Mr Kelly appointed Mr Peter Sorensen as Maintenance Superintendent for Project M. In that role, Mr Sorensen was responsible for the maintenance of Project M machinery and had a comprehensive and detailed knowledge of its design and operation. In early 1994, Mr Kelly appointed Mr Graham Minter as a supervisor at Project M. In that role, Mr Minter had hands-on responsibility for leading one of the two operating crews. Mr Minter had a comprehensive and detailed knowledge of the Project M caster design and operation. Also in early 1994, Mr Kelly appointed Mr David Zancolich as Electrical Technician for Project M. In that role, Mr Zancolich had special knowledge of the electrical and mechanical components used in the Project M machinery. 50 Bluescope's voluntary retirement scheme (the Scheme) applied where staff reductions were required. From time to time, staff of Project M retired under the Scheme. Mr Sorensen retired under the Scheme in July 1998, Mr Zancolich retired under the Scheme in October 1999 and Mr Minter retired under the Scheme in early 2000. Each of Messrs Sorensen, Minter and Zancolich was originally joined as a respondent in the proceeding. However, the proceeding was subsequently discontinued against each of them and no relief is claimed against any of them.

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THE CONSULTANCY AGREEMENT BETWEEN DANIELI AND K.CON 51 Mr Kelly retired under the Bluescope voluntary retirement scheme in April 1999. Following his retirement, he decided to look for consultancy work. In late 1999, he was invited to present a paper at a conference in Western Australia. He accepted the invitation since he thought that it would give him an opportunity to find work. 52 However, in the meantime, Mr Kelly was approached by Danieli, who invited him to work in a technology group that Danieli planned to set up in Australia. Mr Kelly provided to Mr Giorgio Genochio, Danieli's representative in Australia, a copy of his curriculum vitae. Mr Kelly subsequently travelled to Italy to meet other representatives of Danieli, in March 2000. On 16 March 2000, Mr Kelly sent a progress report to Danieli by facsimile, saying that he had started proceedings for the establishment of a company to provide Danieli with the assistance they required. He identified possible consultants in relation to maintenance and design, technology and automation. Mr Kelly went on to suggest milestones for lump sum payments and proposals for incentive payments to be made by Danieli. 53 On 24 March 2000, Mr Kelly told Mr Gianpietro Benedetti of Danieli that K.Con had been incorporated and that a proposed consultancy agreement was in the final stages of being prepared. Mr Kelly also reported on the engagement of proposed consultants. In April 2000, Mr Sorensen agreed with K.Con to provide consulting services to K.Con and to Danieli in connection with the proposed consultancy. K.Con also procured the services of Messrs Minter and Zancolich in connection with the proposed consultancy. 54 On 22 May 2000, Danieli and K.Con entered into a consultancy agreement (the Consultancy Agreement). By the Consultancy Agreement, Danieli agreed to employ K.Con and K.Con agreed to serve Danieli as a consultant to perform services consisting of the supply of general steel-making and continuous casting technology, including, but not limited to, operational, maintenance, engineering and process technology. The consultancy services were to be provided by K.Con from its premises at Tarrawanna, New South Wales. The Consultancy Agreement was to continue until terminated on six months notice after its second anniversary. 55 The remuneration to be paid to K.Con for the consultancy services was described under four heads as follows: · Incentive and performance payments; · Key consultant retainer fees; · Key consultant bonuses; · Consultant and technical usage rates. Each of those heads was dealt with separately. 56 The incentive and performance payments were as follows: · $US60,000 on commencement of the Consultancy Agreement; · $US50,000 on each anniversary of the commencement of the Consultancy Agreement; · $US60,000 on completion of the functional specification (a term not defined); · $US60,000 on completion of the equipment design, metallurgical, operability and maintainability studies; · $US30,000 on completion of the construction engineering design; · $US40,000 on the completion of cold testing of equipment in the workshop; · $US20,000 on the completion of installation sufficient to allow cold testing to commence; · $US20,000 on the completion of cold testing at the site; · $US50,000 on the successful production of stainless steel; · $US60,000 on the successful production of carbon steel; · $US50,000 on the successful sequence casting of stainless steel; · $US50,000 on the successful sequence casting of carbon steel; · $US100,000 on the issue of each licence by Danieli for an endless strip casting rolling plant or a plant of a similar design. 57 The key consultant retainer fees were to be $US10,000 for each key consultant retained for each year that the key consultant was retained. Key consultant referred to a consultant retained by K.Con on a full time basis. The key consultant bonuses were to be $US20,000 for each key consultant retained by K.Con between the commencement of the Consultancy Agreement and the date on which there was first production of usable product by way of hot testing. 58 The consultant and technical usage rates were to be: · $US1,000 per day for consultants with greater than 15 years experience; · $US850 per day for consultants with less than 15 years experience; · $US700 per day for technicians or equipment operators. Those rates were to apply to all time spent providing the consultancy services including travelling. Provision was made for annual increases in the technical usage rates. 59 In addition, Danieli agreed to reimburse K.Con the amount of all expenses reasonably and properly incurred by it in the performance of its duties under the Consultancy Agreement, including travel expenses, accommodation and subsistence expenses, other than general office administration expenses incurred at K.Con's premises. 60 On 8 June 2000, Danieli provided to Mr Kelly a functional specification for "the ESCR Program". The plant for the ESCR Program was to be capable of producing scale free strip of 0.4 mm to 2.0 mm thick and up to 1,600 mm wide in coils. The grades of steel to be produced were to include stainless steel and plain carbon steel suitable for use in the building products industry. The plant was to be made up of three sections as follows: · Liquid steel to solid product production (continuous casting); · In-line product thickness reduction; · In-line product treatment. More detailed specification was provided in the document for each of those three sections. 61 It is notable that there is no express reference in the Consultancy Agreement to Project M or to specific technology of Project M. However, minutes of a meeting held in Italy involving Mr Kelly and Mr Benedetti on 16 June 2000 record the possibility of excess equipment from the Port Kembla Project M site. Thus, it is clear that Danieli and Mr Kelly had in mind that the consultancy services that K.Con was to provide to Danieli involved Project M, at least to some extent.

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THE CLAIMS BY BLUESCOPE AND IHI 80 The proceeding was commenced on 4 February 2002, when Bluescope applied, ex parte, for orders authorising the search of Mr Kelly's home, and other places, for material and other evidence concerning the alleged wrongful disclosure of confidential information to Danieli. The orders were executed on 6 February 2002, when substantial quantities of documents and other materials were seized from Mr Kelly's home, and other places. 81 In their second further amended statement of claim (the Statement of Claim), Bluescope and Castrip alleged that, between February 2000 and February 2002, Mr Kelly disclosed confidential information concerning Project M twin-roll strip casting technology, plant designs, casting processes and metallurgical research to K.Con and Danieli and to various other companies related to Danieli. The information alleged to have been disclosed, the dates on which it was allegedly disclosed and the parties to whom it was disclosed were identified in a schedule to the Statement of Claim. The schedule to the Statement of Claim particularised some 43 instances of disclosure by reference to specific written communications, which are generally as described above. 82 In their further amended application, Bluescope and Castrip claimed: · A declaration that Mr Kelly and K.Con had infringed their copyright. · An order restraining Mr Kelly and K.Con from further infringing copyright. · Consequential relief based on infringement of copyright. · A declaration that Mr Kelly had breached the Confidentiality Agreement. · Injunctions restraining Mr Kelly and K.Con from using, copying or dealing with confidential information relating to Project M. · Damages for breach of contract. · Alternatively, an order for the taking of an account of profits. · Damages for interference with contract. · Damage for tortious conspiracy. · Exemplary damages. 83 The only causes of action that were ultimately pursued against Mr Kelly and K.Con were based on infringement of copyright, breach of contract and breach of confidence. The claims for damages for interference with contract and tortious conspiracy and for exemplary damages were not pursued and Bluescope and Castrip elected for the taking of an account of profits rather than damages for breach of contract or infringement of copyright. That is to say, the only relief ultimately claimed consisted of injunctions restraining further use, copying, or dealing with confidential information relating to Project M and an account of profits made by Mr Kelly and K.Con from their allegedly wrongful conduct in disclosing confidential information to Danieli.

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Breach of Confidence 88 In order to succeed in a claim for a breach of confidence, Bluescope and Castrip must first identify, with some specificity, information that is said to be confidential. Next, they must show that the information has the necessary quality of confidentiality. Finally, they must show that the information was received in such circumstances as to import an obligation of confidence. There may then be an injunction to restrain threatened disclosure and there may be an account of profits in respect of actual disclosure (Corrs Pavey Whiting & Burn v Collector of Customs (1987) 14 FCR 434 at 443). 89 In determining whether the information in question has the necessary quality of confidentiality, the fact that the information is jealously guarded by the claimant, that it is not readily made available to employees and that it could not, without considerable effort and risk, be acquired by others, is a relevant consideration. The fact that considerable skill and effort was actually expanded to acquire the information is also a relevant consideration (Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317 at 334). 90 There is a category of information that an employee must treat as confidential but which, once learned, necessarily remains in the head of the employee and becomes part of his own skill and knowledge. While that information may have been acquired in the course of the employer's business, the employee will be allowed to use his full skill and knowledge for his own benefit, even in competition with his former employer after he leaves that employment. Such information is often referred to as "know how", being the skill and knowledge that an employee gains during the course of his employment, which is not capable of protection in favour of the employer. Even so, however, that type of information may be protected from use or disclosure by express contractual arrangement (see Faccenda Chicken Limited v Fowler [1985] FSR 105 and Wright v Gasweld Pty Ltd at 326F and 333G-334E). Such a contractual arrangement will be enforced unless it is contrary to public policy, as being an unreasonable restraint of trade. That is to say, it will not be enforced if its effect is to deprive an employee of the ability to earn a living without adequate compensation.

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DISCLOSURE OF CONFIDENTIAL INFORMATION 91 As I have said, the proceeding was, in the main, conducted on the basis that there was no real dispute that Mr Kelly and K.Con had disclosed information that related to Project M, as particularised in the schedule to the Statement of Claim. The critical question was whether or not the information was confidential. Thus, in the Statement of Claim, Bluescope and Castrip assert that Mr Kelly had access to confidential information concerning Project M twin-roll strip casting technology, plant designs, casting processes and metallurgical research. In response, Mr Kelly and K.Con admitted that Mr Kelly had access to such information as part of Project M and that some of it was confidential. However, they denied that they had disclosed the information as particularised and said that any information disclosed by Mr Kelly to K.Con and Danieli, or to any other companies, is and was information that was not confidential information and that it is and was information that Mr Kelly is and was entitled to use or disclose. The defence also raised questions as to whether Bluescope had any entitlement to the information, whether confidential or otherwise, and asserted that the allegedly confidential information was inadequately pleaded and particularised. 92 Bluescope and Castrip did not assert that all of the information disclosed to Danieli by Mr Kelly and K.Con was confidential. They adopted the approach of singling out from the material provided by Mr Kelly and K.Con to Danieli, that part of it that Mr Blejde said was confidential. 93 Thus, the real issue in the proceeding is the correctness of Mr Blejde's assertions that the information in the schedule to the Statement of Claim was confidential. Mr Kelly and K.Con asserted that it was either not confidential, because it was in the public domain, or was information of the sort that Mr Kelly, following the termination of his employment by Bluescope, was free to use as know how, acquired by him in the ordinary course of his employment, being of a nature that he would be free to use, following the termination of his employment.

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Evidence as to Confidentiality 94 Mr Blejde gave evidence that he examined material that was obtained from the custody or possession of Mr Kelly and K.Con upon the execution of ex parte orders made by the Court on 6 February 2002. That material consisted of the following, which is described in more detail above: · June questions and June answers; · July questions and July answers; · September questions and September answers; · October questions and October answers; · August drawings and notes; · September drawings and notes; · Design specifications; · Quality manual. 95 Mr Blejde then prepared a schedule in which he set out information contained in that material that he asserted was information of a commercially sensitive nature, the public disclosure of which would be damaging to the commercial interests of Bluescope and Castrip. The schedule became Exhibit WB4. Mr Blejde identified specific items of information in Exhibit WB4 that he said had been disclosed by specific written disclosures described above. Thus, for example, Mr Blejde identified 47 items as having been disclosed by the June questions and the June answers. A further 54 items were said to have been disclosed by the July questions and the July answers. In all, there were 133 items in Exhibit WB4. 96 The evidence relied on by Mr Kelly and K.Con included a lengthy affidavit sworn by Mr Kelly in which he made comments on Exhibit WB4, item by item. Mr Kelly's responses to the items in Exhibit WB4 were intended to demonstrate the public nature of the information described in those items. Mr Blejde then responded to Mr Kelly's affidavit by means of a further sworn schedule that became Exhibit WB5. 97 A composite document was prepared on behalf of Bluescope and Castrip, which set out, in three columns, the items of Exhibit WB4, Mr Kelly's comments on those items in his affidavit and Mr Blejde's comments in Exhibit WB5 on Mr Kelly's comments. The composite document became Exhibit 4 in the proceeding. Additions and deletions were made to Exhibit 4 by agreement between the parties and an amended version became Exhibit 4.1. Exhibit 4.1 contains nearly 200 separate and discrete items. Each of the nearly 200 items in Exhibit 4.1 was identified by Mr Blejde as having been disclosed in one or other of the written communications described above. I am satisfied that each of the relevant items in Exhibit 4.1 was, in fact, the subject of written disclosure by Mr Kelly, either directly or through K.Con. So much was never seriously in issue in the proceeding. However, as I have said, the question is whether the information was confidential. 98 Since Bluescope and Castrip claim that that information is confidential and remains confidential, it is undesirable to refer to the specific information in question. Nor is it necessary for me to do so. 99 Mr Blejde supplemented his affidavit evidence in relation to Exhibit WB4 by oral evidence in which he stated the basis of his assertion that the information in Exhibit WB4 was confidential. He did that by marking on each item in Exhibit 4.1 one or other of the following notations, by which he meant as indicated: · "Ok": Mr Blejde's own knowledge. Mr Blejde said that the items marked "Ok" contained information concerning issues that he was rather close to and actually involved in, such that he knew the numbers and other information in his own mind. · "J": Mr Blejde's judgment based on his own knowledge. Mr Blejde said that the information in this category is on the fringe of something he knows a lot about and he could therefore make a judgment about the relevant information. Where something had to be designed and it was necessary to end up with certain specifications or dimensions and Mr Blejde was very close to that issue and understood it intimately, he was able to say, in his own judgment, that the relevant information was different from the design parameter. · "DC": Discussion with expert colleagues. Mr Blejde said that he is surrounded by experts in electrical engineering, refractory engineering, production and so on. The experts in question were with him to help build and commission the first strip casting plant. They had been hand selected to go to the United States to help design, construct and commission the plant and transfer the technology. When there were very specific questions on a subject with which he was familiar, Mr Blejde needed to get advice on very specific detail. He did so by consulting those experts, initially at Crawfordsville, Indiana. Mr Blejde prepared Exhibit WB4 in consultation with those experts in the same office area where they were all working. · "Doc": Documentation available to Mr Blejde either at Port Kembla or Crawfordsville. Where Mr Blejde had documentation at his fingertips, he used that as a source of information. · "J+DC": Mr Blejde's judgment in the light of discussion with expert colleagues. These items involved a combination of the second and third sources above. The majority of the items in Exhibit 4.1 were marked with the notation "Ok". 100 Mr Blejde's evidence concerning the notations was given in the first instance on the voir dire. Leave was given to adduce the evidence, on the voir dire, after I raised concerns as to the weight that should be given to Mr Blejde's original affidavit evidence concerning Exhibit WB4. No formal objection to the evidence was taken by Mr Kelly. However, Mr Kelly and K.Con were not represented by legal counsel at the trial and Mr Kelly was under considerable pressure throughout the hearing. He has no legal qualifications and it was apparent that he had limited forensic experience. Having regard to Mr Kelly's lack of legal training, I considered that it was appropriate to indicate my concern as to the credibility of the evidence in the form in which it was given. 101 Ultimately, I do not consider that there was a real dispute that the information contained in the various items in Exhibit WB4, reproduced in Column 1 of Exhibit 4.1, was information relating to Project M. As I have said, the real issue was whether that information was confidential. As will be apparent, Mr Kelly's main response was that it was not confidential because it could have been derived by a competent expert from other information in the public domain. Accordingly, I consider that the evidence on the voir dire should be admitted in its entirety. 102 There is no question of credit, as distinct from credibility, involved in the proceeding. That is to say, I consider that both Mr Kelly and Mr Blejde gave their evidence honestly, without any intention to deceive or prevaricate, although each of them from time to time answered questions in a manner designed to advance his interests. However, the central issue was whether the information in question was confidential. 103 Mr Kelly sought to characterise much of the information as being in the public domain, apart from being part of the know how he gained from his employment with Bluescope. However, on a number of occasions, Mr Kelly was asked to identify the actual source of information contained in column 1 of Exhibit 4. Instead of identifying the actual source, his response was to say that it would have been possible to obtain the information from a source in the public domain and to describe such a source. 104 The cross-examination of Mr Blejde by Mr Kelly and of Mr Kelly by senior counsel for Bluescope and Castrip was based on Exhibit 4.1 and was undertaken by reference to specific items in Exhibit WB4, Mr Kelly's comments on those items and Mr Blejde's comments on Mr Kelly's comments. However, many of the items were not the subject of cross-examination. Such cross-examination as there was, tended to be directed to the question of whether the information was in the public domain or was of such a nature that any experienced engineer in the steel industry would be expected to have it within his knowledge.

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Specific Items in Exhibit 4.1 105 It is unnecessary to recount all of the evidence in relation to each item in Exhibit 4.1. However, it is desirable to indicate the nature of the evidence by reference to a number of examples. 106 Following are examples of items in Exhibit 4.1, showing the item in Exhibit WB4, the comment by Mr Kelly and Mr Blejde's comment in reply. Confidential information has been redacted in the examples. Disclosure Alleged in Exhibit WB4 Mr Kelly's Response Mr Blejde's Reply

The supplier of copper used for the rolls is [XXX Co]. [XXX Co] is a well known supplier of copper items including continuous casting moulds. By way of example, see …. The website of [XXX Co] Although [XXX Co]is a well known supplier of copper items including continuous casting moulds, the fact that the most successful material was supplied by [XXX Co] is confidential. At Project M, we tested material from other suppliers before settling on [XXX Co]as the supplier.
The specific copper material from [XXX Co] used for the rolls is [pqr]. The grade [pqr] is a material that appears on[XXX Co's] list of copper materials for continuous casting moulds. By way of example see… the website of [XXX Co]. Although [pqr] appears on [XXX Co's] list of copper materials for continuous casting moulds, the fact that the specific copper material used for the rolls of Project M was [pqr] has not been publicly disclosed. Other products which appear on [XXX Co's] list were also tested at Project M and were found to be unsatisfactory.
The cold mould profile used is of the order of [x] microns to produce a strip with a crown of [y] microns. The fact that the casting rolls require a cold profile to produce cast strip with a crown is public knowledge. The amount of crown required for the cast strip if it is to be used as hot strip mill replace is also public knowledge. The determination of the cold roll crown to give a particular cast strip crown is public knowledge using available models. I agree with Mr Kelly's statements that the fact that the casting rolls require a cold profile to produce cast strip with a crown is public knowledge and that the amount of crown required for the cast strip if it is to be used as hot strip mill replaced is also public knowledge. However, while the determination of the cold roll crown to give a particular cast strip crown could be estimated using available models, to settle upon a cold mould profile of the order of [x] microns to be produced as strip with a crown of [y] microns required testing and experimentation. Knowing the particular cold mould profile at Project M avoids the need for modelling and subsequent verification through trials and experimentation and is thus valuable information. Public information is available to develop these models.
The size of the base used is [x] millimetres. The radius of the plate used is [y] millimetres. The plate used is shaped to fit against the ends of the rolls with a bearing surface of around [z] millimetres. The plate used is pointed at the bottom in order to guide it into the centre of the holder, which in turns ensures it is positioned on the centre line of the rolls. The design of the lateral plate is public knowledge. The level of detail which has been disclosed regarding the design of the lateral plate, including the specific dimensions, is not public knowledge. The patent to which Mr Kelly refers contains schematics of the lateral plate but does not include dimensions. There is nothing in the patent to suggest that the diagrams are scaleable. Any estimated dimensions obtained from the diagrams would need to be tested in a real plant as was done at Project M to come up with the specific lateral plate design which was used. The bearing surface of the lateral plate has not been publicly disclosed. Reference was made to patent applications relating to the plant.
The under tundish used has a [x] piece nozzle above the submerged entry nozzle (SEN). The construction of the nozzle for the under tundish is something that any competent refractory engineer could undertake. The fact that it is one or more pieces is determined by the method of manufacture and/or instal-lation of the nozzle. The fact that the under tundish used at Project M has a [x] piece nozzle above the submerged entry nozzle (SEN) was the subject of experimentation and testing.

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Items 1 and 2 108 Mr Kelly's evidence in relation to Items 1 and 2 of Exhibit WB4 was not that the sources that he identified were, in fact, the sources of the information given to Danieli. Rather, he said that they were sources of the information that were publicly available. He agreed as much in the course of cross-examination. However, what was confidential about the information contained in Items 1 and 2 of Exhibit WB4 was that pqr grade copper, supplied by XXX Co, was the one actually chosen for the purposes of Project M. The fact that a particular grade of copper can be supplied by a particular supplier is public knowledge. However, the fact that a particular grade supplied by a particular supplier was the one actually chosen for the purposes of Project M was not public knowledge. 109 Mr Blejde said in cross-examination that, in 1998, there was only one active supplier of copper although other suppliers approached him about trying their material. He said that two other suppliers had supplied materials which had failed in service and were unsatisfactory. Ultimately, the original material was found to be unsatisfactory and there was a change in supplier. 110 Mr Blejde did not dispute that XXX Co. is a well known supplier of copper items and that pqr grade is a material supplied by XXX Co. Nor did he dispute that those facts were readily discernible from the website of XXX Co. on the internet. 111 Mr Kelly was asked whether he accepted that, from Danieli's point of view, the fact that something was an actual operating parameter at Project M was of value. Mr Kelly agreed that the knowledge of the copper supplier was of consequence to Danieli. 112 Mr Kelly agreed that, when he said that XXX Co. was a well known supplier, he intended to communicate that the website was a possible source of the information that XXX Co. supplied pqr grade copper. He also agreed that the information that was furnished to Danieli on that question was, in fact, information that he obtained from his experience at Project M. He ultimately agreed that the source of the information concerning the copper material in items 1 and 2 was his own thin roll casting experience from Project M. The source of the information concerning pqr grade of copper was Mr Kelly's experience at Bluescope in relation to Project M.

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Item 9 120 Item 9 relates to the geometry of the lateral plate. Mr Kelly's answer was that the design of the lateral plate is public knowledge gleaned from a patent specification. Mr Kelly referred to the following extract from the relevant patent specification: "The roll diameter is 110 mm if this is assumed to be equal to 500 mm then the following can be estimated: Lateral plate width ˜A mm [A x 110 / 500 mm] LP/roll overlap ˜B mm [B x 110 / 500 mm]" A second extract refers to a detailed description to the preferred embodiment of the patent in question and says: "The pool is confined at the ends of the rolls by a pair of side closure plates 56 which are held against stepped ends 57 of the rolls when the roll carriage is at the casting station. Side closure plates 56 are made of a strong refractory material, for example boron nitride, and have scalloped side edges 81 to match the curvature of the stepped ends 57 of the rolls." A third reference is to figure 5 of the patent saying: "LP width C mm = A mm from P.doc 31 Scalloped radius D mm = E mm." 121 Mr Kelly said that the patent drawings, while they do not have the dimensions shown in Item 9, can be used to estimate the dimensions. Mr Kelly, in the course of cross-examination, could not recall where he got the precise dimensions that are contained in Item 9. He said that the precise dimensions may have been conveyed to him by one of his colleagues. 122 Mr Blejde agreed in cross-examination that, while the general shape of the lateral plates was depicted in the diagrams that were publicly available, specific dimensions were not. Thus, the fact that the lateral plate is roughly triangular and has some arcs on it and a flat top, he accepted was public. However, he did not accept that the public information showed the design of the corners and certainly did not disclose the exact dimensions of the lateral plate. 123 It is clear that Mr Kelly was not saying that he, in fact, calculated the values x, y, and z shown in Item 9. He accepted that the values in Item 9 may have been provided to him by one of his colleagues. It is clear that neither Mr Kelly nor any of his colleagues, in fact, derived the values x, y and z in the manner suggested by Mr Kelly in his response to Item 9 at the time when that information was furnished to Danieli. The most that can be said is that a competent engineer may have been able to arrive at those figures. 124 On the other hand, Mr Blejde said, and I see no reason to doubt what he said, that the drawing in the patent specification was not necessarily scaleable. Mr Blejde also said that the values x, y and z were in fact values applicable to the lateral plate developed in Project M. It is clear enough that the information contained in Item 9, in describing the dimensions of the lateral plate used in relation to Project M, was not public knowledge and was derived from Project M.

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Whether Information Disclosed was Confidential 138 The dimensions of the Project M plant were not publicly known, although it may be that, with the expenditure of the time and effort that was expended by Bluescope, the same result could be achieved by someone else. The point of the claim by Bluescope and Castrip is that they had expended the time and effort in determining the dimensions of a strip casting plant that was effective. The combination of nearly 200 items in Exhibit WB4 and various combinations of information with other confidential information, together with the exclusion of other information, was of great value. The concept of the combination of information comprising the total of Project M confidential information is reflected in the provisions of the Confidentiality Agreement to which I referred earlier. 139 Mr Kelly displayed a vast knowledge of the steel industry in his comments on Exhibit WB4. He demonstrated significant and extensive knowledge of engineering principles and industry practice and know how. However, Project M was conducted over a period in excess of 10 years, involving more than a 100 people and the process of continuous design, testing, improvement, trial and error. The fact that certain products, processes and parameters were or were not found to be successful was not public knowledge. The combination and collection together of the results of the design, testing, improvement and trials was valuable information and it was confidential. Project M gave rise to an extremely complex and wide ranging set of parameters as a result of the generation of vast reams of material. 140 Mr Blejde accepted that a certain amount of information concerning the twin-roll strip casting technology of Bluescope and Castrip had been publicly disclosed in scientific papers and in patent applications filed in various countries. He asserted, however, that significant aspects of the information relating to the twin-roll strip casting technology developed in the course of Project M had not been disclosed publicly and remained highly confidential. 141 It is clear enough that Danieli was concerned to gain access to Project M information. The June questions and the July questions relate to Project M and the responses clearly relate to Project M. Mr Kelly's vast experience in the industry and the field of steel making enabled him to understand the questions and to respond to them in a way that would have been meaningful to Danieli from a technical point of view. The substance of what was being disclosed was specific information relating to Project M. That is not to say that much of the information disclosed by Mr Kelly and K. Con was not information in the public domain. However, the critical combination of specific dimensions and parameters derived from Project M added greatly to the value of any information that could be provided by Mr Kelly. It was that added value that Danieli sought. 142 Mr Kelly used documents of Bluescope to make notes, from which he created his own documents. He agreed that it was evident from his notes that he had transferred the words directly from Bluescope's documents to his documents. The Bluescope documents were confidential documents, as Mr Kelly knew. For example, a document entitled "Process Technology Review December 1996 Status" was obtained from Mr Kelly's home. That document was marked "Confidential Restricted Circulation". The objectives of that document stated to be as follows: · To provide an assessment of Project M progress against the goal of commercialisation. · To focus on the core process technology issues of strip quality, operating practices and equipment performance. · To provide a concise, rigorous analysis that records and puts into context: - what has been done and why; - what has been achieved and what remains to be achieved; - what has been learned; - what has been resolved and what remains to be resolved; - what are the options and strategies that provide the most promising way forward. · Thereby to make a positive contribution to achieving successful outcomes for Project M. 143 That document contains extensive and specific information concerning Project M, consisting of detailed diagrams and graphs recording processing results. Another document obtained from Mr Kelly's possession, which was marked "SECRET", was entitled "Strip Casting Project - Report on the Progress and Achievements to February 1997". That document also contained very detailed information relating to process and results of Project M. While there is no direct evidence that those documents were provided to Danieli, an inference can be drawn that they informed at least some of Mr Kelly's communications to Danieli. 144 Mr Blejde was not able to say from his own knowledge that all of the items in Exhibit WB4 constituted confidential information of Bluescope and Castrip. However, it is clear enough that Danieli was prepared to pay substantial sums to K.Con in order to obtain information concerning strip casting. Mr Kelly's knowledge of strip casting was derived from his involvement in Project M. I do not consider that it is necessary, for the purposes of determining that Mr Kelly, and K.Con through Mr Kelly, disclosed confidential information belonging to Bluescope and Castrip, to identify with precision, precisely what confidential information was actually disclosed. 145 However, difficulties might arise when it comes to the question of the precise formulation of an injunction that identifies with sufficient precision the information the disclosure of which is to be prohibited. Further difficulties will also arise in determining the extent, if any, to which K.Con should be required to account to Bluescope and Castrip for any profit it has derived from the disclosure of confidential information.

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Conclusion as to Breach of Confidence 146 In Mr Kelly's comments on a great number of the items, he explains how the specific dimensions, rates or parameters disclosed might be arrived at, otherwise than by direct reference to material derived from Project M. In virtually no instance, however, does he actually say what was the actual source of the particular dimension, rate or parameter in a particular item. He often makes the broad assertion that the particular information "is public knowledge" and then refers to published documents. In no case, however, do the published documents actually specify the particular dimensions, rates or parameters. As Mr Blejde points out in his response to Mr Kelly's comments on the particular items, a further step needs to be taken in order to derive the particular dimensions, rates or parameters. In many instances, those steps would involve trial and error and experimentation as carried out by Bluescope in the course of Project M. 147 In other instances, Mr Kelly says that particular dimensions, rates or parameters can be estimated by reference to public information. In yet other instances, Mr Kelly says, for example, that "a competent engineer could design the dimensions". In no case does he actually say that the specific information in a particular item was, in fact, estimated from publicly available information or that the dimensions, rates or parameters were actually designed by himself or another consultant, as a competent engineer, in order to arrive at the specific dimensions, rates or parameters disclosed in a particular item. 148 The inference can be drawn, therefore, where specific and precise dimensions, rates and parameters were disclosed by K.Con to Danieli, that the specific dimensions, rates or parameters were obtained by K.Con, through one or other of the consultants retained by it, including Mr Kelly, from Project M experience and material. 149 There is a difficulty resulting from the manner in which Mr Blejde's evidence was given. In one sense, he started at the conclusion and worked backwards. That is to say, he began by consideration of the material that was obtained from Mr Kelly's home on the execution of the ex parte orders. He then asserted that part of the information contained in the material provided by K.Con to Danieli was of a commercially sensitive nature and was confidential. However, he did not embark on an exercise of identifying just where the specific information contained in any particular item identified by him as having been disclosed to Danieli can be found within material relating to Project M belonging to Bluescope and Castrip. It is necessary, therefore, for a judgment to be made, on the basis of the somewhat unsatisfactory evidence of Mr Blejde, on the one hand, and Mr Kelly's equally unsatisfactory contrary assertions, on the other hand, as to whether, and to what extent, K.Con actually disclosed specific information, in the nature of dimensions, parameters and rates that could fairly be characterised as Project M information. 150 Senior counsel for Bluescope did not, in the course of final addresses, take the Court in detail through the oral evidence given in relation to specific items in Exhibit 4.1. Rather, it was contended on behalf of Bluescope that, on the balance of probabilities, in the light of all of the evidence, there was disclosure to Danieli of confidential Project M information. 151 I consider, on balance, that there was disclosure by Mr Kelly, either directly or through K.Con, of confidential information derived from Project M belonging to Bluescope or Castrip. It is not possible, for the reasons that I have indicated, to identify the whole of the confidential information that was disclosed. However, the vast majority of information, in the items contained in Exhibit 4.1, was in that category. 152 That disclosure constituted a breach by Mr Kelly of the terms of the Confidentiality Agreement. Having regard to the terms of the Confidentiality Agreement, substantial parts of the information that was disclosed had been acquired by Mr Kelly in circumstances that imported an obligation of confidence in relation to that information. The information was also acquired by K.Con in circumstances that imported an obligation of confidence so far as K.Con was concerned. There was, therefore, a breach of a general law duty of confidence in relation to disclosure to Danieli of most of the information described in Exhibit 4.1. Accordingly, it is necessary to determine what relief is appropriate.

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Injunctions 155 The information identified in Exhibit WB4 is not an exhaustive statement of the confidential information derived from Project M. Rather, as will be apparent from what I have already said, it is an itemisation of information furnished to Danieli by Mr Kelly and K.Con that Mr Blejde asserts is information belonging to Bluescope and Castrip and that is confidential. It is more likely than not that other information belonging to Bluescope and Castrip that is confidential has also been disclosed to Danieli. 156 Having regard to the execution of the ex parte orders and the seizure of substantial quantities of material from Mr Kelly's home, it is probably unlikely that Mr Kelly retains any further written material containing confidential information belonging to Bluescope and Castrip relating to Project M. Nevertheless, while there may be considerable know how that Mr Kelly has acquired in his extensive experience in steel making, there must be a reasonable risk that there is specific confidential information relating to Project M that could still be disclosed to Danieli or other parties. Mr Kelly has not proffered any undertaking to make no further disclosures of information concerning Project M twin-roll strip casting technology in the future. Further, Mr Kelly maintains his stance that all of the information that he has disclosed, either directly or through K.Con, is in the public domain. 157 I consider, therefore, that there should be injunctions restraining Mr Kelly and K.Con from disclosing to any person, or otherwise using, any technical engineering operational, commercial or other information relating to Project M communicated to him or received directly or indirectly by him from Bluescope, IHI or Castrip. However, that restraint should not relate to information that: · at the time of disclosure to Mr Kelly, was in the public domain, as evidenced by printed publication or otherwise; · after the time of disclosure to Mr Kelly, has become or becomes part of the public domain by printed publication or otherwise, through no fault of K.Con or Mr Kelly. 158 In a sense, a restraint along those lines has undesirable aspects. From one point of view, it begs the very question that has been in issue in this proceeding, namely, whether particular information is in the public domain. However, that difficulty is eliminated when the precise information is properly identified. 159 For example, the fact that XXX Co supplies pqr grade of copper is information consisting that is in the public domain. However, the fact that Project M developed a process that involved the use of pqr grade copper supplied by XXX Co is not in the public domain. While the overall design of a strip casting plant may be in the public domain, the precise dimensions of the plant developed and operated by Bluescope and Castrip are not in the public domain. I consider, therefore, that injunctions along the lines indicated above are appropriate in the circumstances of this case.

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Account of Profits 160 Bluescope and Castrip have elected to claim an account of the profits derived by K.Con or Mr Kelly from the breach of confidence. However, the manner of taking the account is not without difficulties. 161 The claim by Bluescope and Castrip for an account of profits requires a determination of the profit derived by Mr Kelly and K.Con from any wrongful use or disclosure of the relevant information. The Court, in calculating the quantum of profit, must make such approximation as will do justice to the parties (Dart Industries Inc v Decor Corporation Pty Ltd (1993) 179 CLR 101 at 119). 162 K.Con received sums totalling $1,484,238.16 from Danieli. K.Con paid $333,802 to Messrs Sorensen, Minter, Russell, Zancolich and their respective companies and incurred travelling and other expenses of $41,934.37. Bluescope and Castrip assert that the net amount of $1,108,501.79 is the profit derived by Mr Kelly and K.Con from their wrongful use or disclosure of the relevant information. 163 While that calculation of profit makes an allowance for amounts paid to Messrs Sorensen, Minter, Russell, Zancolich and their companies and travelling and other expenses, it makes no other allowance for the cost of deriving the fees. Nor does it make allowance for information provided to Danieli that did not consist of confidential information relating to Project M. Danieli received information and assistance from K.Con, in exchange for the fees of $1,484,238, that was not confidential information belonging to Bluescope and Castrip. It is tolerably clear that Danieli also obtained benefit derived from Mr Kelly's wealth of experience in steel making over some 40 years. It would not have been possible for Mr Kelly or K.Con to disclose the specific information that has been identified except through an individual who has Mr Kelly's wealth of experience in steel making. 164 Bluescope and Castrip contend that, without the confidential information relating to Project M, neither Mr Kelly nor K.Con would have been retained by Danieli at all. They say that the whole arrangement involving the Consultancy Agreement between K.Con, on the one hand, and Danieli, on the other, came about only by reason of the wrongful use of the confidential information obtained by Mr Kelly from Bluescope. They say that Danieli only paid K.Con in exchange for receiving confidential Project M information. Had K.Con not been in a position to provide confidential Project M information, Danieli would have paid nothing at all. Accordingly, they say, the net amount represents profit obtained by K.Con from unlawful conduct (see Dart Industries at119-120). 165 It may be that an inference can be drawn that Danieli was interested in entering into arrangements with Mr Kelly and K.Con because of Mr Kelly's involvement with Project M. However, it by no means follows that Danieli's object was to obtain confidential information relating to Project M, in breach of Mr Kelly's obligations of confidence to his employer. Bluescope and Castrip do not contend, and they have certainly not established, that all of the information imparted by Mr Kelly, either directly or through K.Con, to Danieli involved a breach of Mr Kelly's obligations of confidence. On the other hand, it is for Mr Kelly to demonstrate the extent to which any benefit he received in connection with any breach of duty is attributable to his own effort, expertise and know how beyond the mere disclosure of confidential information. 166 The object of the taking of accounts in a case such as this is to determine the profit derived by the wrong doer from the use of the confidential information. Whether it is appropriate to make an allowance in respect of Mr Kelly's skill, expertise and other expenses is a matter of judgment. As a general rule, consistently with the principle that a fiduciary must not profit from a breach of fiduciary duty, the Court will make allowance for skill, expertise and other expenses (Warman International Ltd v Dwyer (1995) 182 CLR 544 at 562). The grant of an allowance will normally be a substitute for an apportionment of profits where a wrong doer mingled profits attributable to breach of duty and profits attributable to the wrong doer's efforts. That suggests that the onus of establishing that an allowance for skill, expertise and other expenses is called for, is on the wrong doer (Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298 at [335]). 167 Some part of the services provided to Danieli by K.Con in return for the fees represented knowledge and experience of Mr Kelly that might fairly be characterised as know how in relation to steelmaking in general and strip casting in particular that does not constitute confidential information of Project M. The difficulty is in determining an appropriate apportionment. 168 From K.Con's point of view, it could not have earned any fees without paying for the services of Mr Kelly. From Mr Kelly's point of view, he could not have derived any fees without at least spending the time that he spent. Some value must be assigned to that time. There is no doubt that Mr Kelly spent considerable time and energy in meetings and in the preparation of responses to Danieli's questions. One difficulty for the Court is in assessing the value of Mr Kelly's time and effort. 169 No evidence has been adduced by Mr Kelly on that question. However, in his apportionment, he calculated the number of days he spent in the provision of consulting services. Bluescope and Castrip did not dispute those calculations, which showed that, in order for K.Con to derive fees from Danieli, Mr Kelly spent some 402 days in consultancy services and a further 95 days travelling, making a total of 497 days. Nevertheless, Bluescope and Castrip contend that Mr Kelly and K.Con have not established that it would be inequitable to order an account of their entire profits less the amounts paid to Messrs Sorrenson, Minter Russell and Zancolich and their companies and the travel and other out of pocket expenses referred to above. 170 In the Consultancy Agreement, a daily rate was agreed for a consultant in the position of Mr Kelly, with more than 15 years experience. That rate was $US1,000 per day. There was no other evidence as to whether that is a fair rate for the services provided by Mr Kelly beyond the fact that it appears in the Consultancy Agreement. The rate of $US1,000 per day might be taken to reflect the fact that, in order to earn fees of that order, Mr Kelly would of necessity disclose significant confidential information. 171 Mr Kelly and K.Con contend that the payments under the Consultancy Agreement in respect of commencement fee, anniversary fee and key consultant retainers were not linked to the provision of any information and should therefore not be brought into account. They also argue that the payments made for travel time should not be taken into account because they were not related to the provision of confidential information. On that basis, they say, only the payment for consulting days can be linked to the supply or provision of confidential information. 172 Mr Kelly undertook a detailed exercise of apportionment. He calculated that no more than 5% of the time spent by him in providing consulting services to Danieli related to the items in Exhibit WB4 that Mr Blejde identified, from his own knowledge, as being confidential. Mr Kelly says that his wealth of experience in steelmaking contributed to the derivation of the balance of the fees paid by Danieli to K.Con. Accordingly, he says, only 5% of the payments made for consulting days should be treated as profit derived from the disclosure of confidential information. I do not consider that Mr Kelly's detailed apportionment is an appropriate approach. 173 The vast amount of detailed information that was furnished to Danieli was interlaced with specific and detailed Project M information that was confidential to Bluescope and Castrip. However, in the absence of proper identification of all of the information that can be said to be confidential to Bluescope and Castrip, the appropriate allowance must be a matter of judgment. Taking the agreed rate of $US1,000 per day as a starting point, and doing the best that I can in the state of the evidence that I regard as somewhat unsatisfactory, I would make an allowance for Mr Kelly's time at $US1,000 for all of his travelling time and for one-third of his consultancy time. I do not consider, on the balance of probabilities, that Mr Kelly and K.Con would have been able to derive more than one-third of the incentive and performance payments or the consultant retainer fees and bonuses attributable to Mr Kelly without the Project M confidential information. 174 That would require K.Con and Mr Kelly to account for two-thirds of that part of the fees that represented incentive and performance payments and consultant retainer fees and consultant bonuses paid in respect of Mr Kelly's services. It would also require them to account for two-thirds of the daily consultant fees, but not for travelling. That result appears to me to be equitable.

[51]

CROSS CLAIM 175 At a time when Mr Kelly and K.Con were represented by solicitors and senior counsel, a cross-claim was filed on behalf of Mr Kelly and K.Con. An amended cross-claim was filed after Mr Kelly and K.Con ceased to be represented. 176 Mr Kelly and K.Con complain that, at the time when the proceeding was commenced, on 4 February 2002, Castrip was the owner of the relevant confidential information, but was not joined as an applicant. At that stage the only applicant was Bluescope. Although it was a joint owner of the information and intellectual property developed by Project M, IHI was not a party. It was an assignor to Castrip in 2000 and it may be that the only necessary party as claimant was Castrip, having regard to the assignment. 177 There must be a real question as to whether, at the time of the commencement of the proceeding on 4 February 2002 and the execution on 6 February 2002 of the ex parte orders then made, Bluescope was the appropriate applicant, rather than Castrip. Nevertheless, when Castrip was joined as an applicant, no limitation was imposed on the terms of the joinder, such that the joinder must be taken to be effective from the commencement of the proceeding. In any event, by the time of the hearing, both Bluescope and Castrip had been joined as applicants and there can be no suggestion that any other party had any interest in the information in question. 178 In substance, the allegations made in the cross-claim are as follows: · In or about December 2000, Castrip and Bluescope invited and requested Danieli to join with Castrip in the development and marketing of twin-roll strip casting. · Danieli refused to do so. · On 7 November 2001, Castrip and Bluescope requested Mr Kelly and K.Con to provide Castrip with all the information that Mr Kelly and K.Con had as to the commercial plans and strategy of Danieli concerning twin-roll strip casting and said that, if they did provide that information, Castrip and Bluescope would not commence legal proceedings against Mr Kelly and K.Con. · Mr Kelly and K.Con requested and asked for further details of the request but received no reply. · On 4 February 2002, Bluescope, without notice to Mr Kelly or K.Con, obtained ex parte orders against Mr Kelly and K.Con and others and executed those orders. · Bluescope, at that time, had no entitlement to obtain the orders and failed to put before the Court all matters necessary to obtain the orders. · In the premises, the proceeding was commenced and has been maintained by Bluescope and Castrip: (a) For the benefit of and to protect the interests and property of persons other than Bluescope, namely Castrip, IHI, Nucor and Bluescope Steel Technology Inc and their related corporations. (b) For the principal or predominant purpose of: (i) influencing, persuading or compelling Danieli to join with Castrip in the development and marketing of twin-roll strip casting; (ii) ascertaining information as to the commercial plans and strategy of Danieli concerning twin-roll strip casting; (iii) delaying, deterring or preventing Danieli in relation to the development, marketing and exploitation of twin-rolls trip casting or machinery and equipment for twin-roll strip casting; (iv) delaying or preventing the entry of Danieli into markets for twin-roll strip casting or increasing its share in such markets; (v) causing Danieli damage; (vi) preventing Mr Kelly and K.Con providing consultancy services to Danieli. · The institution of the proceeding and the obtaining of the ex parte orders is and was an abuse of process. · By reason of their conduct in constituting or continuing the proceeding and obtaining or seeking to obtain the benefit of the ex parte orders with the motive and purpose referred to, Bluescope and Castrip are not entitled to relief. 179 By the cross-claim, Mr Kelly and K.Con claim a declaration that the Confidentiality Agreement and similar agreements entered into with Messrs Sorensen, Minter and Russell are invalid, void and unenforceable. They also claim damages for abuse of process and an order that the proceeding be dismissed or permanently stayed. 180 In their written submissions, at the end of the hearing, Mr Kelly and K.Con stated that they had an impression that the hearing had been set down to hear evidence as to the claim by Bluescope and Castrip concerning breach of confidence and not to deal with the cross-claim. If Mr Kelly had that impression, it must have been the result of a misapprehension. In any event, when offered the opportunity, Mr Kelly made no application for an adjournment or for leave to adduce further evidence or make further submissions concerning the cross-claim. 181 Mr Kelly, in his submissions, also referred to alleged failures on the part of Bluescope and Castrip to give discovery of relevant materials. However, it is clear that any requests for further discovery that might have been mounted on behalf of Mr Kelly and K.Con were subsequently abandoned at a time when Mr Kelly and K.Con were represented by senior and junior counsel and solicitors. 182 The evidence relied upon to support the allegations of improper motive and purpose is entirely inferential. I shall describe it. 183 On 25 August 2001, Mr Blejde sent an email to Mr Zancolich relevantly saying as follows: "Let me kick off by restating how grateful I am that you have the guts to stand up to do the right thing even in circumstances that are very stressful to you. You have set an example that I hope all of us will also live up to. One of my colleagues, Richard Wechsler who is now the president of Castrip LLC went through the identical situation during his BIEC days, and he knows what you are going through. I can also confirm that we will do everything to ensure no harm come to you workwise, financially, legally or any other way. Don't hesitate to give me a yell if anything worries you. … Our common aim should now to move quickly and on the one hand deal with the Danieli issues, and more importantly from your personal point of view get through to the stage where we can let you put this whole experience behind you - I know from our conversation yesterday that that is what you dearly want right now. I haven't changed my stripes much in that I still need some more info (as usual!) from you so that I help determine what the next step is with Danieli. … Let me start off with a comprehension test with respect to what I learnt yesterday from you, and you tell me if I got it right! Please type in any comments corrections over my points. About May or June 2000 you were approached by Brian Kelly initially for a one day discussion with Brian alone (which turned out to be harmless) which then led to a meeting about a week later that was to run over several (three) days on general steelmaking and conventional casting issues. The attendees at the three day meeting were Brian Kelly, Peter Sorensen, Graham Minter, 2 Danielli personnel and yourself. The discussions started on the "expected" subject, however after a short time, the subject matter changed to twinroll casting (this change in direction horrified you)… You were evasive with respect to giving any straight answers to Danieli as you become more worried about the nature of discussions, until you "pulled the pin" on about the second day? and withdrew from the proceedings because that you felt that to participate in such discussions was the wrong thing to do, and you didn't want to have anything to do with the exercise - you felt you had been lured there under false pretences. You have had no contact with any of these people since you withdrew from the discussions…" There then followed some specific questions from Mr Blejde concerning what was said at the meeting. 184 On 7 November 2001, Mr Blejde and Mr Kelly had a telephone conversation. Mr Blejde said that he had heard that Messrs Kelly, Sorensen, Minter and Zancolich had been working with Danieli on strip casting and that one of the three had become nervous and spoken to him. Mr Blejde then went on to mention "dates in June and July when he claimed to have been told of meeting". After referring to specific places where meetings took place, Mr Blejde said that he had been told that Mr Kelly had sought legal advice on the matter and asked if that was true. 185 Mr Kelly told Mr Blejde that it was no secret that his company was providing consulting services to Danieli and that, during the provision of those services strip casting had been discussed, generally around what was in the public arena. Mr Kelly also said that he had received legal advice on the agreement between Danieli and K.Con. Mr Blejde said that if the advice had been that Mr Kelly could talk about patents, with regards to what ones were useful or not, then he had been ill-advised, as such information was covered by the Confidentiality Agreement. Mr Kelly said that his advice had not been for patents. Mr Kelly also had the impression that Mr Blejde thought Danieli had given Mr Kelly advice. 186 Mr Blejde said that the Nucor people wanted to go after anyone who it thought had breached the Confidentiality Agreement as they had lost their IP on thin slab casting and did not want to lose it on strip casting. Mr Blejde said that Dick Weschler, the president of Castrip, had agreed for Mr Blejde to approach Mr Kelly to see if he could get him to cooperate with Castrip in return for immunity. The proposal was that Mr Kelly would tell all he knew about Danieli's status with regards to strip casting. Mr Blejde asserted that Castrip was not interested in a long, drawn-out and costly battle with Danieli but wanted to force them to join with Castrip in the development and marketing of strip casting. Mr Blejde said that they had approached Danieli late last year with that proposal, but Danieli had rejected it. Mr Kelly told Mr Blejde that, if he was to do what Mr Blejde wanted, Mr Kelly would be burning his bridges with Danieli. He said that would be costly to his company and that his company had a confidentiality agreement with Danieli. Mr Blejde said that Mr Kelly should ask Castrip to provide immunity from Danieli. Mr Kelly told Mr Blejde that he would get back to him in the following week. 187 In December 2000, Danieli produced a brochure dealing with "Breakthrough Technologies Changing the Face of Steel". The brochure reproduced a diagram of a strip caster said to be under construction. The brochure stated that the strip caster would be utilised in the near future to produce carbon and stainless steel coils in commercial quality in thicknesses ranging from 0.7 mm to 5 mm. Mr Blejde saw the brochure on 18 December 2001. 188 Mr Kelly contends that, when Mr Blejde saw Danieli's brochure in December 2001, it would have been a concern to Castrip since Castrip were actively trying to induce Danieli to join in their enterprise and not to compete. He contends that it was the discovery of the brochure that caused Bluescope to commence this proceeding and to apply for ex parte relief in order to ascertain information as to the commercial plans and strategy of Danieli concerning the development of twin-roll strip casting. Mr Kelly says that the inference should be drawn that this proceeding was commenced in order to prevent Mr Kelly from providing consultancy services to Danieli. 189 While Mr Kelly and K.Con complain about the circumstances of the commencement of the proceeding with only Bluescope, and not Castrip, as a party, I am not persuaded that there was any impropriety in relation to the commencement of the proceeding in the name of Bluescope rather than Castrip. It may be that Mr Blejde sought cooperation from Mr Kelly in relation to what was, on the face of it, suspiciously like a breach of confidence. However, I am not persuaded by the material relied upon Mr Kelly that the commencement of the proceeding was motivated by an improper purpose. 190 It follows that the cross-claim must be dismissed.