Chaina & Ors v The Presbyterian Church

Supreme Court of NSW|2008-04-07|Before: Hoeben J, Mr P, Mr J

CITATION : Chaina & Ors v The Presbyterian Church (NSW) Property Trust & Ors [2008] NSWSC 290

DECISION : Orders to be made in accordance with defendants' motion.

CATCHWORDS : Confidential information - application by defendants for provision of formulae and manufacturing process - opposed - whether provision of samples of product sufficient - whether defendants should be required to test samples in order to work out formulae - whether provision of formulae and manufacturing process by plaintiffs reasonable and necessary - effect of competing scientific evidence.

LEGISLATION CITED : Civil Procedure Act 2005 Trade Practices Act 1974 (Cth)

CASES CITED : Nowlan v Marson Transport Pty Limited (2001) 53 NSWLR 116 at [26] White v Overland (2001) FCA 1333 at [4]

Mathew Chaina - First Plaintiff George Chaina - Second Plaintiff Rita Chaina - Third Plaintiff Proton Technology Pty Limited - Fourth Plaintiff Deluxe Chemicals Pty Limited - Fifth Plaintiff Jean-Pierre Chaina - Sixth Plaintiff The Presbyterian Church (New SouthWales) Property Trust - First Defendant Robert Iles - Second Defendant Christine Alexander - Third Defendant Gordon Black - Fourth Defendant PARTIES : Ewen Brown - Fifth Defendant Richard Bull - Sixth Defendant Bruce Christian - Seventh Defendant Simon Fraser - Eighth Defendant Roy Johnston - Ninth Defendant William McLaren - Eleventh Defendant Philip Mitchell - Twelfth Defendant Tony Pfeiffer - Thirteenth Defendant Robert Richards - Fourteenth Defendant Harry Taylor - Fifteenth Defendant Peter Wolnizer - Sixteenth Defendant

COUNSEL : Mr P Garling SC/Mr J Stephenson - Plaintiffs Mr R Stitt QC/Mr GL Turner - Defendants

SOLICITORS : Sarvaas Ciappara - First - Sixth Plaintiffs Curwoods Lawyers - First - Sixteenth Defendants

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

20472/2002 - Mathew CHAINA & Ors v THE PRESBYTERIAN CHURCH (NSW) PROPERTY TRUST & Ors

JUDGMENT 1 HIS HONOUR: Nature of Proceedings The proceedings arise from the death of a schoolboy who drowned while attending a school camp on 23 October 1999. The first, second, third and sixth plaintiffs are respectively the deceased's brother, his father, his mother and another brother. The fourth and fifth plaintiffs ("the company plaintiffs") are family companies operated by the father and mother who are the directors and sole shareholders. The sixteen defendants were all involved in conducting the school or the camp at the relevant time. 2 The parents and the brothers claim damages for nervous shock occasioned by the deceased's death. The company plaintiffs claim for loss of the services of the parents as principals, directors and managers of the business as a result of the injuries suffered by the parents. The companies claim past and future economic loss by way of a decline in business and the resultant loss of profits. This is a claim for damages per quod servitium amisit. The defendants have admitted liability. 3 The company plaintiffs claim that because of the inability of the two parents as key employees to function effectively, the companies lost the opportunity to develop and market cleaning products. The company plaintiffs claim that the cleaning products had special characteristics and would have been successful in both the industrial and domestic markets. The plaintiff companies say that by 23 October 1999 they had completed the development of these products and have suffered a loss of between $100 million and $300 million. 4 In correspondence the defendants sought from the plaintiffs the formulae for new and reformulated products. The plaintiffs refused to provide same but offered to provide samples of each product which could be analysed by the defendants' experts. By motion dated 20 June 2007 the defendants sought production of those formulae. It is that application which now has to be decided. 5 By notice of motion filed 21 June 2007 the defendants seek the following orders: "The second, fourth and fifth plaintiffs disclose to the defendants' solicitors precise chemical formulae including: (i) the weight and volume of each component or ingredient; (ii) the order of addition of each chemical and its method of manufacture; and (iii) if trade names are used, their chemical name to enable correct identification; of each product with a domestic and/or industrial, that is the subject of fourth and/or fifth defendants' claim, as such formulae existed as at 24 October 1999."

Factual Background 6 Because of the way in which the matter was argued, it is necessary to set out in more detail how the plaintiff companies put their case. The following summary is taken essentially from the statement of George Chaina, the father of the deceased. I wish to make it clear that the following is a summary of the claim, it does not constitute any finding of fact. 7 Since 1982 the company plaintiffs produced detergents and cleaning products and related services for the industrial laundry and cleaning market. The provision of services was as important a part of the industrial business as was the offering of a total washing system. 8 In 1993 a serious fire at the company plaintiff's business premises destroyed a large amount of plant and equipment and severely disrupted the business. In the period following the fire Mr and Mrs Chaina comprehensively reviewed all aspects of the existing business in order to improve business operations. Once the review and implementation of the changes to the existing business were complete it was proposed to relaunch the industrial business by arranging a number of social functions to which existing and potential customers would be invited and during which the improved business would be show cased. 9 As of October 1999 the review of the industrial business was almost complete and the commencement of the marketing campaign was imminent. However, due to the death of their son, Mr and Mrs Chaina suffered psychiatric injury and the proposed industrial products relaunch did not proceed. A list of the proposed products for the industrial product relaunch is contained in a document entitled "Proton Technology Pty Limited Business Plan" dated February 1999. That document is Proton's business plan for the proposed industrial product relaunch. 10 Between 1989 and 1992 George Chaina developed a laundry detergent formulation that enabled two types of enzymes to be stabilised in liquid form for an extended period. This was a considerable break through and the means by which it was achieved was highly confidential. 11 The company plaintiffs did not patent the enzyme technology that had been developed. George Chaina understood from his previous experience as a research scientist that, in order to obtain a patent, it would be necessary to disclose the formula for the product, thereby disclosing the plaintiffs' industrial secret. George Chaina was concerned that the protection offered by the patent was outweighed by the risk of having the formula known in the market where it would be reproduced and modified so that the patent would not protect it. George Chaina was of the view that the formula was sufficiently difficult to reverse engineer that its content would be adequately protected without a patent. 12 Although the company plaintiffs proposed to relaunch the industrial business, as at the date of the deceased's death there already existed a very successful business involving the production of detergents and cleaning products and related services for the industrial laundry and cleaning market. The claim made by the company plaintiffs in relation to industrial products relates to both the loss of profits associated with the failure to proceed with the industrial product relaunch and also the effect on the existing business. 13 In about 1995 Mr and Mrs Chaina also decided to expand the business into the domestic product area. The products which it was proposed would be sold included:

(a) Laundry (liquids, powders, tablets and capsules).

(b) Kitchen (concentrated dishwashing - hand and machine, oven cleaner).

(d) Toiletry and cosmetics (liquid hand soap, shampoo, conditioner, shower gel and skin care products). 14 A list of the products which it was anticipated that Proton would manufacture is in a document "New Domestic Enzyme Products" dated March 1999. The basis of the formulations for these products including the use of stabilised enzymes in liquid form was highly confidential technology that had been developed by Mr Chaina and which was not the subject of a patent. 15 In the period from 1995 to October 1999 Mr and Mrs Chaina took a number of steps to achieve the proposed domestic product launch including:

(a) Undertaking nearly all the technical work necessary for the introduction of the product. (b) Engaging a graphic design consultant to design labels for the products. (c) Locating suitable premises for the factory. (d) Approaching consultants including Price Waterhouse Coopers, regarding the obtaining of finance. (e) Retaining consultants to advise on the proposed marketing and advertising campaign. 16 Mr and Mrs Chaina already had experience with the sale of domestic products and had previously supplied such products to the ANA Hotel and had produced a nappy wash which was sold in Woolworths supermarkets. Due to the death of the deceased and the consequent injuries suffered by Mr and Mrs Chaina the proposed domestic product launch did not proceed. 17 The company plaintiffs claim that the domestic products would very likely have gained national distribution with major supermarkets. The company plaintiffs have lost the opportunity of developing and marketing these domestic products and of relaunching the industrial products. 18 In evidence in excess of 100 products were identified. Approximately 25 of those were new products for the domestic market. There was no evidence as to how many of the remaining products were reformulated or had been "improved" as distinct from those which were being sold as part of the existing business of the companies. I have assumed a considerable number - because Mr Chaina refers to "reformulating all the products" in his statement. 19 Having refused to provide the formulae for the new products for the domestic market and the improved or reformulated products for the industrial market, the plaintiffs' legal advisers provided the defendants with samples of ten products. The purpose was to enable the defendants to comparatively test those samples against comparable products currently on sale. In correspondence the plaintiffs proposed a regime whereby the defendants would be provided with samples of products representative of those the subject of the proposed domestic product launch.

Evidence 20 The defendants relied upon reports from Dr Wynn-Hatton. Dr Wynn-Hatton had been a chemist in industry for 15 years and had been involved in the development and launching of new products in this field. His expertise was not challenged. 21 He said that the successful performance of any product in the laundry/cleaning market was multi-dimensional and did not rely upon a single product attribute alone. He thought that market performance encompassed more than just the ability of the product to meet the consumer expectation of removing a stain from a fabric. 22 Doctor Wynn-Hatton's evidence was directed to the new laundry products to be launched in the domestic market. He identified the following qualities which were asserted for these products: · Superior ability to remove stains from fabric. · Containing special enzymes. · Possessing a superior shelf life. · Is concentrated. · Is fully biodegradable. · Possessing superior environmental benefits. · Having no petrochemical derived components. · Possessing softening qualities. · Possessing anti-wrinkling qualities. · Providing easy ironing. · Providing ultraviolet protection. · Possessing sterilising/sanitising ability. · Providing colour brightening and protection for coloured items. · Possessing stain blockers. · Possessing softening qualities. 23 Doctor Wynn-Hatton's contention was that many of those performance claims could not be assessed by comparative testing alone. It was his opinion that such tests would yield information about one characteristic of the products' likely market performance but could not identify individual formulations so that there was no way of determining how the result was obtained. He thought it was necessary to have the relevant formulation and method of manufacture to ensure that the stated wash test performance was consistent with the composition. 24 In this field of expertise a distinction is drawn between the formula and the manufacturing process. The formula will identify the component parts of a product and their quantity. Information about the order in which the components are mixed is regarded as part of the manufacturing process (T.74-75). 25 It was the opinion of Dr Wynn-Hatton that the testing of products could not identify the presence and performance of active enzymes. This was important because it was the active enzymes which gave to a product its cleaning capacity. Similarly, Dr Wynn-Hatton thought that testing could not determine the presence and performance of stain blockers in a product. On these issues he differed from Professor Pailthorpe and Dr Crank, the company plaintiffs' experts. 26 It was the opinion of Dr Wynn-Hatton that no information as to the stability of the enzymes in the product could be obtained from testing. Detailed knowledge of the composition was required to assess enzyme stability and hence market performance. He was of the opinion that testing would give no information about the environmental performance or credentials of a product. Before that information could be obtained one would need to know the following: The amount of water present, the number and type of surfactants, the presence or absence of poorly biodegradable components, the number and type of additives to enhance stability in performance and the source of these components (ie whether naturally derived or synthetically produced). (In this context a surfactant is an ingredient which is active in removing dirt). 27 His conclusion was that many of the performance claims made on behalf of the products, required specialised expensive testing and specific knowledge of the component or the ingredient being used to deliver the performance. Information concerning the formulae and the manufacturing process was therefore required to test these performance claims. 28 Doctor Wynn-Hatton also sought to rebut the proposition fundamental to the plaintiffs' refusal to provide the formulae, ie that this information could be obtained by reverse engineering. The definition used by Dr Wynn-Hatton of "reverse engineering" was accepted by the parties: "Reverse engineering refers to the process of taking a complete product and deconstructing it through various procedures and processes to its component parts, which can then be sourced separately and reconstructed to obtain a fully functional duplicate copy of the original product." 29 Doctor Wynn-Hatton was of the opinion that in most laundry products there will be a surfactant or a combination of surfactants with complex structures, as well as other additives, that contribute to either the stability or performance of the product. He accepted that testing would be able to analyse and identify major components in a product. Such testing would be expensive, difficult, time consuming and could never be guaranteed to be one hundred percent accurate. 30 In his reports Professor Pailthorpe said that it was not necessary to have a formula and method of manufacture of a product in order to make an accurate assessment of the product's likely performance. He illustrated this by reference to his own experience. When he was asked by a client to test the performance of a product he was never given the formula or method of manufacture. 31 In response Dr Wynn-Hatton said that defining performance of a product solely by reference to product evaluations achieved through specific wash tests, was unduly restrictive. It provided no information concerning environmental, cosmetic and therapeutic performance claims made in respect of the product. Those could only be assessed through an intimate knowledge of the composition. He said that the reason why Professor Pailthorpe was never given the formula and method of manufacture of a product was because his expertise was in comparative cleaning performance testing and he was providing only one piece of data in a total picture. Professor Pailthorpe's tests could show how a product cleaned but could not explain the reason for the performance or the attributes of the products that are measured by the tests. Without the formula there was no way of knowing how the products achieved their claimed superior performance. 32 Doctor Wynn-Hatton disagreed with Professor Pailthorpe and Dr Crank on the question of whether the preparation of a sample in 2008 could replicate a product that existed in 1999. It was the opinion of Dr Wynn-Hatton that such a process was not straightforward and could only be reliably achieved when the original formula was known and could be referred to and if all the original chemicals were still available. 33 Doctor Wynn-Hatton was of the opinion that it was necessary to obtain the formulae and method of manufacture of products in order to determine whether those products could contravene existing intellectual property rights such as patents. While that proposition might be correct in theory, under cross-examination it was clear that Dr Wynn-Hatton was not aware of any actual patents in Australia which might affect adversely the marketing of any of the products relied on by the company plaintiffs. 34 Doctor Wynn-Hatton was on stronger ground in his evidence as to the need for new products to withstand attack from competitors based on the Trade Practices Act and similar legislation. He said that if claims were made as to the content of a product, those claims had to be capable of substantiation. It was necessary to know the formula of a product to assess whether it could withstand such challenges. 35 The final point made by Dr Wynn-Hatton was that the disclosure of the formulae and method of manufacture of the products would significantly simplify the proceedings. He set out a table which indicated that the time and cost to perform tests to reverse engineer the products and to carry out other tests would cost tens of thousands of dollars and would take many months, if not years, to complete. He assessed the costs for all of the testing proposed by the plaintiff to be approximately $15,000 per product. This did not have regard to the testing of competitive products. While there was disagreement between Professor Pailthorpe and Dr Wynn-Hatton as to the precise costs involved, both agreed that the cost of the testing would be very high per product and very time consuming. 36 Dr Crank prepared reports and gave evidence on behalf of the company plaintiffs. He was also an industrial chemist with experience in analysing cleaning products. It was his opinion that it was not necessary to have the formula for a product in order to assess the product's performance. Such performance testing was a technical matter and simply involved subjecting a product to the appropriate tests either alone or compared with other established products. 37 It was his opinion that each performance characteristic identified by Dr Wynn-Hatton could be confirmed by an appropriate test. He accepted that a number of different tests would be required. 38 In relation to the particular matters referred to by Dr Wynn-Hatton he was of the opinion that there were tests which would identify the presence of active enzymes and that such tests would be able to identify the type of enzyme which was present. He agreed under cross-examination that such tests would not identify the quantity or percentage of enzyme in the products, although a reasonable level of accuracy could be achieved. 39 In relation to enzyme stability, it was Dr Crank's opinion that possessing the formula would not greatly assist in testing for this quality. This was because the problem of enzyme stability was a very complex one and that only tests over a period of time would give an accurate assessment of the stability of enzymes in a product. 40 In relation to environmental benefits Dr Crank was of the opinion that there were a number of tests which would establish such matters without it being necessary to have the formula. He identified those tests. 41 In relation to reverse engineering, Dr Crank was of the opinion that the constituent components of a product could be identified with a level of accuracy of up to ninety five percent. The surfactants could be identified, bleaches could be detected, alkaline salts could be identified and specific enzymes could be tested for by specific enzyme tests. 42 Under cross-examination the following answers were given by Dr Crank: "Q. In order to determine whether it is commercially viable you don't need to know its constituent parts? A. No. You can determine whether it is commercially viable by testing it to see whether it works and then by analysing it to see what it contains. Q. In what order you do it nevertheless that is what you are seeking to ascertain and I am suggesting that its constituent parts or components is one of the elements that you are seeking to ascertain do you agree? A. Yes eventually. Q. Do you agree another element which needs to be known is the volume or quantity of each component or constituent part? A. In order to accurately cost it, yes. Q. Do you agree also that the cost of the product to produce including the cost of the chemicals and special or unique ingredients also needs to be known? A. Yes. The cost of the chemicals has to be known yes." (T.71) 43 Professor Pailthorpe prepared reports and gave evidence in support of the company plaintiffs. He was a chartered textile technologist and had extensive experience in the evaluation of domestic laundry products. 44 It was his opinion that it was not necessary to have the formula and method of manufacture of the product in order to make an accurate assessment of the product's likely performance. A product's likely performance could be assessed by reference to a sample of the product without knowing its formula and method of manufacture. He thought that, providing all of the components that were used to formulate a product in 1999 were available today, it would be quite straightforward for a chemist to prepare a sample which replicated the product that existed in 1999. 45 As indicated, Professor Pailthorpe differed from Dr Wynn-Hatton in his assessment of whether the added performance achieved by the use of enzymes in a product could be assessed by testing. He thought that it could. He assessed the cost of such a test at $2,700. 46 As with Dr Crank, by reference to the particular qualities attributed to the products, he identified specific tests which could be carried out to substantiate or otherwise the presence of that quality. The cost of such testing varied significantly. For example to test the "softening qualities" of the product would cost $2,700 per test whereas to test the "anti-wrinkling" capacity would cost $92. To test stain blocking would cost $2,500 whereas to test brightening and the protection of coloured items would cost $100 per sample. 47 In relation to reverse engineering, however, Professor Pailthorpe largely agreed with Dr Wynn-Hatton. "4.7 Reverse engineering. I agree with PWH that an accurate qualitative and quantitative chemical analysis of a domestic laundry detergent would be nigh on impossible; even given today's sophisticated analysis techniques. Such a detergent could contain a multitude of components, including detergents (conventional soaps, synthetic detergents etc), enzymes, water softeners, fabric softeners, alkali, anti-foaming agents, electrolytes, anti soil re-deposition agents, perfume and so on." 48 Under cross-examination Professor Pailthorpe agreed that in carrying out the various tests to which he had referred it would be necessary in some cases to know some components of the product that was being tested, eg the anti soil deposition agent, the name of the stain blocker, and the chemical names of the organic compounds employed in the formula. Nevertheless, Professor Pailthorpe adhered to his opinion that the entire formula was not required "as I have specified throughout my report, just certain compound names have to be disclosed, not the whole formula, not the method of manufacture but certain compounds would have to be disclosed to validate the claim." (T.85-86) 49 In answer to a series of propositions Professor Pailthorpe said: "Q. Do you agree that in order to determine whether or not the product is going to be commercially viable you have to know certain things, I suggest one is what the product is? A. Yes I agree. Q. Two what its constituent parts or components comprise? A. Yes. Q. Three the volume or quantity of each component or constituent part? A. Yes. Q. Four, the cost of the product to produce including the cost of the chemicals and special or unique ingredients in the production? A. Yes. Q. Five, the performance characteristics of the products when used as intended? A. Yes. Q. Six, whether it can be legitimately or validly marketed, that is capable of withstanding challenges from regulators, opponents in the retail market, or under patents? A. Yes." (T.88)

Submissions 50 When the matter comes on for hearing the defendants propose to challenge the following aspects of the company plaintiff's claim:

(a) Whether the products in fact existed. (b) Whether the products had the qualities alleged. (c) If the products did exist could they have been manufactured with the qualities alleged. (d) Whether the products were capable of being marketed successfully. 51 As a first step the defendants submit that they wish to see the formulae for the products, both the new products for the domestic market and the reformulated products for the industrial market, to establish that such products did exist and were ready to be marketed in 1999. 52 Despite the challenges made to the opinions of Dr Wynn-Hatton, by both Dr Crank and Professor Pailthorpe and under cross-examination, the defendants rely upon his opinions as providing a basis for why it is necessary for them to have access to the formulae and manufacturing process for the products in order to test the company plaintiff's claims. Given the size of the claim the defendants submit that they should be allowed to fully explore every aspect of the claim and should not be obliged to contest this litigation with, as it were, one hand tied behind their back. 53 Fundamental to the company plaintiff's claim is the proposition that the new and reformulated products had a unique and special property in the nature of a stabilised enzyme with long lasting effect. On the basis of the evidence of Dr Wynn-Hatton one of the components for which it is difficult to test by way of reverse engineering is the presence and performance of enzymes. The defendants accept that this opinion is controversial and is challenged by Dr Crank and Professor Pailthorpe. Nevertheless, because the presence and operation of this enzyme or enzymes is so important and the testing outcome is disputed, the defendants submitted that they should be given the formulae and manufacturing process. 54 The defendants submit that in relation to the other controversial matters such as the stability of the enzymes and the environmental performance of the products, they are entitled to rely upon Dr Wynn-Hatton and his evidence as to the need to have formulae and manufacturing information in order to assess those qualities in the product. 55 In the alternative, the defendants submit that the evidence of Dr Wynn-Hatton and of Professor Pailthorpe make it clear that although some of this information can be obtained by way of testing the product, the cost of such testing would be substantial. Considerable time would be involved and the ultimate results would be uncertain in that it may not be possible to accurately reverse engineer or otherwise discover the components which make up the products. 56 To similar effect the defendants submit that the provision of the formulae and manufacturing information would simplify the process of substantiation of the plaintiffs' claims and would render much of the testing unnecessary. The court was referred to the estimate of Dr Wynn-Hatton that the cost of such testing would be in the order of hundreds of thousands of dollars and could take years to finalise. 57 In oral submissions at the conclusion of evidence the defendants submitted that they need to have access to the method of manufacture of the products so that they can assess whether or not the plaintiffs had access to a factory which was capable of producing such products. 58 The defendants challenge the basis of the plaintiffs' objection to producing the formulae and the manufacturing process. They submit that except for the statement of Mr Chaina there is no evidence to substantiate the assertion that the formulae and the manufacturing process are highly confidential and need to be protected. On the contrary the conduct of the company plaintiffs would suggest that there is no such need for confidentiality. The defendants submit that if the formulae and manufacturing process were as confidential and as valuable as they assert, why have the company plaintiffs not sought to utilise that value by either selling the intellectual property or licensing its use by another company? This is what one would expect to happen if the plaintiff companies were not able to utilise this information themselves due to the permanent incapacity of Mr and Mrs Chaina. 59 The defendants submit that the court regularly makes confidentiality orders which are effective and enable litigation relating to such matters to proceed in an orderly fashion. 60 Generally speaking the defendants submit that the position adopted by the plaintiff company is quite unreasonable in that they have made a claim for very large damages but they have refused to provide the defendants with basal information to enable the defendants to test and ultimately defend the claim. It is unreasonable to provide the defendants with samples of up to one hundred products while saying in effect "You go off and see whether you can identify what is in these products" in circumstances where Mr Chaina himself is confident that reverse engineering will not fully reveal the formulae and that is why he did not need to take out any patents. 61 The plaintiff companies submit that the defendants are not entitled to the orders which they seek because the information is highly confidential and it is not necessary for the defendants to have access to it in order to properly defend the proceedings. The plaintiff companies submit that the provision of samples of each product enables the defendants to properly test their case. This is so in circumstances where the formulae and the method of manufacture of the products are highly confidential and are not the subject of any patent protection. The confidentiality is such that any disclosure has the potential to destroy the intellectual property in the invention. 62 The plaintiff companies rely upon the opinion of Dr Crank and Professor Pailthorpe that it is not necessary to have the formulae and the method of manufacture of the product in order to make an accurate assessment of the products' likely performance. They point to the evidence of Dr Crank that knowledge of the formulae and method of manufacture of the products has no relevance to the assessment of performance and the likely success of the product in the market place. They rely upon the evidence of Dr Crank and Professor Pailthorpe that it is possible to prepare a product today which replicates a product which existed in 1999. 63 The plaintiff companies while conceding that performance testing would not provide information as to whether the products contain special enzymes, have superior shelf life, are concentrated, are fully biodegradable, have superior environmental benefits and have the other qualities identified by Dr Wynn-Hatton, they refer to the evidence of Professor Pailthorpe and Dr Crank that this information can be obtained by using other tests. Tests for these other attributes can also be undertaken on a sample of the product. 64 The plaintiffs submit that their interest in preserving the confidentiality of the formulae and the manufacturing process outweighs the expenditure likely to be incurred and the time taken in carrying out the various tests described by Dr Wynn-Hatton and Professor Pailthorpe. This is particularly so when expensive testing would be still required to be carried out by the defendants even if the formulae and manufacturing process were revealed. 65 In oral submissions the company plaintiffs submitted that if one is seeking to test the validity of the claims made for the products, what is involved is a series of comparative tests. It is not necessary to know the formulae or the manufacturing process in order to carry out those tests. Apart from anything else, one does not have the formulae of the "off the shelf" products against which the test is being carried out. 66 The company plaintiffs submitted that it is not necessary to have the formulae and manufacturing process in order to calculate the cost of the product. All that the defendants need to do was to analyse the sample provided, identify its principal chemical components and then calculate the cost of manufacture. Even though such calculations would not be exact, they would be sufficiently close to enable the cost effectiveness of the product to be established. 67 In relation to the cost of the tests referred to by Professor Pailthorpe and Dr Wynn-Hatton the company plaintiffs submitted that these tests would have to be carried out in any event if the defendants wished to test for the various attributes claimed for the products. 68 The company plaintiffs submitted that it was not necessary for the defendants to have access to the product formulae. The information which the defendants need could be obtained by the reverse engineering process described by Dr Crank. Alternatively, the company plaintiffs submitted that in accordance with the evidence of Professor Pailthorpe, the defendants did not need access to the whole of the formulae but only to two or three particular ingredients. 69 Finally, the company plaintiffs submitted that no matter what restrictions as to confidentiality were imposed by the court once the formulae were disclosed the secrecy surrounding the special attributes of these products would be lost. The court was referred to the evidence of Dr Wynn-Hatton that in the past he had worked on projects for companies which would be direct competitors of the company plaintiffs in this field. Once the defendants' experts such as Dr Wynn-Hatton became aware of the formulae it would be impossible for them to put that information out of mind, particularly when working for competitors on later occasions. 70 In relation to the question of defending challenges made under the Trade Practices Act and similar legislation the plaintiff companies submitted that this depended upon the representations ultimately made in advertising in respect of the products. It raised legal issues not scientific issues and was not a matter which should concern the court at this stage.

Consideration 71 Prima facie the defendants have an entitlement to the formulae and the method of manufacture as relevant to a fact in issue. The company plaintiffs challenge that entitlement by raising the issue of confidentiality. 72 The only evidence as to confidentiality is the statement of Mr Chaina. The defendants have expressed some scepticism on that issue. In that regard it is surprising that no steps have been taken between 1999 and the present time to utilise the value of this confidential material, either by way of sale or licence, given the underlying assumption to the whole claim that Mr and Mrs Chaina will not in the foreseeable future will be able to resume running the company plaintiffs. Despite those reservations I have accepted for the purposes of this application, that the company plaintiffs have a genuine basis for their claim for confidentiality. 73 If the defendants have established a need to have access to the formulae and the manufacturing process, I do not accept that this need can be met by the process of reverse engineering. The evidence of Professor Pailthorpe is that this is an extremely complex process which may not be successful in replicating the product. The evidence of Dr Wynn-Hatton is to similar effect. On the basis of that evidence alone I am not persuaded that reverse engineering is a realistic option for the defendants in relation to these products. It follows that I do not accept Dr Crank's evidence on this point. 74 There is another reason why I do not accept reverse engineering as a viable option for the defendants. This is a major piece of litigation involving enormous damages if the company plaintiffs make out their case. If the defendants have demonstrated a genuine need to have access to the formulae and manufacturing process, I find it an extraordinary proposition that they should be required to analyse and reverse engineer up to 100 products when there is no guarantee that such a process will be successful and when it is generally acknowledged that such a process will be time consuming and very expensive. This is particularly so when the formulae and method of manufacture information is in the hands of the company plaintiffs and can be readily provided to the defendants. 75 Such an approach is contrary to modern concepts of litigation and case management. In that regard I am mindful of what the Court of Appeal said in Nowlan v Marson Transport Pty Limited (2001) 53 NSWLR 116 at [26]: "Fourthly, the conduct of litigation as if it were a card game in which opponents never see some of each other's cards until the last moment is out of line with modern trends. Those trends were developed because the expense of courts to the public is so great that their use must be made as efficient as is compatible with just conclusions. Civil litigation is too important an activity to be left solely in the hands of those who conduct it…" 76 The Court of Appeal there approved the following statement of principle by Allsop J in White v Overland (2001) FCA 1333 at [4]: "However, by way of general principle I would simply like to make perfectly plain my view that in the efficient and proper conduct of civil litigation, even civil litigation hard fought between parties, it should always be recognised that in the propounding of issues for trial the parties should take steps to ensure that all relevant parties to the dispute are cognisant of what the issues are. Any practice of quietly leaving footprints in correspondence or directions hearings to be uncovered some time later in an attempt to reveal that a matter was always in issue should be discouraged firmly. Even if something has been said, where it is evident, or indeed suspected, that the other side is proceeding on the basis of a misconception or has not appreciated something, as a general rule, efficiency, common sense and an appreciation of the costs and resources (both public and private) likely to be wasted by confusion in litigation will mandate that a party through his or her representative ensure that the other is not proceeding on a misconception or that the other does appreciate something that has been said. Litigation is not a game. It is a costly and stressful, though necessary, evil. …"

While the circumstances in that case were different, the principle is clear. 77 Reverse engineering, such as has been suggested by the company plaintiffs, is also contrary to the "just, quick and cheap" disposal of proceedings philosophy which underlies the Civil Procedure Act 2005. 78 The next question is have the defendants established a need to have access to the formulae and method of manufacture? 79 There is a dispute between Dr Wynn-Hatton on the one hand and Dr Crank and Professor Pailthorpe on the other as to whether the presence and performance of enzymes can be detected in a product by testing. On an application such as this I am not in a position to determine which opinion is correct. What I can say is that there is a reasoned opinion of Dr Wynn-Hatton to which he adhered under cross-examination which has to be given weight. The same applies concerning the presence and performance of stain blockers and the other qualities to which Dr Wynn-Hatton referred [26], [27] and [31]. 80 Given the importance of the performance of enzymes (this is the basis for the value of the invention and need for confidentiality) I am of the opinion that the defendants have established a need to have access to the formulae and method of manufacture on that basis alone. Where unique and superior qualities are being asserted for a product, it seems reasonable to allow the opposing party to have access to the information which forms the basis for those qualities. 81 While testing of the products might determine the presence and extent of the qualities in [22] such a procedure would be time consuming and expensive. The presence of many of those qualities could be established by the content of their respective formulae. This is particularly so on the question of the environmental performance of a product. In those circumstances not only would it be unduly onerous to require the defendants to carry out such testing, it would be quite contrary to the "just, quick and cheap" disposal of the proceedings. 82 There is also force in the defendants' submission that as a start point they should be entitled to test the fundamental proposition on which the plaintiff companies base their claim, ie that the formulae for the domestic products and the reformulations for the industrial products were in existence in October 1999. It seems tolerably clear that the provision of the formulae and method of manufacture may resolve that issue. Alternatively, expert analysis may reveal that there are features or components in the formulae which were unlikely to have been viable in October 1999. 83 An important matter when considering the marketability of a product is its cost. Although the cost of the products might in general terms be capable of being calculated by a process of reverse engineering, I do not see why the defendants should be put to that expense nor do I see why time should be wasted in such an activity. The production of the formulae and the method of manufacture will enable the cost of the products to be easily calculated. 84 The plaintiff companies have expressed concern that the value of formulae and method of manufacture would be lost once this information was communicated to the defendants' experts. Implicit in that concern is the proposition that the integrity of the defendants' experts cannot be relied upon. No basis for such a submission has been established. 85 This court on many occasions is required to deal with confidential information. It often happens that because of the exigencies of litigation, such confidential information has to be communicated to parties who may be in direct competition to the party possessing the confidential information. Despite that situation, the court has always relied upon the integrity of the legal advisers and the parties' experts. I am unaware of any instance where that trust has been abused. Problems of the kind anticipated by the company plaintiffs can usually be resolved by the imposition of appropriate conditions and undertakings relating to the disclosure of confidential information. 86 It follows that the defendants have persuaded me that it is reasonable and necessary that they have access to the formulae and methods of manufacture of the new and reformulated products. It therefore follows that the defendants are entitled to the orders which they seek. 87 I do not propose to make final orders at this stage. I propose to give the parties the opportunity of agreeing on what conditions should be imposed and undertakings given to protect the confidential information. I also wish to give the parties the opportunity of making submissions as to the costs of this application. **********

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Trade Practices Act 1974(Cth)

At a glance

Court

Decision date

Before

Source

Judgment (23 paragraphs)

Parties

Legislation Cited (1)

Cases Cited (1)

Cited By (3)