First Plaintiff/First Defendant by Counterclaim v Defendant/Plaintiff by Counterclaim

1 The plaintiffs and defendants by counterclaim (together, 'Fonterra') are members of the group of companies owned by Fonterra Co-operative Group Ltd, a substantial global force in the dairy products industry. The defendant and plaintiff by counterclaim ('Bega') is a long established force within the Australian dairy industry, perhaps best known for the product 'Bega Tasty Cheese', a natural cheese product sold widely within Australian supermarkets.

2 Bega Tasty Cheese (and variants thereof) is manufactured by Bega, but marketed by Fonterra. This arrangement has been in place since 2001, when Fonterra and Bega entered into a Product Supply Agreement and a Trade Mark Licensing Agreement, which were renewed and updated in 2012.

3 This proceeding was issued by Fonterra on 11 December 2017. In its amended statement of claim, Fonterra seeks to restrain the use by Bega of the Bega trademark on packaging for peanut butter and other nut spreads manufactured by Bega, and the alleged threatened use of Bega of the Bega trademark on a range of cheese products. While the amended statement of claim and prayer for relief refers to Fonterra suffering loss and damage by reason of Bega's conduct no particulars of loss and damage have been provided, except in the broadest possible terms.

4 On 23 March 2018, Bega filed and served an amended defence, and, for the first time, a counterclaim. Only the counterclaim is relevant for present purposes. In the counterclaim Bega refers to certain express and implied terms of the Trade Mark Licence Agreement which require Fonterra to promote and develop the sales of Bega branded products, ensure that the good name and image of the trademarks is maintained, to promote Bega branded products in accordance with agreed marketing principles, and to not give undue preference to Fonterra owned branded products such as Mainland Cheese and Perfect Italiano. Bega alleges that Fonterra has breached the Trade Mark Licensing Agreement by failing to, among other things, adequately invest in and promote Bega branded products, and had failed to develop new Bega branded cheese products in the retail and food service markets. The allegations in the counterclaim have substantially expanded the ambit of the dispute between the parties in the proceeding.

5 The current dispute concerns the question of whether certain selected documents (being a subset of a larger class of documents) ('sample documents') or some of them should be subject to a confidentiality regime over and above the usual implied undertaking not to disclose the contents of documents obtained through the discovery process for any purpose other than the conduct of the proceeding ('Harman undertaking'), and if so, the terms of any such confidentiality regime. Fonterra contends that, as Fonterra and Bega are trade rivals, each of the sample documents should be subject to a confidentiality regime whereby certain portions of the sample documents could only be inspected by the lawyers and experts engaged by Bega who have signed confidentiality undertakings. Bega rejects the contention that any of the sample documents warrant any particular protection over and above that provided by the Harman undertaking. Alternatively, Bega submits that if I were to find it appropriate to put some confidentiality regime in place, then such a regime should permit any documents subject to that regime to be inspected by two representatives of Bega responsible for giving instructions in this proceeding, being Mr Hampson and Mr Griffin. Mr Hampson, Bega's Commercial Manager, is the person primarily responsible for instructing Bega's lawyers in this proceeding, while Mr Griffin is Bega's Chief Financial Officer, and is responsible for providing instructions when Mr Hampson is unavailable.

6 The relevant legal principles governing the application were not in dispute. Both parties relied upon the decisions of this court in Mobil Oil v Guina Developments[1] and IOOF Holdings v Maurice Blackburn (No 2).[2] Bega's written outline of submissions summarised these principles as follows:

(a) generally, the confidentiality of a discovered document is not a basis to refuse production to an opposing party and its legal representatives;

(b) in determining whether or not production should be required, the Court must engage in a balancing exercise between the interests of the party seeking production and the interests of the party who has been compelled to discover a document or documents;

(c) factors relevant to the balancing exercise include:

(i) the relevance (or otherwise) of the document or documents;

(ii) the extent to which the document or documents are confidential;

(iii) the use to which the information might be put once it is known, such as by an opposing party who is a trade rival;

(iv) the utility or procedural fairness, or otherwise, of imposing restrictions or conditions, including limiting production to certain persons upon the provision of confidentiality undertakings;

(v) any other matters relevant to the due administration of justice, including ensuring compliance with the overarching purpose in the Civil Procedure Act 2010 (Vic).

7 Both Fonterra and Bega relied upon affidavits sworn by the solicitors with the conduct of the dispute. Mr Matthew Lees of Arnold Bloch Liebler swore an affidavit on 18 July 2018 deposing to, among other things:

(a) the categories of documents (based upon the categories for discovery) from which the 203 documents identified as being confidential by Fonterra ('confidential documents') had been selected;

(b) the confidential documents being discoverable by reason of the issues raised by Bega's counterclaim, not Fonterra's claim;

(c) Bega being a competitor of Fonterra's with respect to the supply of cheese products to retailers and food service customers, the supply of private label cheese to retailers, and the acquisition of raw milk from farmers;

(d) the sensitivity of certain financial information, such as Contribution after Marketing ('CAM') and Cost of Goods Sold/Cost of Sales ('COGS/COS');

(e) how this financial information could be used by Mr Hampson and Mr Griffin of Bega;[3] and

(f) considerations with respect to each of the sample documents, which included documents disclosing 'Discretionary Trade Spend and Discretionary CoOp' being expenditure for promotion of branded products in supermarkets ('trade spend') concerning Bega branded cheese and other Fonterra branded products, new product development, marketing strategies and marketing plans, and private label strategies.

8 In her affidavit sworn on 30 July 2018, Ms Vicki Bell of Gilbert + Tobin deposed to, in summary, as follows:

(a) the difficulties she has faced obtaining instructions from Bega concerning this application under the current restrictions concerning the sample documents, which supports her view that Fonterra's proposed confidentiality regime is 'impractical, unfair, and unworkable';

(b) why she would need to obtain instructions from Bega in respect of the contents of the sample documents (and the confidential documents);

(c) a substantial proportion of the confidential documents were created prior to 2010, and an even greater proportion prior to 2015;

(d) a number of the confidential documents referring to Bega branded products, which could not be confidential as between Fonterra and Bega;

(e) some reservations as to whether ruling upon the sample documents could have any utility in disposing of all of the issues between the parties in the application;

(f) the background to and nature of the commercial relationship between Fonterra and Bega, including the existence and terms of the Produce Supply Agreement and the Trademark and Licence Agreements which, among other things, give Bega an entitlement to require the provision of marketing and like documents concerning Bega branded products by Fonterra;

(g) the failure of Fonterra to abandon its claim for loss and damage in the original proceeding;

(h) the issues in dispute with respect to Bega's counterclaim, being:

(a) Fonterra's and Bonland's marketing and innovative effort devoted to Bega-branded products - this will require examination of marketing and strategic plans, records of promotional activities, and financial records;

(b) how Fonterra's and Bonland's marketing and innovative effort devoted to Bega-branded products compares with their marketing and innovative effort directed to the Mainland and Perfect Italiano brands - this will require examination of marketing and strategic plans, records of promotional activities, and financial records for the Mainland and Perfect Italiano brands;

(c) the characteristics of the retail and food services cheese markets, in terms of market size (overall and for different segments), the development of the market (overall and for different segments) over time, and the competitive landscape and opportunities for innovation in the market; and

(d) Fonterra's and Bonland's dealings with the major supermarkets, and the causes of products being de-listed.

(i) her assertion that Fonterra and Bega are only in limited competition with respect to cheese products;

(j) the roles of Mr Griffin and Mr Hampson within Bega; and

(k) in relation to the sample documents, the reason why the information included in those documents is relevant to the issues in the proceeding, and why that information could not sensibly be used by Bega to compete against Fonterra.

9 In his affidavit in reply sworn on 31 July 2018, Mr Lees deposed, in summary, as follows:

(a) Bega has not previously sought information of the kind referred to in the Trade Mark Licence Agreements;

(b) Bega's 'Dairylea' and 'Dairymont' brands compete with Fonterra's products in the retail and food service markets;

(c) changes in CAM do not reflect changes in the 'brand health' of particular products; and

(d) earlier this year, Bega announced plans to develop further cheese production capacity to produce, among other things, mozzarella cheese, which could place Bega in greater competition with Fonterra.

10 In her affidavit sworn on 31 August 2018, Ms Bell responded to the matters referred to in Mr Lee's second affidavit. In effect, Ms Bell's instructions were to the effect that the degree of competition between Fonterra owned products and Bega owned products had been overstated by Mr Lees.

11 In its written submissions filed and served in support of Fonterra's application, Fonterra submitted, in summary, as follows:

(a) Fonterra and Bega are trade rivals, being in direct competition in respect of the sale of branded cheese products to retailers and food service customers, the sale of private label cheese to retailers, and the acquisition of raw milk from farmers;

(b) Fonterra and Bega are also rivalrous in a customer-supplier relationship;

(c) Mr Hampson and Mr Griffin are directly involved in those aspects of Bega's business which compete with Fonterra's business;

(d) the information sought to be protected is confidential and commercially sensitive, and is of a nature that it would be practically impossible for Messrs Hampson and Griffin to forget and not make use of that information for Bega's benefit; and

(e) the confidential information is largely irrelevant or of peripheral relevance to the issues in the proceeding.

12 Fonterra's submissions then went on to explain the specific categories of confidential information sought to be protected, the commercial sensitivity of that information, the consequences of disclosure of that information to Bega, and the degree of relevance of that information to the issues in the proceeding. In particular:

(a) information regarding CAM and COGS/COS is commercially sensitive, could provide Bega with a competitive advantage in pricing, including an indication as to whether to copy the competitive activities of Fonterra, and what position to adopt in negotiations with Fonterra. Further, Fonterra's financial information is generally not relevant to the issues in this proceeding;

(b) while it is relevant, information regarding trade spend is highly confidential and sensitive, and it is information which Bega could use to compete with Fonterra. The information concerning trade spend is clear and easy to understand, and Bega's legal team and experts should not need to take instructions from their client to understand this information;

(c) documents including planned marketing activities, marketing strategies, and new product development for the period going forward are commercially sensitive, and, if disclosed to Bega, could be used to undermine those plans and compete with Fonterra. Further, Fonterra's planned marketing activities, marketing strategies, and new product development are not relevant to the issues in the proceeding, as they have no bearing on whether Fonterra has breached the terms of the Trade Mark Licensing Agreements to date; and

(d) Fonterra's confidential information concerning its private label strategies is not relevant to the issues in the proceeding, and disclosing that information would provide Bega with a competitive advantage in a market in which Fonterra and Bega directly compete.

13 Fonterra's submissions elaborated further upon its contention that Messrs Hampson and Griffin would not be able to put out of their minds the information they have obtained concerning trade spend, new product development and future marketing activities, and Fonterra's financial information. Fonterra submitted:

... in circumstances where the vast majority of the Specific Information is irrelevant or of peripheral relevance to the pleaded issues and [Bega] would not suffer any forensic disadvantage in conducting this proceeding without disclosing that information to Messrs Hampson and Griffin, the Court ought to make the confidentiality orders in the terms proposed by [Fonterra].

14 In its written outline of submissions, Bega submitted, in summary, as follows:

(a) much of the information Fonterra contends ought to be protected is stale;

(b) Fonterra's evidence and submissions overstate the nature and degree of competition between Bega and Fonterra;

(c) Fonterra's concerns regarding the provision of information to Messrs Griffin and Hampson are unwarranted; and

(d) restricting access to information in the manner suggested by Fonterra would be unnecessary, impractical, and unfair.

15 Bega's submissions canvassed in some detail why it rejected Fonterra's contention that Fonterra and Bega are trade rivals of the nature and to the extent contended by Fonterra.

16 Bega submitted that the present case is 'far removed from the classic trade rival case', Bega's only brand in the retail sector is 'dairylea', which is processed cheese, not natural cheese. Fonterra does not manufacture any processed cheese products in Australia, and Fonterra has not plausibly identified how information concerning Fonterra's financial information and marketing and new product development information could be used by Bega in a way that would harm Fonterra's interests. Further, while Bega does compete with Fonterra in the food services business, Bega is a very minor player, while Fonterra is a dominant player. It was not suggested that any of Fonterra's marketing and new product development documents concern the food services sector, and in any event, Bega's Food Services Division is not managed by either Mr Hampson or Mr Griffin.

17 As for Fonterra's submissions concerning private label cheese, Bega is significantly restricted from competing against Fonterra in this market by the terms of the Product Supply Agreement, where Bega must provide Fonterra with first right of refusal with respect to opportunities in the private label sector. That said, Bega supplies forty per cent of this market and Fonterra only one to five per cent. Information concerning Fonterra's marketing and new product development strategies concern the branded products market, not the private label market. Finally, given that the price that Fonterra pays Bega for the supply of cheese is set by the Product Supply Agreement, it is difficult to see how Bega personnel having access to Fonterra's financial information would benefit Bega to Fonterra's disadvantage.

18 Bega made the following submissions with respect to the relevance of the confidential information to the issues in the proceeding:

(a) all new product development and marketing documents are plainly relevant to the issues in the proceeding, given the nature of the allegations made in the counterclaim. Further, Bega has a contractual right under the Trade Mark Licence Agreements to inspect all 'reports information and material ... as Bega may reasonably require for the purposes of verifying ... compliance' with the Trade Mark Licencing Agreements';

(b) the information on trade spend is directly relevant to the issues in the counterclaim; and

(c) information concerning CAM is perhaps less relevant, but trends over time would be relevant to the question of 'brand health'.

19 In her oral submissions during the course of the hearing, counsel for Bega submitted that Fonterra had not established that Fonterra and Bega were trade rivals in the Mobil Oil[4] sense. She submitted that Fonterra had not established that there was a 'real risk of significant harm' should the confidential documents not be subject to a specific confidentiality regime.

20 Counsel referred to the decision of Ferguson J (as she then was) in Oswal v Carson and ors (No 2)[5] where her Honour observed that the imposition of confidentiality regimes which restrict inspection of discovered documents to a parties' lawyers can cause significant difficulties, submitting that a client is often in a better position than its lawyers to determine what is relevant.

21 Counsel for Bega submitted that the age of some of the documents amongst the class of confidential documents demonstrates overreach on the part of Fonterra. She rejected the contention that Fonterra's current marketing and product development plans are irrelevant: first, those documents record Fonterra's intentions at a point in time, secondly, product innovation is relevant, and thirdly, Bega's damages will be assessed as at the time of trial.

22 In his oral submissions during the course of the hearing, senior counsel rejected any suggestion that Fonterra and Bega were not trade rivals. He noted that since Bega's purchase of Mondelez some eighteen months ago, Bega has signalled a new commercial direction, publicly announcing plans to build more factories to produce more cheese. In particular, Fonterra and Bega are trade rivals in the branded cheese and private label markets, and Mr Hampson is the manager of Bega's private label business. Further, in response to Bega's contention that Fonterra's claim for loss and damage in the original proceeding is still alive, senior counsel submitted that it was clear from the current form of Fonterra's particulars of loss and damage (which are expressed in generic and qualified terms), that Fonterra's damages claim was not a real issue in the proceeding.

23 Senior counsel for Fonterra and counsel for Bega also made submissions concerning the individual sample documents. It is not necessary for present purposes for those submissions to be recounted here.

24 My conclusions with respect to Fonterra's application as follows:

(a) assuming the sample documents are indeed representative of the confidential documents (and I have no reason to believe they are not, except perhaps for their age, most of the sample documents being recently created documents), then the confidential documents, which include documents regarding the financial performance of Fonterra's business, marketing and product development plans, and documents concerning the commercial relationships between Fonterra and the major supermarket chains are, by their very nature, commercially sensitive;

(b) notwithstanding the above, the question remains, having regard to the relevant balancing factors, whether the nature of the information concerned and the nature of the competitive relationship between Fonterra and Bega warrants additional protection over and above that afforded by the Harman undertaking, and if so, what type of protection;

(c) In undertaking the balancing exercise referred to in IOOF,[6] broadly speaking, the relevant factors are the sensitivity of the information, the forensic importance of the information to the litigation, the risk and degree of harm to Fonterra of disclosure of the information through the discovery process,` and the risk of prejudice and injustice to Bega by being under the burden of the confidentiality regime; and

(d) the information in the sample documents ought to be afforded four levels of protection, as follows:

(i) information which may only be disclosed to the legal representatives and experts engaged by Bega, and not, subject to any liberty to apply, to representatives of Bega (category A information'). Category A information includes current information concerning new product development plans, food service strategies, and private label strategies;

(ii) information which may only be disclosed to the legal representatives and experts of the parties who have signed confidentiality undertakings, along with Mr Hampson and Mr Griffin (upon execution by them of confidentiality undertakings) ('Category B information'). Category B information includes Fonterra's financial information (including CAM), and information concerning trade spend;

(iii) information which may be disclosed to those entitled to inspect Category B information, plus additional employees and agents of Bega who have executed confidentiality undertakings (reserving Fonterra's rights to object to any additional proposed recipient) ('Category C information'). Broadly speaking, Category C information includes marketing plans going forward for both Bega branded products and other Fonterra products;

(iv) information which is not subject to any restriction over and above that imposed by the Harman undertaking ('Category D information'). Category D information includes historical marketing and product development plans and information concerning industry trends. However, given the relatively modest number of confidential documents, and noting the risk of inadvertent breaches of the Harman undertaking and that occasioned by movement of personnel between different players within the dairy products industry, it may offer Fonterra some comfort if documents containing Category D information were labelled 'Commercial-in-confidence - for use in Supreme Court proceeding S ECI 2017 00283 only'.

25 I have developed these categories on the basis of the evidence and submissions before me and the contents of and submissions made with respect to the sample documents. Accordingly, I would give the parties express liberty to apply with respect to whether any particular document or portion of a confidential document should be subject to a more permissive or more restrictive access regime.

26 In reaching my conclusions, I have had regard to the following matters:

(a) the information in the confidential documents is, prima facie, commercially sensitive, and information which Fonterra would understandably wish to keep confidential;

(b) further, while some protection is afforded by the Harman undertaking, I accept that the broader the dissemination of the confidential documents, there is a greater risk of inadvertent breaches of the Harman undertaking. Further, while there was no evidence adduced or submissions made with respect to this matter, I believe that I can infer that personnel movements and ownership changes within the dairy products industry may increase the risk of Fonterra's confidential information being within the knowledge of personnel of entities in a more direct competitive relationship with Fonterra;

(c) while I accept Bega's submissions to the effect that the degree of trade rivalry between Fonterra and Bega has been somewhat overstated by Fonterra, I also note that this position could change in the not too distant future. At the very least, the fact of this litigation and the nature of the issues in this proceeding indicate that the commercial relationship between Fonterra and Bega has soured;

(d) when allocating the sample documents to different categories, I have had regard to the fact that, while it is accepted by Fonterra that the information in the confidential documents is relevant for the purposes of making discovery, the centrality of the information to the issues in the proceeding varies according to the classes of documents and the nature of the information;

(e) I accept that the imposition of restrictions on access to discovered documents can be quite inconvenient for the legal representatives and experts engaged by Bega for the purposes of this litigation, and carries with it the risk of unfairness;

(f) on that basis, I do consider that it is necessary for Bega's lawyers and experts to be able to take instructions from time to time from representatives of Bega. I also consider that the nominated Bega representatives are of such seniority such as to be of sufficient distance from operational matters to limit the risk of any inadvertent use of confidential information;

(g) I note that some of the confidential documents may include information which is confidential to third parties, such as supermarket businesses, and those third parties have not had an opportunity to be heard on this application; and

(h) some of the confidential documents may include information that would not cause particular concern if only disclosed to Bega personnel (such as Bega brand specific marketing plans), but would be if disclosed to other competitors of Fonterra in the retail cheese and food service markets.

27 Turning now to the categories of documents within the class of confidential documents, I would make the following observations regarding certain categories of documents:

(a) the financial information of Fonterra is generally of tangential relevance to the issues in the proceeding, while being highly sensitive from Fonterra's perspective;

(b) information concerning trade spend in relation to Fonterra's products (both Bega branded products and other Fonterra branded products) is directly relevant to the issues in the proceeding, and also very commercially sensitive to Fonterra, and possibly third parties such as Woolworths;

(c) information concerning market trends, insofar as it is information collated from publicly available industry information or research carried out by third parties, is relevant to the issues in the proceeding, but not particularly commercially sensitive. However, Fonterra's proposed responses to identified market trends would be directly relevant to the issues in the proceeding, and also very commercially sensitive to Fonterra;

(d) historical information concerning marketing plans and new product development would be of direct relevance to the issues in the proceeding, but, given its historical nature, even with respect to nonBega branded products, would be of less commercial sensitivity to Fonterra;

(e) information concerning Fonterra's private label and food service offerings would be of limited, if any, relevance to the issues in the proceeding, given that the allegations in the counterclaim concern Fonterra's maintenance of the value of the Bega brand, but would be commercially sensitive to Fonterra;

(f) current and forward looking marketing plans for Bega branded and other Fonterra products would be highly commercially sensitive, but, given the nature of the allegations in the counterclaim, would be only of moderate relevance to the issues in the proceeding, which largely concerns Fonterra's past conduct;

(g) while the parties in their submissions did not draw any distinction between current marketing plans and current new product development plans, having reviewed the sample documents, I do consider such a distinction should be made, and I do so on the basis that plans for new product development are likely to be substantially more commercially sensitive than marketing plans for existing products; and

(h) information about 'brand health', insofar as it concerns cheese products, would be of direct relevance to the issues in the proceeding, but would also be commercially sensitive to Fonterra.

28 The above considerations underlie my allocation of particular types of information to the categories referred to in paragraph 24 above. Further, I have allocated the information in the sample documents to each of these categories. The results of this process of allocation are summarised in the table attached to these reasons.

29 As noted in paragraph 25 above, I will give the parties liberty to apply with respect to the working out of the confidentiality regime outlined in these reasons. While I would not limit the circumstances in which it might be appropriate to vary the confidentiality regime, it may be that between now and the time of trial that new documents will be created in the ordinary course of Fonterra's business, there may be changes in the commercial environment, and Bega's lawyers and experts may reach the view with respect to particular documents that access needs to be given to Bega personnel or a wider group of personnel. Finally, as the parties approach the trial, consideration will need to be given to the presentation of confidential documents in evidence at trial, although that issue is properly a matter for the trial judge.

30 I shall hear further from the parties on the form of orders and the question of costs.

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[1] [1996] VicRp 54; [1996] 2 VR 34.

[2] [2016] VSC 594.

[3] It was not said that Messrs Hampson or Griffin would deliberately misuse any confidential information acquired through the course of the discovery process, but it would be difficult for them to forget the gist of the information in the course of their employment with Bega.

[4] [1996] VicRp 54; [1996] 2 VR 34.

[5] [2011] VSC 192, [28].

[6] [2016] VSC 594.