Federal Court of Australia|1991-04-17|Before: Mr J, Gummow J

Re Smith, Kline and French Laboratories (Australia) Ltd; Smith Kline and French Laboratories Ltd; Smithkline Beecham Corporation; Laboratoire Smith Kline and French SA and Smith Kline Dauelsberg Gmbh v the Secretary To the Department of Community Servi [1991] FCA 150 (17 April 1991)

Re: SMITH, KLINE AND FRENCH LABORATORIES (AUSTRALIA) LTD; SMITH KLINE AND

FRENCH LABORATORIES LTD; SMITHKLINE BEECHAM CORPORATION; LABORATOIRE SMITH

And: THE SECRETARY TO THE DEPARTMENT OF COMMUNITY SERVICES AND HEALTH and

[1991] FCA 150; 20 IPR 643/(1991) AIPC 90-821/28 FCR 291

Equity - confidential information - extent of obligation of confidence - whether based on confider's purpose - regard to be had for surrounding circumstances - "reasonable man" test - no breach of obligation unless unconscientious use made of information.

Constitutional Law - s.51(xxxi) - acquisition of property - whether confidential information is property - whether use of information amounted to acquisition.

Customs (Prohibited Imports) Regulations, Regs.2(2), 5A, 5B, 5D, 5E

and Mr M.R.J. Ellicott

Solicitors for the appellants: Minter Ellison

Counsel for the first respondent: Mr P.G. Hely QC and

Mr D.K. Catterns

Solicitors for the first Australian Government

respondent: Solicitor

Counsel for the second Mr J.J. Garnsey QC

respondent: and Mr P.J. Dunstan

Solicitors for the second respondent: Malleson Stephen Jaques

Counsel for the appellants: Mr J.C. Campbell QC

and Mr M.R.J. Ellicott

Solicitors for the appellants: Minter Ellison

Counsel for the respondent: Mr P.G. Hely QC

and Mr D.K. Catterns

Solicitors for the respondent: Australian Government Solicitor

The appellants pay the respondents' costs of and incidental to the appeal.

NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

These two appeals, which were heard together, are against judgments of Gummow J. relating to the use by Commonwealth health authorities of confidential information supplied by companies in the pharmaceutical business. His Honour dismissed an application by members of a group of such companies (the "SKandF application"), whose purpose was to restrict official use of such information. He granted an application by another pharmaceutical company (Alphapharm); it claimed declaratory relief affirming the authorities' right to use the confidential information in question. The appellants seek to support the proposition, rejected by Gummow J., that confidential information furnished to obtain governmental approval of the use of a pharmaceutical substance may not be resorted to in considering an application by another applicant, for approval of a version of the same substance. It is convenient to call the substance a "drug", despite the pejorative meaning that word has, in some contexts, acquired.

2. The appellants say that even if, as Gummow J. held, the use of the appellants' confidential information in considering applications for approval by others generally operated to the detriment of those others, making their purpose of obtaining approval for their version of the drug more difficult to fulfil, still the appellants' confidential information cannot be so used. The appellant which supplied the information is that first named in the proceedings' title ("SKandF").

3. The drug in question is cimetidine, a patented synthetic compound which has proved to be of great value in treating gastro-intestinal ulcers. Since its invention in the United Kingdom about 20 years ago, it has been used around the world for that purpose and has earned large sums for the patentee (the second appellant) or companies associated with or licensed by the patentee. The drug has been sold in Australia under the trade names "Tagamet" and "Duractin". Many millions of dollars have been expended on the drug in this country. The Australian patent expired on 15 February 1988, but is the subject of an application for extension which has not yet been heard.

4. In July 1988, Alphapharm applied for approval of its version of the drug, but that application has not been dealt with, in consequence of an interlocutory injunction granted on 10 November 1987 in the proceedings in which the present appellants were applicants, and of Departmental reaction to that injunction. Alphapharm did not, of course, invent cimetidine, nor has it a licence from the patentee. Alphapharm took advantage of the expiration of the patent to attempt to introduce a formulation of cimetidine differing from the SKandF formulations; such a drug is called "generic" in the industry. The word "generic" implies in this context not merely that the drug is of the same kind as the patentee's, but also that there is no licence from the patentee, the patent having expired.

5. The patentee does not, of course, seek to protect the information with respect to cimetidine disclosed in its patent specification. The dispute concerns a variety of other information, contained in material sent in support of a number of successive applications made for approval of cimetidine and compounds containing that substance. Those applications were made to the respondent Secretary of the relevant Department.

6. As amended, the SKandF application sought certain declarations and, as well, injunctions restraining the respondent from using certain confidential information for any purpose other than the exercise of statutory powers in relation to versions of cimetidine submitted by SKandF. The application also sought an order for delivery up and destruction of the relevant documents. During the course of the hearing in this Court, it was pointed out that evidence adduced below on behalf of the appellants made it clear that, in some circumstances, use of the information the subject of these proceedings otherwise than within the limits sought to be imposed would be essential - a matter of life and death. After some discussion, counsel for the appellants put forward, without abandoning the application made below, an alternative version of the relief sought. This was as follows. (The terms used require further explanation, which appears below):

"I.

Order that the Respondent, by himself his servants or

agents be restrained, in connection with the exercise of

decision making powers vested in any officer of the

Department concerning brands (hereinafter called 'Generic

Brands') of the drug cimetidine other than Tagamet or

Duractin brands, from dealing with, using or applying,

without the consent of the Firstnamed Applicant

(a) the information, materials, documents, technical

data, procedures, results and reports identified as

'Confidential' in Exhibit 6A admitted into evidence

in these proceedings on 19 March 1990 (hereinafter

called 'the B1 Data'), and

(b) the reference sample of the drug cimetidine

supplied to the Department of Health

except where

an officer of the Department has, at the time of

such dealing, use or application, decided that,

subject to checking that nothing in the B1 data

causes it to reconsider its decision, permission to

import or dispose of the Generic Brand for certain

purposes would be granted on certain conditions, and

the B1 Data is used only for the purpose of

deciding whether giving permission to import or

dispose of the Generic Brand for those purposes and

on those conditions could result in a danger to

public safety, and the B1 data is not disclosed to

other persons without the approval of the

firstnamed Applicant.

II.

Order that the Respondent, by himself his servants or

agents be restrained from disclosing without the consent

of the Firstnamed Applicant the information, materials,

documents, technical data, procedures, results and

reports identified as 'Confidential' in Exhibit 6A

admitted into evidence in these proceedings on 19 March

1990".

7. Thus, in its original form, the appellants' application claimed a right to prevent the use of the information in question other than for the appellants' own applications. The suggested alternative forms of injunction would make an important exception. The impracticality of requiring scientific officers to compartmentalise their thoughts in the way suggested is obvious. That impracticality may provide a reason in itself why the Court, if it otherwise thought the appellants were entitled to injunctive relief, would not, in the exercise of its discretion, grant relief in terms of the alternative orders which counsel for the appellants put forward at the hearing.

8. The system of control of importation and selling of such products which is presently material is based on s.50 of the Customs Act 1901, which gives the Governor-General power to prohibit, by regulation, the importation of goods into Australia. Under that section, the power of prohibition may be exercised absolutely or conditionally, and there may be regulations prohibiting importation without a licence, permission, consent or approval: see paragraphs 50(2)(a) and (c) and 50(3)(a) of the Customs Act. Under the regulation-making power, the scope of which was considered in this Court in Turner v. Owen [1990] FCA 358; (1990) 96 ALR 119, there have been made the Customs (Prohibited Imports) Regulations. Their general effect, so far as relevant, is to prohibit importation into Australia of drugs of the kind in question unless the Secretary has given permission in writing under reg.5A(3) or the importer is a "licensed importer". One becomes a "licensed importer" by obtaining a licence under reg.5B.

9. Alphapharm did not have a licence under reg.5B, so that it was necessary for it to obtain the Secretary's permission. SKandF held such a licence at relevant times. That licence did not, however, entitle SKandF to sell an imported drug. Under reg.5D, the licence was subject to compliance with certain requirements, one of which was that the licensee not dispose of the drug except in accordance with an approval of the Secretary. Regulation 5E(2) empowered the Secretary to request an applicant for permission to dispose of a quantity of a drug to furnish information on various subjects, those presently relevant being:

"(a) the method of manufacture of the designated

therapeutic substance;

(b) the investigations that have been carried out by

the applicant and by other persons concerning the

safe use of the substance ...".

10. Acting under reg.5E(2), the Secretary requested SKandF to furnish him with information and SKandF did so. It is that information which is the subject of this case.

11. We were referred to no regulation specifically empowering the Secretary to request an applicant for permission to import a drug to supply information in support of the application, but Alphapharm did in fact supply such information. The Department has issued, and has amended from time to time, a document referred to as "NDF4" setting out the nature of the information to be supplied when applications "for the general marketing or clinical investigational use of a therapeutic substance" are made; such applications include those relevant here.

12. It appears to be desirable to set out the precise terms of the relevant parts of the regulations, whose general effect has been explained. Regulation 5A(3) reads, so far as relevant, as follows:

"... the importation into Australia of a therapeutic

substance in relation to which this sub-regulation

applies is prohibited unless -

(a) a permission in writing to import the

substance has been granted under this sub-regulation

by the Secretary of the Department

of Community Services and Health or an

authorised person or the person importing the

substance is a licenced importer ..."

13. By reason of provisions whose content it is unnecessary to set out, cimetidine is such a substance as is mentioned in sub-reg.5A(3). Further, under sub-reg.2(2):

"For the purpose of regulations 5A to 5G (inclusive) of

these Regulations -

(a) each form of a therapeutic substance shall be

taken to be a separate and distinct

therapeutic substance;

(b) if a therapeutic substance is manufactured

according to two or more formulations - the

substance manufactured according to a

particular formulation shall be taken to be a

different therapeutic substance from the

substance manufactured according to the other

or each other formulation; and

(c) a therapeutic substance having a particular

strength shall be taken to be a different

therapeutic substance from the substance

having a different strength".

14. The provisions just quoted are relevant here, for SKandF made a number of separate applications relating to different forms or formulations of cimetidine; each was accordingly to be treated as a separate "therapeutic substance" for the purposes of, inter alia, reg.5A, 5B and 5D.

"The Secretary of the Department of Community Services and

Health or an authorised person may grant a person a

licence to import therapeutic substances in relation to

which sub-regulation (3) of the last preceding regulation

applies".

16. It will be recalled that SKandF held a relevant licence. Regulation 5D reads, so far as relevant, as follows:

"(1) A licence granted under regulation 5B of these

Regulations is subject to compliance by the person to

whom it is granted with the following requirements with

respect to any quantity of a designated therapeutic

substance imported by him into Australia ...

(b) the person shall not dispose of a quantity of

the designated therapeutic substance or of a

substance or mixture in the preparation of

which the designated therapeutic substance

has been used except -

(i) with the approval of the Secretary of

the Department of Community Services

and Health or an authorised person;

(ii) in accordance with that approval; and

(iii) after he has satisfied himself that the

whole of that quantity of the substance

will be used for the purpose specified

in that approval ...".

17. Regulation 5E reads, so far as relevant, as follows:

"(1) A licensed importer may, from time to time, apply,

in writing, to the Secretary of the Department of

Community Services and Health for permission -

(a) to dispose of a quantity of a designated

therapeutic substance to a person and for a

purpose specified in the application; or

(b) to dispose of quantities of a designated

therapeutic substance without restriction as

to the person to whom or purpose for which it

may be disposed of.

(2) The Secretary of the Department of Community

Services and Health or an authorised person may request

an applicant under the last preceding sub-regulation to

furnish him with such information, not being information

furnished by the licensed importer in connexion with a

previous application under this regulation relating to

the designated therapeutic substance to which the

application relates, with respect to -

(a) the method of manufacture of the designated

therapeutic substance;

(b) the investigations that have been carried out

by the applicant and by other persons

concerning the safe use of the substance; and

(c) if the substance is to be used for

experimental purposes only -

(i) the investigations into the use of the

substance that are proposed to be

carried out; and

(ii) the persons who propose to carry out

the investigations, the qualifications

of those persons and the facilities

that will be available to them in the

carrying out of the proposed investigations.

(3) The Secretary of the Department of Community

Services and Health or an authorised person may, subject

to the next succeeding sub-regulation, grant an

application under this regulation.

(3A) The Secretary of the Department of Community

Services and Health or an authorised person shall not

refuse to grant an application under this regulation in

respect of a therapeutic substance except for reasons

relating to -

(a) the quality of the therapeutic substance

including the procedures adopted by the

manufacturer or producer of the substance to

ensure that proper standards are maintained

in the manufacture or production of the

substance and in the handling and packaging

of the substance;

(b) the safety and efficacy of the substance for

the purposes for which it is to be used;

(c) the dangers associated with the use of the

substance; or

(d) if the substance is to be used for

experimental purposes only - without limiting

the application of the preceding paragraphs

of this sub-regulation, the value to the

public of the proposed experiments".

18. It should be noted that the terms of reg.5E(3A) make it clear that the Secretary is concerned, as one would expect, with questions of quality and efficacy of drugs, as well as their safety.

19. On 17 June 1975, SKandF lodged an application relating to cimetidine under the regulations, providing the information required by NDF4; in subsequent years it lodged further such applications. The necessity for the multiple applications was due wholly or principally to the terms of reg.2(2) quoted above - i.e., to the treatment of each form or formulation of the drug as a separate substance requiring a separate permission. For example, if what is commonly called the sugar coating on a pill containing cimetidine is changed, that requires a separate permission, as does a change in formulation from solid to liquid form. The information supplied was voluminous and was, in part, confidential. Gummow J. made a finding, not challenged before us, that part of the information supplied, identified as Exhibits 6A and 6B, was confidential, and there is some discussion of that finding below.

20. But the substantial question is the nature and extent of the confidentiality. There is no question but that the confidential documents were accepted on the basis that their content would be kept secret from people other than those concerned in the process of determining applications under the regulations; the issue is whether the right to use the information is confined to use in the course of dealing with SKandF's applications or whether, as Gummow J. held, it may also be used in considering application by other persons such as Alphapharm. As has been explained, during the course of the hearing in this Court an alternative version of the appellants' case was put forward which, if accepted, would result in orders permitting some limited use of the SKandF confidential information for purposes other than considering its own applications.

21. The information lodged with the SKandF applications consisted of a number of sections dealing with different topics, as required by NDF4: physical chemistry, quality controls, animal studies, studies in man and other matters. The dispute concerns part of a section designated B1 data, having been narrowed to that part of that section at the hearing; other sections are designated B2 and B3. The primary Judge accepted that what the appellants claimed to be confidential in the B1 data in fact had that character; his conclusion was not challenged on appeal. Nevertheless, it is desirable to point out that not all the information in respect of which the confidentiality claim was ultimately upheld was of critical importance. It is true that there was evidence from the appellants' side that "(a)ll of the Information so delivered to officers of the Department had been obtained by the applicants at great effort and expense", but there is a degree of exaggeration in that statement and in other evidence to the same effect; some of the information could not have taken much trouble or expense to accumulate, as even a cursory examination will show.

22. The division of the information supplied by SKandF to the Department into that which is confidential and that which is not was undertaken by Dr. J.F. Brennan, Technical Manager of SKandF. In its original form, Dr. Brennan's analysis was exhibited to an affidavit he made in November 1987, but he modified that in another affidavit sworn in October 1988, changing some papers from confidential to not confidential and others from not confidential to confidential. A perusal of the material reveals the substantial difficulties Dr. Brennan must have had in making the classification. He treated disclosure of the name and address of the manufacturer as not being confidential, whereas we were assured by counsel for the appellants that it would be information of value. Again, pp 1-55 of Exhibit "JFB1 Confidential" were reclassified by Dr. Brennan; initially none of them was claimed to be confidential, but then Dr. Brennan claimed confidentiality for pp 6 and 7. Page 6 is the last page of a discussion of quality control of a form of cimetidine and p 7 is the first page of a table of batch analyses; no reason appears for this discrimination. One must suspect that this second attempt at classification needs further revision. But whether or not that is so, it is plain that Dr. Brennan must have had trouble in deciding which part is genuinely confidential and which is not, and one could not have expected a conscientious scientist working in the Department to have had any less trouble in doing so. Assessment of whether a particular group of pages should be properly treated as confidential must have required a detailed knowledge of what information had previously been made public, purposely or otherwise, by the appellants or companies associated with them, in Australia or elsewhere. It must also be kept in mind that the claim for confidentiality originally made in these proceedings covered B1, B2 and B3 data, but the whole of the claim for the B2 and B3 data was abandoned before the matter came to trial. Subject to some correspondence shortly to be discussed, the appellants' case did not rest upon a suggestion that any of the material had been furnished to the Secretary expressly on the basis that it would be treated as confidential; nor was there any evidence that SKandF pointed out particular material as confidential, before Dr. Brennan's work was done.

23. On 8 April 1987, SKandF wrote to the Department referring to "information which is disclosed in SKandF's NDF4 applications and associated material". The letter said:

"This information comprises SKandF's valuable trade secrets

acquired after the expenditure of much time and often

tens of millions of dollars. It is and always has been

submitted to the Department of Health in confidence and

solely for the purpose of enabling the Department to

evaluate and consider the data in relation to the

products of SKandF and no others.

We regard the information as strictly confidential as

between SKandF and the Department ...".

24. It will be noted that the claim of confidentiality made in the letter related to the whole of the information supplied, not merely to part of that contained in section B1. The letter went on to seek an assurance that the information constituted exempt documents within relevant provisions of the Freedom of Information Act 1982. On 19 June 1987, SKandF wrote a reminder. On 20 July 1987, Dr. Hall replied, not to the SKandF second letter, but to the first. Dr. Hall's reply discussed the position arising under the Freedom of Information Act but gave no assurance of confidentiality. The Department wrote a further letter on 17 August, referring to the SKandF letter of 19 June, but adding nothing.

25. It does not appear that the tender of this correspondence advanced the appellants' case. The importance of the date of the first letter mentioned, that of 8 April 1987, is that it preceded the furnishing of some confidential information by SKandF to the Department in September and October 1987. The correspondence should be taken, as to that information, as a plain assertion of confidentiality. One reason why it does not help SKandF is that there is no dispute about the general proposition that the SKandF data was at all times subject to an understanding of confidentiality; the question is how far the obligation extends. Another is that SKandF supplied further confidential information after 8 April 1987 without having obtained any assurance that it would be treated, as to confidentiality, differently from that supplied before 8 April 1987.

26. The basis on which the appellants' case was principally put was that the law required the Department to use the confidential information for no purpose other than that for which it was submitted by SKandF. The correctness of the "confider's purpose" test is discussed below. There was, relevant to that way of putting the case, evidence which could warrant findings as to what SKandF might reasonably have expected the Department to do with the confidential information. Some of the evidence of that kind, it should be noted, came from a Mr Perrin, who was Managing Director of SKandF until October 1987.

27. Before dealing with that evidence, some mention should be made of events which occurred in 1988 within the Department. Alphapharm applied on 14 July 1988 for marketing approval in respect of a variety of cimetidine to be marketed as "Cimet". It furnished material as required by NDF4 but, in accordance with the practice as to generic applicants, supplied B1 data only, not B2 or B3 data. On 7 December 1988, Dr. McEwen, a senior Departmental official, wrote to other officers of the Department referring to the Alphapharm application and saying that the Department should seek legal advice if:

"(a) there is any need for the evaluator to directly

consult the data or samples which have been

provided to us by SKandF or

(b) if the evaluator or any other person involved in

the evaluation process ... has any sense of relying

on the experience which they have gained through

evaluating SKandF material in the course of making

the evaluation on the Alphapharm product".

28. An officer of the Department replied, saying, in effect, that this was impractical:

"Science 4 and Science 5 officers in this Section are

unanimous in their view that the evaluation process must

rely on a (1) knowledge of chemistry and pharmaceutical

quality control and (2) an accumulation of concepts and

information gained as an evaluator, i.e. 'experience'."

The officer's letter went on to point to the difficulty of isolating the sense of relying on experience of the kind referred to in para. (b) of Dr. McEwen's letter.

29. In consequence of this stance, Alphapharm's application was held up. The Department was concerned to ensure full compliance with the terms of the interlocutory injunction granted in favour of SKandF against the Secretary on 10 November 1987. It was thought to be impossible to process that application under the constraints set out in paragraphs (a) and (b).

30. This exchange of letters is material to the practicability of the Department's doing as the appellants desire. That is, in turn, relevant to the question of whether SKandF might reasonably have expected the Departmental officers to "quarantine" knowledge gained from the SKandF material, to enable them to deal with generic applications as if they were ignorant of the matters disclosed by SKandF. As was discussed during argument, it would seem that the only feasible way of doing so would be to have a separate group of officers handling each firm's applications and to make arrangements to inhibit communication between the groups.

31. There was a considerable amount of other evidence relevant to the issue as to what SKandF might reasonably have expected the Department to do, in order to fulfil its general obligation to treat the identified B1 material as confidential. Mr Perrin said that if a Departmental officer did not use confidential information "in matters of public health then he would be remiss in his duty ...". He expanded on this answer as follows:

"In matters of public health, therefore, ... it was my

intention to try to convey that matters that were within

the experience and knowledge of an officer of the Health

Department which questioned a new drug's credentials, as

it were, on a ... scientific or medical basis, which went

to the heart of protecting the interests of the health of

the population, were probably a very large part of their

responsibility. And that, to my mind, was in very ...

sharp contrast with using such data to the advantage and

support of the commercial interests of a generic

application ...".

32. Mr Perrin also agreed that he would not expect the Department to close its mind to problems relating to one of the SKandF drugs of which it had become aware.

33. Despite this evidence from the former SKandF Managing Director, counsel for the appellants endeavoured for some time to insist that in no circumstances could the Department lawfully use SKandF information in assessing generic applications - not even if, in their view, considerations relating to the health and safety of the public absolutely required it.

34. The primary Judge found, on the basis of Mr Perrin's and much other evidence, that it:

"... would be bad scientific practice, and could be

dangerous, to ignore innovator B1 data when evaluating a

generic product which appeared to be identical to or

closely related to the innovator product".

An "innovator" is an early applicant for approval of a new drug, by a holder of a licence from the patentee, or by the patentee itself.

35. His Honour further held that the Department did not know that the B1 data was furnished to it by SKandF for a purpose excluding the evaluation of such applications as that made by Alphapharm.

36. Some attempt was made to displace his Honour's conclusions as to the facts. It is unnecessary to recount the many points which were made on either side, because the case was plainly one in which his Honour's conclusions are able to be supported. However, mention should be made of some specific criticisms of the primary Judge's reasons, advanced on behalf of the appellants.

37. Gummow J.'s having attached importance to the views of Mr Perrin was criticised, on the ground that in re-examination Mr Perrin explained answers he had given in cross-examination, at some length, in a way which might have reduced the weight of those answers. Mr Perrin said, in effect, that his references in cross-examination to its being remiss not to have regard to confidential information in matters concerning public health were due to deficiencies in his mode of expression. A perusal of Mr Perrin's evidence makes it difficult to accept the suggestion that he had trouble in making his meaning clear. But apart from that, it was very much a matter for the trial Judge to decide what weight should be given to answers apparently designed to dilute the effect of earlier evidence coming from the witness.

38. Again, it was contended that the principle of Jones v. Dunkel [1959] HCA 8; (1959) 101 CLR 298 should have been applied by the primary Judge against the Secretary. The basis of that submission was the failure of the Secretary's counsel to call a former Departmental employee, Dr. Hall. The main significance of Dr. Hall's evidence would appear to have been that he swore an affidavit in other proceedings which was, on the face of it, favourable to the present appellants.

39. Jones v. Dunkel is authority for the proposition that certain inferences may more confidently be drawn "when a person presumably able to put the true complexion on the facts relied on as the ground for the inference has not been called as a witness by the defendant and the evidence provides no sufficient explanation of his absence" (308). Here, the evidence was that Dr. Hall was at the date of trial no longer with the Department and that he had left to work for a pharmaceutical company. That company was unidentified; for all one knows, it might have been SKandF. In the circumstances proved, no rational inference could have been drawn against the Department from the failure to call Dr. Hall; there was no basis for thinking that he would have been unwilling to give a statement to SKandF.

40. Then, it was said that the Judge should have taken into account in favour of the appellants that some of their deponents were not cross-examined on important points. Deponents on behalf of the appellants made statements to the effect that they did not know, nor intend, that the Department "would or might use (the confidential) information otherwise than for the purpose of evaluating 'Tagamet' or 'Duractin' cimetidine". There was no obligation on counsel for the Secretary to cross-examine every one of a number of witnesses making the same assertion about his or her state of mind. The primary Judge's conclusion on this question was as follows:

"The position is if officers of SKandF had turned their

minds to the question over this period from 1975, they

would have said that they regarded the NDF4 information

as 'confidential' in the sense that it was not to be

disclosed to competitors or potential competitors,

without the prior permission of SKandF. But no one, before

the steps taken by Mr Perrin which I have described,

focused attention upon the question of use by the

Department of B1 data in the manner which is the subject

of this case".

41. There is no ground for disturbing this finding, which accords with common sense. If it were true that employees of SKandF dealing with the Department always had in mind that knowledge obtained from the study of the SKandF applications would be ignored when the Department came to evaluate the data from generic applicants, one would have expected that to be mentioned to officers of the Department. Until the letter of April 1987 from SKandF referred to above, it was not.

42. The evidence showed that, although the process of Departmental evaluation for applications to the Department made by SKandF, Alphapharm and like applicants was, in the main, internal, persons not employed by the Department could take part in that process. Firstly, consultants outside the Department, called "external evaluators", were used on the basis of a written undertaking as to confidentiality. Secondly, the Australian Drug Evaluation Committee (ADEC) has had, at relevant times, the function of performing evaluations of goods for therapeutic use: reg.19 of the Therapeutic Goods Regulations made under the Therapeutic Goods Act 1966 (repealed). It does not appear that the existence of these subsidiary means of evaluation gives rise to any additional considerations of which the appellants might take advantage, but the same may not be said of use of a certain sample, supplied to the Department by SKandF, to test a cimetidine product for the government of Papua New Guinea. That seems to have been a slip and was not, on any view, defensible. However, the primary Judge refused to grant any relief in respect of the use of the sample, apparently on the ground that there was no threat of a repetition of that misuse. There is no justification for interfering with his Honour's decision on the point.

43. Gummow J. found that when SKandF furnished the B1 data between 1975 and 1987, it did so on the implicit understanding that it would be:

"... kept confidential in the sense that it would not be

disclosed to any other pharmaceutical company lest use be

made of it to the commercial disadvantage of the company

which had supplied the information".

44. But if the submission on behalf of the appellants as to the test of the extent of confidentiality is accepted, that finding as to what was implied is of no consequence; for the appellants say that all that counts is the confider's purpose and that could not have gone beyond Departmental consideration of its own applications.

45. There is indeed some authority which, at least superficially, supports that view. One learned commentator has remarked:

"The test which has found widespread acceptance is whether

or not the information was disclosed for a limited

purpose. If the information was disclosed for a limited

purpose, the confidence crystallises around that limited

purpose. The confidant will be bound by an obligation

the content of which is not to use or disclose the

information for any purpose other than the limited one

for which the information was imparted" - F. Gurry in

Finn, Essays in Equity (1985) at p 118.

46. In many circumstances, that suggested test will produce a proper result, but the circumstances in which confidential information is supplied may vary widely. To determine the existence of confidentiality and its scope, it may be relevant to consider whether the information was supplied gratuitously or for a consideration; whether there is any past practice of such a kind as to give rise to an understanding; how sensitive the information is; whether the confider has any interest in the purpose for which the information is to be used; whether the confider expressly warned the confidee against a particular disclosure or use of the information - and, no doubt, many other matters. Confidential information is commonly supplied without payment: for example, by a prospective employee (or his referee) to support an application for employment. The understanding ordinarily would be that the prospective employer would not disclose the information to any third party; but it would hardly be expected that its use would necessarily be confined to the employment application itself. If that application were successful, the employee would not act on the assumption that material in the relevant file would be destroyed. He would surely be inclined to assume that it might be resorted to later to assist the employer in making decisions relevant to the employee - for example, as to whether the employee (rather than another) should be promoted, or dismissed.

47. The test of confider's purpose will not ordinarily be appropriate where each party's interest is quite different, and known to be so. Here, the confider's purpose is simple and narrow, the confidee's much broader. SKandF had only the purpose of having its applications approved. A person supplying confidential information to the government for the purpose of obtaining a licence (or a permission or concession) would ordinarily assume that the government would not destroy the application file after the confider had attained his purpose. The confider would probably expect that the information would be kept against the day when it might be needed to serve the government's legitimate interests: for example, to provide a record in case the decision is challenged as improper; to enable statistical information to be collected; or, acting directly against the interests of the confider, to compare the information supplied with the confider's subsequent performance, in determining whether to cancel the licence. Gummow J. referred to the reasons of McHugh J.A. (as his Honour then was) in Attorney-General (U.K.) v. Heinemann Publishers Australia Pty. Ltd. (1987) 10 NSWLR 86 at 191; amongst other things, McHugh J. said:

"But the relationship between the modern State and its

citizens is so different in kind from that which exists

between private citizens that rules worked out to govern

the contractual, property, commercial and private

confidences of citizens are not fully applicable where

the plaintiff is a government or one of its agencies.

Private citizens are entitled to protect or further their

own interests, no matter how selfish they are in doing so

... (b)ut governments acts (sic), or at all events are

constitutionally required to act, in the public interest".

48. Megarry J. has suggested a broad test to determine whether an obligation of confidence exists. In Coco v. A.N. Clark (Engineers) Ltd. (1969) RPC 41, Megarry J. said:

"It seems to me that if the circumstances are such that

any reasonable man standing in the shoes of the recipient

of the information would have realised that upon

reasonable grounds the information was being given to him

in confidence, then this should suffice to impose upon

him the equitable obligation of confidence". (48)

49. However, this test does not give guidance as to the scope of an obligation of confidentiality, where one exists. Sometimes the obligation imposes no restriction on use of the information, as long as the confidee does not reveal it to third parties. In other circumstances, the confidee may not be entitled to use it except for some limited purpose. In considering these problems, and indeed the whole question, it is necessary not to lose sight of the basis of the obligation to respect confidences:

"It lies in the notion of an obligation of conscience

arising from the circumstances in or through which the

information was communicated or obtained".

This is quoted from Moorgate Tobacco Co. Ltd. v. Phillip Morris Ltd. (No. 2) [1984] HCA 73; (1984) 156 CLR 414 at 438 per Deane J., with whom the other members of the Court agreed. A similar broad view has been taken in the United States: E.I. Dupont de Nemours Powder Company v. Masland (1917) 244 US 102:

"Therefore the starting point for the present matter is

not property or due process of law, but that the

defendant stood in confidential relations with the

plaintiffs, or one of them. These have given place to

hostility, and the first thing to be made sure of is that

the defendant shall not fraudulently abuse the trust

reposed in him. It is the usual incident of confidential

relations".

50. Similar expressions recur in other cases: Seager v. Copydex Limited (1967) RPC 349 at 368:

"The law on this subject ... depends on the broad

principle of equity that he who has received information

in confidence shall not take unfair advantage of it".

51. To avoid taking unfair advantage of information does not necessarily mean that the confidee must not use it except for the confider's limited purpose. Whether one adopts the "reasonable man" test suggested by Megarry J. or some other, there can be no breach of the equitable obligation unless the Court concludes that a confidence reposed has been abused, that unconscientious use has been made of the information.

52. Here, SKandF supplied, in pursuit of its commercial interests, a mass of information, part of which was confidential. It did not trouble to identify that part when furnishing the information. Nor did it, until very late in the piece, make the assertion that was so much pressed upon us in this Court, namely that the Department could not make purely internal use of the information other than for SKandF's purposes, not even when public health and safety made that necessary. In those circumstances, it appears to us that the primary Judge was correct in concluding as he did that no equitable obligation was breached, except as to the use of the sample for the government of Papua New Guinea.

53. We would add that, in our opinion, Courts exercising equitable jurisdiction should not be too ready to import an equitable obligation of confidence in a marginal case. There is the distinction between use of confidential information in a way of which many people might disapprove, on the one hand, and illegal use on the other. Not only the administration of business and government, but ordinary communication between people, might be unduly obstructed by use of too narrow a test, such as that which the appellants put forward here. This is amply illustrated by the facts of the present case in which the evidence clearly showed the substantial interference with vital functions of government, in protecting the health and safety of the community, which could ensue if the appellants' primary submission were accepted. It is our view that the "blanket" protection of the SKandF B1 data which the appellants sought, as well as the rather more limited protection suggested during the hearing in this Court, would go well beyond any obligation which ought to be imposed on the Secretary.

54. This conclusion is at least consistent with that arrived at in the High Court in New Zealand in 1988 and in the House of Lords in 1989: Smith Kline and French Laboratories Ltd. v. Attorney-General [1988] NZHC 734; (1989) 1 NZLR 385, In Re Smith Kline and French Laboratories Ltd. (1989) 2 WLR 397. We have, however, found it unnecessary to include in these reasons an analysis of either of those decisions.

55. SKandF contends that if the regulations have the meaning attributed to them by the Secretary, then they are invalid. The ground of invalidity set up is conflict with s.51(xxxi) of the Constitution, which gives Parliament the power to make laws with respect to:

"The acquisition of property on just terms from any State

or person for any purpose in respect of which the

Parliament has power to make laws:"

56. SKandF's argument is that confidential information is property, and that if the Commonwealth passes laws enabling it to use others' confidential information without the owner's consent and without payment, that is an acquisition of property otherwise than on just terms. The primary Judge held that the information sought to be protected is property within the meaning of s.51(xxxi) of the Constitution. Assuming for present purposes that that is so, still the better view appears to be that such dealings with the information as were engaged in by and on behalf of the Secretary did not constitute an acquisition of it.

57. The leading authority relevant to this point is the Tasmanian Dam case [1983] HCA 21; (1983) 158 CLR 1, but it is desirable to make some reference to earlier decisions. In Minister of State for the Army v. Dalziel [1944] HCA 4; (1944) 68 CLR 261, it was held that taking exclusive possession of property for an indefinite period is an acquisition of property within the meaning of the Constitution. That case was taken by Dixon J. (as he then was):

"... to mean that s.51(xxxi) is not to be confined

pedantically to the taking of title by the Commonwealth

to some specific estate or interest in land recognized at

law or in equity and to some specific form of property in

a chattel or chose in action similarly recognized, but

that it extends to innominate and anomalous interests

...". (Bank of N.S.W. v. Commonwealth [1948] HCA 7; (1948) 76 CLR 1

at 349).

58. In Trade Practices Commission v. Tooth and Co. Limited [1979] HCA 47; (1979) 142 CLR 397, it was held by a majority that a statutory provision for forcing the renewal of a lease did not conflict with s.51(xxxi). The Judges who took that view, or most of them, held that such a law did not provide for an acquisition of property. Gibbs J. so held on the ground that the statute was one of the same nature as provisions for penalty or forfeiture (408) and, for varying reasons, Stephen and Murphy JJ. agreed with Gibbs J.

59. In the Tasmanian Dam case, a question was raised as to whether provisions (s.11 of the relevant Act) substantially restricting a land owner's use of land constituted an acquisition of property. Deane J. held that it did on the ground that the land was "effectively frozen" (286). His Honour pointed out that otherwise:

"... the safeguard of s.51(xxxi) would be ineffective to

preclude the Commonwealth from effectively dedicating the

property of others to its purposes without compensation".

60. Mason J. described the property in question as "(i)n terms of its potential for use ... sterilized" (145), but held that there was nevertheless no acquisition of property, because no proprietary interest was acquired (146). Murphy J. (181) and Brennan J. (248) agreed with the conclusion of Mason J. Brennan J. did not accept that a purpose of para. (xxxi) is the protection of the individual or State "against governmental interferences with his proprietary rights without just recompense" and held that there must be an acquisition of proprietary rights, to enable an invocation of the constitutional protection (247).

61. The other three members of the Court (Gibbs C.J., Wilson and Dawson JJ.) did not decide this point, but it would seem clear that, if the general interference with the owner's rights in the Tasmanian Dam case was not an acquisition of property, the lesser interference in issue here could not be an acquisition. It is true that, because three members of the Court did not deal with the question, there was no majority in favour of one view or the other, as to the frozen land; but it would seem plainly right to follow the view of the majority of those Judges who did deal with the point. Further, even if the opinion of Deane J. were to be applied, SKandF must fail as to the constitutional issue. That is so because Deane J. dealt, in addition to the "freezing" provision (s.11), with other provisions of the relevant legislation in a way which is relevant here. They prohibited acts of ownership which were "far from insignificant" including the carrying out of certain works (285). His Honour held that those restrictions did not "enter the area of acquisition of property".

62. That is, while Deane J. held invalid the "freezing" provision, his Honour took a different view as to lesser interference with the rights of ownership.

63. Here, the confidential information was certainly not "acquired" in the ordinary sense. SKandF retained ownership and full rights of user. The Secretary's limited use was not for the Department's commercial benefit or for that of the Government, but merely for administrative purposes. If there is property in confidential information, it remained in the applicant whose proprietary interest was not, even in a broad sense, acquired by the Commonwealth. In our opinion, a government's taking proper advantage, for administrative purposes, of confidential information applicants for licences or permissions supply, does not in general constitute an acquisition of property. The constitutional point fails.

64. It should be added that the appellants argued that the relevant regulations set out above should be read down, so that exercise of powers under them produced as little interference as possible with SKandF's rights in respect of the confidential information. In our view, so to argue begs the question which is whether, having regard to the Department's functions under the regulations, SKandF has any right against the Secretary of the kind it has asserted.

Information Act 1982

Therapeutic Goods Act 1966

Information Act 1982

Therapeutic Goods Act 1966

Information Act 1982

Therapeutic Goods Act 1966

Re Smith, Kline and French Laboratories (Australia) Ltd; Smith Kline and French Laboratories Ltd; Smithkline Beecham Corporation; Laboratoire Smith Kline and French SA and Smith Kline Dauelsberg Gmbh v the Secretary To the Department of Community Servi [1991] FCA 150

At a glance

Court

Decision date

Before

Source

Judgment (104 paragraphs)

Re Smith, Kline and French Laboratories (Australia) Ltd; Smith Kline and French Laboratories Ltd; Smithkline Beecham Corporation; Laboratoire Smith Kline and French SA and Smith Kline Dauelsberg Gmbh v the Secretary To the Department of Community Servi [1991] FCA 150 (17 April 1991)

Parties

Legislation Cited (6)

Cases Cited (8)