SGS Australia Pty Ltd v Australian Laboratory Services Pty Ltd

IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION WAD 10 of 2010

JUDGE: LANDER J DATE: 5 SEPTEMBER 2012 PLACE: ADELAIDE (VIDEOCONFERENCE TO BRISBANE AND PERTH)

REASONS FOR JUDGMENT 1 On 6 July 2012, I published to the parties, subject to certain restrictions, my reasons for the orders that I made dismissing the applicants' proceeding against the respondent: SGS Australia Pty Ltd v Australian Laboratory Services Pty Ltd [2012] FCA 711. In paragraph [1] of those reasons I identified the basis of the applicants' claim against the respondent: (a) breach of its equitable obligations to keep a partial leaching geochemistry technique confidential and not to misuse that technique; (b) breach of its contractual obligations under a "Confidentiality Undertaking" and a "Licence Agreement"; and (c) contraventions of ss 52, 53(c), 53(d) and/or 53(g) of the Trade Practices Act 1974 (Cth) (TPA). 2 On 13 February 2008, the second applicant, SGS Group Management SA (SGS SA), purchased all of the shares in Wamtech Pty Ltd (Wamtech). Wamtech owned all the rights, title and interest in a surface exploration technique used to locate mineral deposits (the MMI technology). The MMI technology includes a number of commercial leachants, the most significant of which is called MMI-M. 3 Wamtech, prior to becoming a subsidiary of the first applicant, had entered into a Licence Agreement with the respondent, which allowed the respondent to use MMI-M in its business of the supply of laboratory services in the field of geochemistry. I found that the Licence Agreement was still in force until it was terminated by the applicants on 20 February 2008. 4 Wamtech also required the respondent to enter into a Confidentiality Agreement, which I found still operated to impose a confidentiality obligation upon the respondent, both up to and after the termination of the Licence Agreement. 5 The applicants contended, and the respondent accepted, that the MMI process contains confidential information or comprises information of a confidential character. The precise confidential information included the ingredients, the relative concentrations, and the physical and chemical qualities, of MMI-M. 6 The applicants brought the proceeding because they claimed that the respondent had breached the respondent's equitable and contractual obligations and had contravened the Trade Practices Act 1974 (Cth) (TPA), as referred to in paragraph [1] of these reasons, by developing their own leachant, Ionic Leach. Ionic Leach, it was claimed, was developed by copying, duplicating, imitating or reverse engineering the MMI technology. 7 The applicants' case was a circumstantial one. The respondent led evidence from the senior employees and chemists who had developed Ionic Leach. Those who had played a close part in its development said that they had not copied, duplicated, imitated or reverse engineered the MMI technique or MMI-M. I found that the applicants had not made out their circumstantial evidence case. I also accepted the respondent's witnesses denials. The proceeding was dismissed. 8 On 6 July 2012, when I delivered my reasons, I made an order that the reasons for judgment be placed in a sealed envelope, which was not to be opened without the leave of a Judge of this Court. I did so to preserve the confidentiality in the MMI technique and MMI-M, and to allow the applicants to consider whether they wished to take action to preserve the confidentiality of the MMI technique and MMI-M. 9 The applicants now seek orders that the reasons for judgment given on 6 July 2012 be published in a redacted form. 10 They have also sought orders limiting access to the applicants' schedule titled "Confidential Information to be Redacted from Reasons for Judgment dated 6 July 2012" relied upon for this application. The respondent did not dispute that order being made. The applicants have sought the costs of the application. 11 Ordinarily, the Court's jurisdiction is exercised in open court: s 17(1) of the Federal Court of Australia Act 1976 (Cth) (FCA); Scott v Scott [1913] AC 417 at 477-478. It is in the interests of justice that the Court's jurisdiction is exercised publicly so as to ensure that the public retains its confidence in the Court's processes and deliberations. 12 However, s 17(4) of the FCA permits the Court to exclude the public or specified persons from the Court if the presence of those persons would be contrary to the interests of justice. That subsection recognises that there will be exceptional cases when it is contrary to the interests of justice for the Court to exercise its jurisdiction in public. 13 During the hearing of this proceeding, I made orders excluding the public from the Court. There were good reasons for doing so. The applicants' proceeding was brought to protect its commercial interests, being the confidentiality of the MMI technique and MMI-M. It would be contrary to the interests of justice if a party who wished to protect confidential information had to disclose that information publicly. If the proceeding had been conducted in open court, then the subject matter of the proceeding, being the confidential information, would have been destroyed. 14 The applicants rely upon s 50 of the FCA for the permanent orders that they now seek. 15 Section 50(1) provides: The Court may, at any time during or after the hearing of a proceeding in the Court, make such order forbidding or restricting the publication of particular evidence, or the name of a party or witness, as appears to the Court to be necessary in order to prevent prejudice to the administration of justice or the security of the Commonwealth. 16 Section 50, like s 17(4), recognises that in exceptional cases, orders will need to be made forbidding or restricting the publication of evidence or of the names of parties, but only when necessary in order to prevent prejudice to the administration of justice. The party seeking the order must establish the need for the orders to prevent prejudice to the administration of justice. Any orders that are to be made under s 50 should be no more than are necessary to achieve the object addressed in the section. 17 In Hogan v Australian Crime Commission (2010) 240 CLR 651, the High Court said at [30]-[31]: As it appears in s 50, "necessary" is a strong word. Hence the point made by Bowen CJ in Australian Broadcasting Commission v Parish, that the collocation of necessity to prevent prejudice to the administration of justice and necessity to prevent prejudice to the security of the Commonwealth "suggests Parliament was not dealing with trivialities". Further, as indicated earlier in these reasons: (a) s 50 is an example of a provision authorising the Federal Court to make orders for the exercise of its jurisdiction other than in open court as mandated by s 17(1); and (b) "the administration of justice" spoken of in s 50 is that involved in the exercise by the Federal Court of the judicial power of the Commonwealth; this is a more specific discipline than broader notions of the public interest. It is insufficient that the making or continuation of an order under s 50 appears to the Federal Court to be convenient, reasonable or sensible, or to serve some notion of the public interests, still less that, as the result of some "balancing exercise", the order appears to have one or more of those characteristics. (Footnotes omitted.) 18 The respondent did not dispute that the applicants possess confidential information in the MMI technique and MMI-M. Nor did it dispute that the applicants should be entitled to protect the confidentiality of that information. The issue on this application is the extent to which it is necessary, pursuant to s 50 of the FCA, to redact the reasons to achieve that end. 19 To understand the application and the opposition it is necessary to have some understanding of the structure and content of the reasons. 20 The reasons commence by identifying the issues and the parties. 21 In paragraphs [9] to [23], I identified the way in which Dr Mann, who previously owned the shareholding in Wamtech, developed the MMI technique and MMI-M over a period between 1992 and 2003. In doing so, I had need to identify the ingredients of MMI-M and parts of its physical and chemical characteristics. In paragraph [8] and sub-paragraph (c) in paragraph [91], I also identify some of the ingredients of MMI and one of its characteristics. 22 The applicants seek to have those references redacted from the reasons. Although the respondent contended that what was sought bordered in part as unnecessary, I am satisfied that it is in the interests of justice in the sense described in s 50 to redact that part of the reasons as contended for by the applicants. 23 In paragraphs [36] to [53], I discussed the events that followed the applicants' termination of the Licence Agreement when the respondent went about developing its own leach. The applicants seek to have redacted those references in those paragraphs to the ingredients and physical and chemical characteristics of Ionic Leach. 24 The respondent has no desire to keep confidential the ingredients, concentrations or characteristics of its leach, Ionic Leach. Indeed, as counsel for the respondent said at the hearing of this application, the formula of Ionic Leach was made public in September 2008. There is no confidentiality in that information. 25 Any member of the public, including any chemist, who wishes to develop a new leach, has unrestricted access to all of the information necessary to know the ingredients, the concentrations of each of the ingredients, and the physical and chemical characteristics of Ionic Leach. The leach could be copied with impunity. 26 The applicants, however, wish to have the references in the reasons to the ingredients, concentrations, and physical and chemical characteristics of Ionic Leach redacted, because later in the reasons I compared those features with MMI-M in considering whether the applicants had made out their circumstantial case that the respondent had copied, duplicated, imitated or reverse engineered MMI-M. 27 I concluded that Ionic Leach was not a copy, duplicate or imitation of MMI-M, although the two leaches are similar: SGS Australia Pty Ltd v Australian Laboratory Services Pty Ltd [2012] FCA 711 at [106]. 28 The applicants say that, in view of that finding, if the ingredients of Ionic Leach were left unredacted, a reader would be able to infer the ingredients, concentrations, and physical and chemical characteristics of MMI-M. 29 The finding that Ionic Leach is not the same as MMI-M, although the two leaches are similar, is not sought to be redacted. 30 The information about Ionic Leach is in the public domain. A reader of the reasons will not learn any more, and indeed will learn less, about the ingredients, concentrations and physical and chemical characteristics of MMI-M, than a reader of the information on the respondent's website. 31 It is apparent that as soon as the respondent elected to make known publicly all the information about Ionic Leach and the applicants' proceeding against the respondent failed, the applicants' confidential information in the MMI technique and MMI-M was at risk. 32 Indeed, because it is now known that the two leaches perform similar functions, the publication universally of the properties of Ionic Leach means that the scientific world is able to develop a leach that could detect the wide-range of elements that both the applicants' and the respondent's leach could detect. 33 If a redaction sought by the applicants has no utility, then that redaction would not be necessary in order to prevent prejudice to the administration of justice. 34 In my opinion, the redaction of the properties of Ionic Leach would serve no utility. The information is available on the respondent's website. 35 The reasons for judgment will be published with the applicants' case identified in the following paragraphs in SGS Australia Pty Ltd v Australian Laboratory Services Pty Ltd [2012] FCA 711: [6] MMI-M is a proprietary solution and is confidential. [54] The applicants contend that Ionic Leach is a copy or imitation of MMI-M. [91] The applicants put their case in their opening: 51. In developing IL [Ionic Leach], ALS attempted to copy, imitate, or reverse engineer MMI-M and/or use the Applicants' confidential information. This is supported by the following evidence: (a) upon losing its licence rights to use MMI-M, ALS immediately set out to develop a leach to prevent it from losing the MMI-M work; (b) there is the striking similarity in the constitution and chemical composition of MMI-M and IL; (c) upon being told that ALS was no longer licensed to use MMI-M, ALS immediately decided to develop "an alternative" to MMI-M using MMI-M parameters, namely, xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx. (d) there was a very short time period for development of IL, which is a complex multi-ligand leach; (e) the results for IL were being directly compared to the MMI-M accepted values for various standards; and (f) MMI-M is an unusual chemical composition relative to industry standards. [94] For the drawing of that inference they rely upon the time Dr Mann took to develop MMI-M; the lack of reliance upon the literature by the respondent in developing Ionic Leach; the lack of research and development documents evidencing a trial and error creation of a multi-ligand partial leach solution; the use of the same complexing reagents very soon after 22 February 2008; the similarity of the elements of the two leaches; and the fact that the respondent approached a known MMI-M provider to promote Ionic Leach. [100] The applicants contended that Ionic Leach was in fact substantially the same as MMI-M, because the two leaches contained similar ingredients and had similar pH levels. Dr Carey analysed the chemical constituents of the two leaches and found that xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx were common to both leaches. However, Dr Carey also found that the Ionic Leach contained xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx whilst MMI-M contained xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxxxxxx. There was no xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx in the Ionic Leach. Whilst Dr Carey said that xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx were xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx, there is a clear difference in the compounds which have been used in the two leaches. Furthermore, Dr Carey's analysis shows that even for those ingredients that are common to both leaches, the relative "average weight/volume" ratios of those ingredients in each leach differ. 36 For reasons already given, I would make the redaction in [91] shown above. 37 However, the nature of the proceeding is known. The applicants contended that Ionic Leach, the qualities of which are public, is the same or strikingly similar to MMI-M. 38 There is no reason to forbid from publication the paragraphs that identify the ingredients, concentrations and physical and chemical qualities of a leachant when all of those characteristics are already in the public domain. 39 In paragraphs [100] to [106], I address the question whether Ionic Leach was the same as MMI-M. I have already mentioned that in [106], I conclude that the leaches were similar, but that Ionic Leach was not a copy, duplication or imitation of MMI-M. In the paragraphs that precede the conclusion in [106], I identify some of the ingredients of MMI-M. Those references should be redacted. 40 In paragraphs [113] to [124], I address the respondent's choice of the ingredients of Ionic Leach. In particular, I address the parties' expert evidence. I would not redact reference to the ingredients of Ionic Leach for the reason already given, namely that the characteristics of Ionic Leach are in the public domain. 41 In paragraph [145], in discussing the respondent's evidence, I identify an ingredient of MMI-M. That identification should be redacted. 42 For those reasons, I would only be prepared to make those redactions, for which the applicants contend, in paragraphs [8], [12], [14], [15], [17], [18], [19], [20], [21], [22], [23], [91], [100], [102], [106], and [145]. 43 The applicants asked that the orders that I make include an order that the redacted reasons not be published for 15 days after these orders are to be made, so that the applicants may consider whether they wish to have the orders reviewed. I am prepared to accede to that request, because otherwise whatever rights of review the applicants have would be rendered nugatory. 44 That leaves the question of costs. 45 The applicants sought an order that the respondent pay the applicants' costs of and incidental to the making of the application for the redaction of the reasons. The respondent, on the other hand, sought an order that the order for costs made on 6 July 2012 should be expanded to include the costs of and incidental to the application for an order pursuant to s 50. 46 Although the applicants have been successful in obtaining the redaction of some aspects of the reasons given on 6 July 2012, they have largely only succeeded in relation to those aspects of the reasons that the respondent agrees should be redacted. Where there has been dispute between the parties as to whether the reasons should be redacted, the respondent has largely been successful. 47 In my opinion, the appropriate order for costs would be that the applicants pay the respondent's costs of, and incidental to, the applicants' application pursuant to s 50 of the FCA for the redaction of part of the reasons in SGS Australia Pty Ltd v Australian Laboratory Services Pty Ltd [2012] FCA 711 delivered on 6 July 2012. 48 I will make consequential orders to protect the integrity of the redactions which I think should be made. I certify that the preceding forty-eight (48) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lander.