Contract of employment - Confidential information allegedly used by former State Manager after termination of employment - Breach of implied term concerning confidential information - Discovery of documents in legal proceedings - Scope of rule prohibiting use of discovered documents for collateral purpose - Defamatory imputations - Whether imputations arise from words used - Scope of rule concerning slander actionable per se - Defence of justification

Howden v "Truth" and "Sportsman" Ltd (No 2) (1938) 38 SR(NSW) 287

Lang v Australian Consolidated Press Ltd [1970] 2 NSWLR 408

1 HASLUCK J: The plaintiff carries on business as a manufacturer and distributor of airconditioning ducting and fittings from business premises in West Heidelberg, Victoria. In these proceedings, it advances claims against the defendant as a former State Manager of the plaintiff's business in the State of Western Australia. The plaintiff complains of certain allegedly defamatory words published by the defendant following the termination of his employment and the alleged breach of certain confidentiality obligations concerning the affairs of the plaintiff. The plaintiff seeks a permanent injunction to restrain any repetition of the conduct complained of.

2 A company known as Westaflex (Australia) Pty Ltd was set up at West Heidelberg in Victoria in 1974 by Edward Sterling and his wife, Elizabeth Sterling, to manufacture airconditioning ducting and fittings. A few years later, in 1981, the same parties set up the plaintiff company, Uniflex, to carry on business as the distributor of products manufactured by Westaflex. It seems that between 1986 and 1992, branch offices were opened in Perth, Adelaide, Canberra and Brisbane to make the Westaflex/Uniflex group the largest supplier of airconditioning ducting and products in Australia.

3 Elizabeth Sterling commenced as managing director of both companies in 1992, following the death of her husband, Edward Sterling. She was assisted by her son, Michael Sterling, who became a director of the companies at that time.

4 One of the products being manufactured and marketed by the Sterling companies was a flexible airconditioning duct known as LP-Flex. The initials "LP" are an abbreviation for "laminated product", being a reference to the inner core of the duct which is constructed of a laminated spun-bonded, non-woven polypropylene material. The inner core material was given its mechanical strength and cylindrical shape by either being mechanically locked onto a copper coated spring steel wire by a helical steel rib, or being ultrasonically welded around the copper coated spring steel wire.

5 LP-Flex manufactured with the helical metal rib was within the company referred to as LPS (the "S" referring to the steel rib); LP-Flex manufactured with the ultrasonically welded inner core was within the company referred to as LPU (the "U" referring to the ultrasonic welding). The inner core was then covered or encapsulated with polyfibre insulation. The core and the insulation together were then "jacketed" by an outer sleeve or jacket.

6 In or about 1992, it became a requirement that airconditioning duct used in Western Australia had to comply with certain provisions of the Building Code of Western Australia. The relevant provisions related to the fire rating of flexible duct for use in airconditioning and ventilation. The provisions covered all structures from class 1 to class 9 which encompassed all buildings from domestic residences to multistorey buildings, schools, hospitals, public buildings and the like.

7 To comply with the relevant provisions of the Building Code, both the inner and outer core material had to be tested to Australian Standard ("AS"), AS 1530.1 and AS 1530.3, whilst the insulation and duct in its composite form had to be tested to AS 1530.3.

8 It seems that the plaintiff's LP-Flex manufactured with a polythene outer sleeve or jacket and its LPR-Flex manufactured with the ACI "vapastop 883" outer sleeve or jacket did not comply with these provisions, so the plaintiff set about developing a product known as V-Flex.

9 It seems that V-Flex was too expensive for domestic applications and, in any event, contractor customers preferred a duct, for domestic applications, with a black inner core, rather than the characteristic silver core of the flex, as the latter core can be seen when you look into the air outlets of airconditioning systems.

10 Accordingly, the Sterling companies took steps to develop an "LP" duct that complied with the relevant provisions of the Building Code, that is to say, AS 1530.2 and AS 1530.3. The outer sleeve of LP-Flex was changed to the same outer sleeve used in the manufacture of V-Flex, this being known as the "super sleeve". This sleeve is constructed by gluing an ACI vapastop 892 material to clear polypropylene material with fire retardant glue, in between which cotton thread reinforcing is sandwiched.

11 Super sleeve is also reflective silver, which led to LP-Flex manufactured with the "super sleeve" and sold in Western Australia being referred as the "new" LPR-Flex, which differentiated it from LP-Flex manufactured with the polythene sleeve. LP-Flex manufactured with outer sleeves other than the "super sleeve" continued to be sold in other States which did not have the same requirements as Western Australia.

12 I digress briefly to note that until about late 1993, the plaintiff had acquired the material used for the construction of the inner core of LP-Flex, that is, the spun-bonded, non-woven polypropylene material from Dupont, a manufacturer in the United States. At about this time, materials for use in the inner core of LP-Flex were also being purchased from another supplier that was manufacturing the Kimberly-Clark "Evolution" material.

13 For the moment, it is sufficient to note that this rather complex situation later gave rise to a degree of ambiguity in relating test reports and certificates intended to demonstrate compliance with the relevant provisions of the Building Code with the products being marketed by the plaintiff company within Western Australia. I will return to this aspect of the dispute in more detail in due course.

14 The defendant, Warren Hanneybel, commenced employment with Uniflex in 1991 as the State Manager of the branch office in Western Australia, after being earlier employed as a sales representative. The plaintiff did not adduce evidence at the hearing to suggest that this contract of employment was evidenced by a formal written document and I am therefore obliged to proceed on the assumption that the nature of the employment is to be inferred from evidence bearing upon the duties performed by the defendant as State Manager. The evidence indicated that as State Manager he was generally familiar with the range and constituents of the plaintiff's products and was accustomed to meet with purchasers such as John Vuleta, who gave evidence at the hearing in his role as a principal of the firm known as "Air Conditioning Mart", being a retailer and installer of airconditioning systems.

15 It was common ground at the hearing before me that on or about 25 March 1998, the defendant's employment with Uniflex was terminated. There is no need in these proceedings to review the matters which the plaintiff contends were sufficient to justify a termination of the employment. It will be sufficient to note that the plaintiff by its managing director, Mrs Sterling, became concerned about certain transactions and an alleged conflict of interest between the defendant's role as an employee of the plaintiff company and a private business interest that he was allegedly pursuing.

16 In May 1998, Uniflex commenced action against the defendant out of the Supreme Court of Western Australia in action number CIV 1541 of 1998 for damages and for other forms of relief.

17 In the 1541 of 1998 proceedings, on 15 June 1998, Uniflex applied for a Mareva injunction against the defendant, with the application being supported by a statement of claim and various affidavits.

18 I note in passing that these materials included the affidavit of the plaintiff's in-house accountant, Ivan Dumic, sworn 18 June 1998, which contains passages formulated with a view to assuring the Court that the plaintiff's undertaking as to damages was underpinned by the strength of its financial position as a sizeable company. On 18 June 1998, Walsh J of the Supreme Court of Western Australia granted to the plaintiff an injunction restraining the defendant from moving from Western Australia or New South Wales, or selling, charging, mortgaging or otherwise dealing with or disposing of or causing or permitted to be sold, charged, mortgaged or otherwise dealt with or disposed of all or any of his assets within Western Australia or either of them.

19 It was apparent to the parties that further argument would have to take place concerning the grant of the Mareva injunction. Accordingly, on 17 July 1998, the defendant filed a defence and counterclaim and a lengthy affidavit by himself sworn 10 July 1998 in which he purported to address the various allegations being made by the plaintiff ("the Hanneybel affidavit").

20 At par 87 of the Hanneybel affidavit, certain assertions were made concerning the plaintiff's capacity to meet its undertaking as to damages. The defendant said that even if the plaintiff did indeed have net assets and total shareholder equity of approximately $6,000,000, it was "likely to become insolvent in the immediate future". The defendant went on to say that the plaintiff would very soon be (if it was not already) facing enormous damages claims by reason of the various matters then referred to which were largely concerned with the plaintiff's alleged failure or inability to comply with the fire rating requirements for flexible duct prescribed by the Building Code of Australia.

21 More particularly, the defendant alleged that, as at July 1992, the plaintiff manufactured V-Flex that complied with the Building Code. Its structure was adhesive-based and similar to many products, with the difference being that it was made from aluminium laminates, whereas products produced by the plaintiff's competitors were made from polyester or polypropylene laminates. He alleged that the Uniflex V-Flex product was fundamentally flawed as its structure was unsound and was far more expensive to produce than the products made by its competitors.

22 The defendant went on to say that during or about July 1993, Michael Sterling suggested the withdrawal of V-Flex from the Western Australian marketplace and to replace it with a product known as LP-Flex, but using the same outer sleeving and insulation that had been used on V-Flex. He said that contractors were given an assurance that the LP-Flex product complied totally with the relevant standards.

23 The defendant said further in par 87(e) of his affidavit that he was told by Michael Sterling that Uniflex had never been able to get the LP-Flex material to pass the necessary test. He asked for test results, but never received them. He went on to say that the test carried out by a national Australia testing authority registered laboratory ("the Australian Wool Testing Authority") failed each time they were attempted. To reduce supply problems and to maintain or improve profitability, approximately five different types of material have been used to manufacture LP-Flex.

24 The defendant said that "To my knowledge none have passed the test and no product supplied has met the criteria of the BCA in Western Australia". He said further that when requested by contractors to supply proof of compliance, test reports relating to another product have been submitted. He said, further, in his affidavit that "For each commercial application of the material, the local council and fire brigade would be furnished with the same false test reports to maintain the illusion that the LP-Flex product complied with the BCA in Western Australia".

25 The defendant said further that the directors of the plaintiff were aware of the situation as he had discussed it with them on many occasions, including by fax and at managers' conferences. During the frequent discussions he had with Paul and Michael Sterling, they advised that they could not get a flame retardant added to the core laminate material and all attempts to get it to comply with test criteria had failed.

26 The plaintiff then filed an answering affidavit sworn by Elizabeth Sterling on 31 July 1998 which addressed various allegations made by the defendant, including the allegation made in par 87 of the Hanneybel affidavit. In that regard, par 14 of the Sterling affidavit reads as follows:

(a) I deny the plaintiff is likely to become insolvent. The plaintiff has had neither a claim nor a notice of a claim arising from the matters described by the defendant at any time since 1992.

(b) The plaintiff has substantial public liability insurance. Annexed to this affidavit and marked 'E' is the plaintiff's public liability policy.

(c) I deny 'V Flex' is 'fundamentally flawed' because of unsound construction or otherwise.

(d) I deny the inner core of 'LP Flex' as sold by the plaintiff in Western Australia has failed to pass Australian Standard 1530 Part 2. Annexed to this affidavit and marked 'F' are the following Reports of Tests of that inner core:

(e) The inner core has also passed Australian Standard 1530 Part 3.

(f) As indicated in the above table the inner core material has been produced by a number of different manufacturers. However it is all spun bonded non woven polypropylene. This in turn has been laminated the same way by the one laminator.

(g) I deny that the defendant discussed with me the allegations contained in this paragraph when I and Mr Dumic attended at the Perth branch on 19 February 1998 or at any another."

27 When one turns to the relevant reports, one notices immediately that it is difficult for a layman to get a graphic visual picture or understanding of the subject of the report. For the moment, however, it will be useful to look briefly at each of the four test reports in question and to note certain features of the document.

28 The report dated 3 July 1987 refers to Evolution fabric, apparently supplied by Kimberly-Clark, being spun-bonded polypropylene fabric with the flammability index given as 2.

29 The test report 7-447299-CV dated 10 September 1993 refers to spun-bonded, non-woven polypropylene film with polypropylene extruded coating and with the flammability index given as 1. It is not immediately evident from the document that the supplier is Dupont.

30 Test report 7-447300-CV dated 10 September 1993 per the Standard AS 1530.2-1993 is referable to a sample described as spun-bonded, non-woven polypropylene film with the flammability index given as 1. It is not immediately apparent from the document that the supplier is Dupont.

31 The test report 7-447301-CV dated 10 February 1993 per the Standard AS 1530.2-1993 is in respect of a sample described as spun-bonded, non-woven polypropylene film with the flammability index given as 1. It is not immediately apparent from the document that the supplier is Dupont.

32 These documents suggest, on their face, that the objects being tested complied with the flammability index established by AS 1530.2 in each case in that the figure attributed to each object was less than 5. One notes from par 14(e) of the Sterling affidavit an assertion that "the inner core has also passed Australian Standard 1530 Part 3".

33 On 4 August 1998, the plaintiff's application for a continuation of the Mareva injunction granted against the defendant by Walsh J came on for hearing before White J of the Supreme Court of Western Australia. It was in that context that the affidavits filed and served on behalf of the respective parties that I have just described were brought before the court.

34 On 17 August 1998, White J handed down written reasons in support of his decision to grant a Mareva injunction subject to appropriate conditions to meet the needs of the defendant pending the determination of the action. In the course of his reasons, White J observed that much of what the defendant had said in par 87 of his affidavit was secondary evidence as to the contents of the Building Code, with the result that the evidence was inadmissible. He went on to say, however, that there were allegations in par 87 of what was said to the defendant by directors of the plaintiff, including alleged admissions that the plaintiff had never succeeded in getting the LP-Flex material to pass the necessary tests, which should be treated be treated as admissible evidence.

35 His Honour White J noted a submission put up on behalf of the defendant that the test results supposedly indicating satisfactory fire ratings were misleading in that they referred to the material before it was laminated, whereas it is laminated material which is used in the plaintiff's products. The learned Judge observed that the material before him was ultimately not of assistance in reaching a conclusion to the effect that the plaintiff faced enormous claims for damages such as to render the plaintiff's undertaking as to damages worthless.

36 It was against the background of these affidavits that, on or about 24 and 25 September 1998, the defendant allegedly uttered to Mr Vuleta as a principal in the firm known as Air Conditioning Mart, being a substantial customer of the plaintiff company, certain allegedly defamatory words. By this time, of course, the defendant was no longer employed by the plaintiff. He was simply a former State Manager of the plaintiff's branch office in Western Australia who was now involved in litigation with the plaintiff company as to certain matters of alleged misconduct on his part. A procedural issue in the litigation was whether the plaintiff company was in a stable financial condition so as to be in a position to honour its undertaking as to damages, being a condition of the grant of a Mareva injunction against the defendant.

37 Mr Vuleta said in evidence at the hearing before me that in the financial year ending 30 June 1998, Air Conditioning Mart purchased in excess of $1.2 million worth of ducting from Uniflex. During the course of his dealings with Uniflex, he came to know that up until March 1998 the defendant was the State Manager for Uniflex. He also knew that the defendant had ceased employment with Uniflex in about March 1998.

38 On 24 September 1998, Mr Vuleta had occasion to telephone the defendant, whereupon, according to Mr Vuleta, the defendant said that "Uniflex' products may not pass fire rating tests" and further "some of the test reports that Uniflex have may not have been for the product which Air Conditioning Mart purchased from Uniflex", or words to that effect. I will call the words allegedly spoken by the defendant on this occasion the "24 September words".

39 Mr Vuleta was concerned by these comments and asked the defendant to come and see him. The defendant saw him the following morning and a discussion took place about Uniflex' duct and fire rating test certificates.

40 According to Mr Vuleta, the defendant's said to him that "Uniflex' duct may not pass the fire rating tests but maybe they would".

41 The defendant said also: "I have been trying to get test reports for Uniflex ducts for a couple of years but I could not get them", or words to that effect.

42 The defendant said that "the tests on Uniflex duct should be done every two years. Michael and Paul Sterling handled everything to do with the tests and Elizabeth Sterling did not have anything to do with that side of Uniflex", or words to that effect.

43 The defendant said words to the effect that he had received a letter from Elizabeth Sterling that had made him very suspicious. However, he did not tell Mr Vuleta what was in the letter and did not show him a copy of it. He did not tell Mr Vuleta what in the letter had made him suspicious.

44 According to Mr Vuleta, the defendant also said words to the effect that because Mr Vuleta's daughter was a solicitor, she should know what to do and that "I should contact Bob Doyle at AWTA Textile Testing and send some samples of Uniflex products in for testing".

45 The defendant went on to say to Mr Vuleta "I know where Uniflex' ducts had been installed. Ceilings will have to come down for the duct to be replaced. You should prepare for teams of installers to do the replacements because the claims against Uniflex will be massive", or words to that effect.

46 The defendant said further that the claims against Uniflex would "bring it to its knees".

47 The defendant said to Mr Vuleta, "I know what Uniflex' financial situation is, and I know what the business was worth".

48 According to Mr Vuleta, the defendant also gave him copies of test results on which the letter "F" had been written in the top right-hand corner of each, as well as a page with writing about V-Flex and LP-Flex.

49 The defendant said words to the effect that "the test results may not relate to the products that Air Conditioning Mart is purchasing from Uniflex".

50 The defendant told Mr Vuleta that the latter was the first person he had visited. He said that there were other people in the same situation. I will call the words allegedly spoken by the defendant on this occasion the "25 September words".

51 After the meeting with the defendant, Mr Vuleta decided to call Uniflex. He spoke to the then State Manager, Lloyd Hughes, and spoke also to the managing director of Uniflex, Elizabeth Sterling. He repeated to Mrs Sterling what the defendant had told him. Mrs Sterling denied the allegations and reassured him that the products the Air Conditioning Mart purchased from Uniflex complied with the relevant Australian Standards.

52 Mr Vuleta also in his evidence refuted any suggestion that a considerable amount of alternative product to LP-Flex was supplied to his firm. He, on many occasions, refused to accept alternative product. He obtained duct exclusively from Uniflex and over 99 per cent of the installations in which it was used were domestic installations. He did not want duct with an inner core manufactured with Tyvek, but there were some occasions when he accepted it because LP-Flex was not available.

53 I note in passing that the defendant did not give evidence at the trial before me, from which it follows that there is no direct evidence before me from the defendant himself as to whether he said the 24 September or 25 September words attributed to him by Mr Vuleta, or something similar.

54 Mr Vuleta was cross-examined by counsel for the defendant. He agreed that a substantial part of the entire ducting he purchased from Uniflex was LP-Flex. It is material to note, however, that he was not cross-examined at all as to the accuracy of his recollection about the words used on 24 and 25 September by the defendant. I found Mr Vuleta to be a reliable witness. Accordingly, in the absence of any evidence to the contrary or any challenge as to the reliability of his recollection, I am obliged to find, and do so find, on the balance of probabilities, that the words attributed to the defendant were spoken by him as alleged by Mr Vuleta on 24 and 25 September 1998 respectively.

55 Mr Vuleta also confirmed in evidence that the documents given to him by the defendant on 25 September were the four test reports comprising annexure F to the Sterling affidavit, being the test reports I have described earlier. Having spoken to Elizabeth Sterling about what had transpired, he faxed to her copies of what had been provided to him by the defendant.

56 Elizabeth Sterling said in her evidence that she was at the Uniflex branch office in Bassendean on the morning of 25 September 1998 She spoke to Mr Vuleta on that morning and at the conclusion of her conversation with him asked him to fax to her the documents that had been provided to him by the defendant.

57 She confirmed in evidence that the documents faxed to her were a copy of the test reports comprising annexure F to the Sterling affidavit and page 7 of the affidavit; that is to say, the page on which appears subpars (c) to (g) inclusive of par 14 of her affidavit and, in particular, subpar (d) in which specific reference is made to the four test reports. The words "Bob Doyle" and some figures had been written on test report 7-447300-CV and she recognised the handwriting as the defendant's handwriting.

58 It was against this background that Elizabeth Sterling, on behalf of the plaintiff, instructed her solicitors to commence the present proceedings, with a view to restraining the defendant from acting in a manner which could damage the reputation and business prospects of the plaintiff. She recognised that if statements of the kind made to Mr Vuleta were repeated by the defendant to other customers, that could be extremely damaging to customer confidence and would have the potential to damage Uniflex' business.

59 In describing her apprehensions, Mrs Sterling said that the defendant had access to the test reports of Uniflex product up and until his dismissal from Uniflex on 25 March 1998. He had visited Uniflex' head office in Melbourne on many occasions. He always had access to test reports which were kept in a little, unlocked bureau in the boardroom. He was involved with the plaintiff's factory manager, Mr McKenzie, and Paul and Michael Sterling in the development of V-Flex which complied with AS 1530.2 and AS 5130.3.

60 Mrs Sterling went on to say in her evidence that she spoke to the defendant regularly regarding company issues and he never asked for any certificates for LP-Flex or complained that he had been unable to get them from Michael Sterling or Paul Sterling. She said that shortly after the defendant's dismissal copy letters were found in the defendant's office that he had sent relating to the various fire test reports for Uniflex products. These letters had not been sent with her knowledge or consent.

61 It is not necessary to review all these letters, but the tenor of them can be gathered from two examples. In a letter dated 22 December 1994 written by the defendant on Uniflex letterhead, the defendant as State Manager of Uniflex advised Combined Technologies that all flexible duct products manufactured by Uniflex and sold in Western Australia comply with the current BCA and fire brigade requirements. Enclosed with the letters were copies of what were said to be the relevant test certificates for both insulated and uninsulated duct that would have been supplied by Uniflex.

62 By letter dated 23 February 1998, on the letterhead of Uniflex, the defendant advised one Chris Musgrave that all insulated and uninsulated flexible duct product supplied by Uniflex achieve not only a 4 zero rating, but comply with the BCA and all applicable appendices and the requirements of the Fire Brigades Board of WA. The defendant went on to say the test certificates were available if required, but the certificates were on file at both Fire Brigade and Perth Council offices.

63 Mrs Sterling spoke also of having seen a copy of a facsimile that the defendant had sent to Shane Emms who was employed as a sales manager at Uniflex' branch office in Adelaide. The fax is dated 7 November 1996 and encloses various test reports.

64 She also obtained an undated copy letter written by the defendant to the Lord Mayor of the City of Perth in which she refers to a test report which was to be enclosed with the letter. The tenor of the letter is that the plaintiff is agreeable to meeting prescribed standards and disapproves of those who are not willing to do so.

65 Mrs Sterling said also that even as State Manager of Uniflex, the defendant did not have access to the financial statements of Uniflex or any information which would provide a basis for his statement to Mr Vuleta that he knew what Uniflex' financial situation was and knew what the business was worth. She confirmed also that no claims have been made against Uniflex in relation to LP-Flex's compliance with AS 1530.2 or AS 1530.3 and at all times Uniflex has maintained a public liability and product liability policy of insurance. Since the defendant's dismissal from his employment with Uniflex, he had not been authorised to make any statements on behalf of Uniflex about its product.

66 She agreed under cross-examination that as to par 14(d) of the Sterling affidavit quoted earlier, the National Building Technology Centre report dated 3 July 1987 related only to the test AS 1530.2 and did not verify her statement in par 14(e) of the affidavit that "the inner core has also passed Australian Standard 1530 Part 3". She went on to say, however, when pressed, that there was a certificate concerning AS 1530.3 and this was eventually identified as the document at page 9 of the agreed bundle which became exhibit 29. She agreed under cross-examination that the words on the document "no post treatments" denoted that it was a test in respect of non-laminated Evolution fabric supplied by Kimberly-Clark. I note in passing that the report dated 3 July 1987 concerning the AS 1530.2 Standard also contains the words "no post treatments" from which it seems to follow that this was in respect of a non-laminated product also.

67 I note also in passing that no objection was taken by counsel for the plaintiff to the admission of these reports, although the authors of the reports were not called to give evidence. Counsel for the defendant said it was his intention at the end of the evidence to submit, in light of the whole of the evidence, that the certificates did not prove that there was a test for LP-Flex as produced by Uniflex within the context of the statements made by the defendant being complained of by the plaintiff.

68 Michael Sterling said in evidence that at no time did he ever state to the defendant that LP-Flex could not meet AS 1530.2 or AS 1530.3 because to say so would have been incorrect. He did, however, have a discussion with the defendant at the managers' conference held at the plaintiff's head office in 1997 about the attempts to have LP-Flex tested as compliant with a different standard AS 4254. He told the defendant that those tests had been unsuccessful. However, he did not state that LP-Flex had failed to pass AS 1530.2 and AS 1530.3.

69 In dealing with the four test reports referred to in par 4 of the Sterling affidavit, Mr Sterling said, as to certificate F793 dated 3 July 1987, that this related to the compliance of Evolution with AS 1530.2. There was a further certificate, E5256, relating to the compliance of Evolution with AS 1530.3.

70 As to certificate 7-447299-CV dated 10 September 1993, this related to the material with the polypropylene extruded coating or lamination used in the manufacture of the inner core of LP-Flex.

71 As to certificate 7-447300-CV dated 10 September 1993, this related to the Dupont manufactured material without polypropylene extruded coating or lamination used in the manufacture of the inner core of Q-Flex.

72 As to certificate 7-447301-CV dated 10 September 1993, this related to the sample of the spun-bonded, non-woven polypropylene material to which the fire retardant had been applied. It was tested to AS 1530.2 and tested compliant, producing a flammability index of 1. The material with the fire retardant was more expensive than the laminated Dupont material. As the laminated Dupont material had tested compliant with AS 1530.2, the material with the fire retardant was never acquired for the purpose of manufacturing the inner core of LP-Flex or for any other purpose.

73 He went on to say that in relation to the Evolution material, literature stating that it had been tested to AS 1530.2 and AS 1530.3 had been provided by the supplier, together with certificates relating to the material that was being supplied to the plaintiff.

74 Under cross-examination, Mr Sterling was referred to a document at page 44 of the agreed bundle, corresponding with the certificate 7-447300-CV, forming part of annexure F to the Sterling affidavit. He agreed that if someone presented the report or certificate to him and said it was a certificate for a product used to manufacture LP-Flex, that would be wrong. It related to the manufacture of Q-Flex.

75 Mr Sterling was then taken to that passage of the Sterling affidavit, being par 14(d) in which Mrs Sterling denied that the inner core of LP-Flex as sold by the plaintiff had failed to pass AS 1530.2 and exhibited certain reports, including the report 7-447300-CV, which was said to corroborate that statement. Mr Sterling agreed under cross-examination that the test certificate 7-447300-CV exhibited to the Sterling affidavit was not a test report for LP-Flex, but was a test report for Q-Flex. When asked whether it would be wrong for the deponent of the affidavit to say it was for LP-Flex, he answered: "I suppose it would be."

76 Mr Sterling agreed under cross-examination that in the period 1993 to 25 March 1998, the plaintiff did sell LP-Flex in Australia for the purpose of conveying air heated by gas as a core product of the plaintiff's business.

77 Mr Sterling agreed under cross-examination that in late 1993, because of supply problems with Dupont, the plaintiff converted to using what is called the Evolution fabric obtained from Kimberly-Clark. The bulk of the inner core used for LP-Flex between late 1993 and mid-1997 was Evolution fabric. He said that Kimberly-Clark supplied the plaintiff with the test reports on the product that was being used for the construction of Q-Flex and LP-Flex. He agreed, however, that there were no test certificates for the Evolution fabric used to construct the inner core of LP-Flex in respect of laminated Kimberly-Clark Evolution fabric.

78 The tenor of Mr Sterling's evidence over a lengthy period of cross-examination, including reference to various documents, was that, as indicated in his evidence-in-chief, the plaintiff acquired the Evolution material from Kimberly-Clark upon the basis that it had been tested to AS 1530.2 and AS 1530.3 with certificates being provided by the supplier to that effect. However, once the Evolution fabric had been received by the plaintiff, it was then laminated by Southcorp Industrial Textiles. Mr Sterling agreed under cross-examination that, to the best of his knowledge, the Evolution fabric material was not submitted for testing after it had been laminated. He denied that he told the defendant this at some point in 1997. Mr Sterling agreed there was a conversation about Australian Standard 4254. His belief was that AS 4254 applied in Western Australia as from July 1997 for commercial buildings. He agreed he told the defendant at a managers' conference at some time 1997 held at the plaintiff's Melbourne office that LP-Flex had not been made compliant with AS 4254. Mr Sterling said in re-examination that prior to July 1999 on his understanding there were no requirements for domestic building so far as AS 4254 was concerned.

79 The plaintiff, by its statement of claim, pleads that by a contract of employment between the plaintiff as employer and the defendant as employee between 1991 and on or about 25 March 1998 the defendant was employed by the plaintiff as the State Manager and Export Manager of the plaintiff's branch office in Bassendean, Western Australia.

80 The plaintiff alleges that it was an implied term of the contract of employment that the defendant would act towards the plaintiff in good faith and, in particular, would not (a) engage in conduct which would destroy the goodwill of the plaintiff and (b) make at any time unauthorised use of or disclose confidential information obtained by him during the course of his employment with the plaintiff. The term is said to be implied by law in that it is reasonable and equitable, necessary to give business efficacy to the contract of employment, so obvious it went without saying, capable of clear expression and did not contradict any express terms of the contract of employment.

81 The plaintiff says further, or in the alternative, that it was at all material times the owner of or otherwise beneficially entitled to deal with certain information of a confidential character relating to the conduct of its business, such information including customer lists and information regarding the testing of the plaintiff's product. It is said the plaintiff communicated the confidential information or parts of it to the defendant who received it well-knowing that it was confidential. It was communicated to him for the sole purpose of enabling the defendant to perform his obligations under the contract of employment.

82 The plaintiff pleads in par 7 that the defendant became, and was at all material times and remains, under a duty of trust and confidence towards the plaintiff in respect of the confidential information and was not entitled to use the same without the prior consent of the plaintiff.

83 The plaintiff in its pleadings refers to some of the events mentioned earlier, including the plaintiff's commencement of legal proceedings against the defendant and the preparation of various affidavits in support of its application for a Mareva injunction.

84 The plaintiff pleads that on or about 24 September 1998, at the premises of Air Conditioning Mart, the defendant stated to Mr Vuleta the words I have called the 24 September words, this being the description used in the pleading also.

85 The plaintiff pleads that on or about 25 September 1998, the defendant stated to Mr Vuleta the words I have called the 25 September words, this being the description used in the pleading also. I note in passing that at the commencement of the trial, the plaintiff was allowed to amend par 15 of its statement of claim in respect of the 25 September words to introduce a plea that the 25 September words included these words: "The test results may not relate to the products that Air Conditioning Mart is purchasing from Uniflex", or words to that effect.

86 The plaintiff's claim in defamation is set out in par 16 and par 17 of the statement of claim and includes the allegation that the 24 and 25 September words have injured and defamed the plaintiff in its reputation and business and trade. The plaintiff is clearly relying upon a cause of action in slander.

87 The manner in which the imputations are pleaded in the circumstances of is important. Accordingly, I set out par 16 of the plaintiff's statement of claim in its entirety as follows:

"16. The 24 September words and the 25 September words were defamatory of the plaintiff in that in their natural and ordinary meaning they meant and would be understood to mean that the plaintiff had been covering up the risk that:

(a) the plaintiff's product did not comply with relevant fire rating standards and/or regulations;

(b) the plaintiff had substituted test reports to give the appearance that its product, which Airconditioning Mart purchased, complied with the relevant fire rating standards and/or regulations when it did not;

(c) there were or were likely to be claims against the plaintiff, due to the alleged non-compliance of its product with the relevant fire rating standards and/or regulations, which would render the plaintiff insolvent."

88 The plaintiff goes on to plead in par 18 that the conduct of the defendant in speaking the words complained of was in breach of his duty under the fiduciary obligations in that information about the extent of and the nature of products being supplied by the plaintiff and as to the testing of the plaintiff's products and as to the plaintiff's financial situation was confidential.

89 The statement of claim also included a plea that the defendant was in breach of his duty under the Corporations Law. I was informed at the commencement of the hearing that the plaintiff would not be proceeding with this aspect of the claim.

90 The plaintiff pleads further in par 20 that further, and in breach of his duty to the Court not to use material produced in evidence in compliance with Court requirements for collateral purposes, on or about 25 September 1998 in conjunction with speaking the 25 September words the defendant handed to Mr Vuleta a copy of page 7 and annexure F to the Sterling affidavit; that is to say, the passages of the affidavit comprising subpars (c) to (g) of par 14 and the four reports comprising annexure F to the affidavit.

91 The plaintiff pleaded further that the defendant threatens and intends, unless restrained by the Court, to make use of affidavits filed in the Mareva injunction proceedings CIV 1541 of 1998 for a purpose other than use in those proceedings, to continue to use the confidential information otherwise than for the purpose for which it was supplied and to engage in conduct which defames the plaintiff.

92 It was made clear to me at the hearing that the plaintiff did not advance any claim in damages for breach of contract or otherwise. It sought only a permanent injunction restraining the defendant, whether by himself, his servants, agents or otherwise, from publishing or republishing to any person except to his solicitors or counsel or under compulsion of law the allegations contained in par 87 of the Hanneybel affidavit sworn 10 July 1998 or any similar allegations and from using any affidavit (and any documents annexed thereto) filed in CIV 1541 of 1998 for any purpose other than those proceedings.

93 The defendant by his amended statement of defence denied that he was liable to the plaintiff in the manner alleged or at all. He said that his employment with the plaintiff was wrongfully terminated by the plaintiff on 25 March 1998. He said further that on or about 25 September 1998 he attended at the premises of Air Conditioning Mart for the purpose of gathering evidence about the plaintiff's conduct for use in the Mareva injunction application. An issue in the Mareva injunction proceedings concerned the fire rating approvals the plaintiff did or did not have for certain of the plaintiff's products. The defendant pleads that he did not have, and had never had access, to the fire rating approvals of the plaintiff.

94 The defendant pleaded further that at the premises of Air Conditioning Mart the defendant asked Mr Vuleta if he could assist in obtaining copies of the plaintiff's fire rating certificates. The defendant sought this information to assist in protecting his rights against the plaintiff.

95 I pause to note, again, that the defendant did not give evidence at the trial and, thus, did not substantiate these assertions.

96 The defendant pleaded in par 8 of its statement of defence that if the defendant did speak the 24 September words or the 25 September words (which is denied), the words and the substance of those words are true.

97 It is important to note in the circumstances of the present case that the plaintiff complains of words spoken by the defendant to Mr Vuleta of Air Conditioning Mart on 24 and 25 September 1998, being the words described by Mr Vuleta in his evidence and subsequently reflected in par 14 and par 15 of the statement of claim as amended. I have already noted that no evidence was adduced by the defendant at the trial to contradict or qualify the account given by Mr Vuleta in his evidence as to what was said and I have therefore made a finding to the effect that the 24 and 25 September words as set out in the pleading were spoken by the defendant.

98 It seems that simultaneously with the communication of the 25 September words to Mr Vuleta the defendant passed to him the extract from the Sterling affidavit. Nonetheless, the plaintiff by its pleading does not place any reliance upon this event or document as a matter which may have had a bearing upon the meaning of the words spoken. Accordingly, as I am only at liberty to deal with the pleaded case placed before me, I must confine myself to looking at the meaning and effect of the 24 and 25 September words as spoken by the defendant.

99 Another consequence of the rule that the plaintiff is confined to the pleaded claim is that I must take account of the way in which the imputations are pleaded in par 16 of the claim. In Gumina v Williams (No 2) (1990) 3 WAR 351, Malcolm CJ noted that the words complained of are material facts and must be pleaded. Further, in his opinion, the pleading of the meaning or meanings of the words complained of is a pleading of material fact or facts.

100 In the present case, although the words complained of contain references to fire rating tests and whether the Uniflex duct may or may not pass or be the subject of test reports, there is no explicit reference, on the face of the words, to Uniflex being involved in the covering up of a risk arising from the situation. Nonetheless, in par 16 of the claim, the plaintiff has pleaded that the words were defamatory of the plaintiff in that in their natural and ordinary meaning they meant and would be understood to mean that the plaintiff "had been covering up the risk" and then follows three distinct propositions. Thus, upon a fair reading of par 16, the notion of "covering up the risk" must be viewed as a preface to each proposition so that, for example, the first of the three imputations pleaded as a material fact by the plaintiff is that the words meant or would be understood to mean that the plaintiff had been covering up the risk that the plaintiff's product did not comply with relevant fire rating standards and/or regulations. In other words, the meaning in issue in each case is not simply whether the words meant that the plaintiff's product did or did not comply or that the plaintiff had taken some step to give the appearance of compliance. The suggestion is that, properly construed, the words meant in regard to each imputation that the plaintiff had been involved in a process of covering up the risk that was referable to the three areas of concern singled out in subpars (a) to (c) of par 16.

101 A defamatory statement may be defined as one which tends to lower a person in the estimation of his fellows by making them think the less of him. Reputation is so stringently protected that liability for publishing defamatory statements attaches without any showing of fault. Liability does not depend on the intention of the defamer, but on the fact of defamation. The law recognises a distinction between libel and slander, the latter being defamation in a spoken form. Actual injury, whether material or to reputation, is not an essential element of actionable libel, but it is only in four cases that slander is now actionable without proof of special damage, such cases being words imputing the commission of a crime, an accusation of unchastity, an imputation of contagious disease or allegations of unfitness for a profession, trade or office. Fleming: The Law of Torts (9th ed) pp 581 to 607.

102 The gist of the torts of libel and slander is the publication of words conveying a defamatory imputation. In determining whether words are defamatory, there are two stages, first to decide what they mean, and then to decide whether that meaning is defamatory. An imputation need have no actual effect on a person's reputation. The law looks only to its tendency, so there is a cause of action even if the words were not believed by the audience. A true imputation may still be defamatory, although its truth may be a defence to an action brought on it. Gatley on Libel and Slander (9th ed) par 2.1.

103 In addition to determining what the words mean, an issue will often arise as to whether the pleaded imputations can be said to arise from the words complained of. If so, the next question will be whether the words complained of are capable of conveying a meaning defamatory of the plaintiff. That is a matter for the trial Judge. If the words are held to be capable of bearing a defamatory meaning, the jury must then determine whether the words were defamatory in fact.

104 The nature of this process was described in Potts v Moran (1976) 16 SASR 284 by Bray CJ at 301, where he pointed out that if an action is tried by a jury, it is for the Judge to decide whether the words are capable of a defamatory meaning. If he decides they are not, there is no case to go to the jury. If he decides they are, it is for the jury to decide what their actual meaning is and whether that meaning is defamatory. In this situation, it follows that the task of the Judge in deciding whether the words are capable of bearing a defamatory meaning must logically precede the task of the jury. However, when the Judge decides both issues of law and issues of fact, he can approach the problems before him in whatever order he finds convenient. If he chooses to find first what the actual meaning of the words is and then whether that meaning is defamatory, he is at liberty to do so and then there will be no need for him to canvass the possible defamatory nature of other possible meanings of the words.

105 The courts treat the meaning of words in this context as a question of construction and not of evidence, with the result that the plaintiff does not have to call witnesses to prove what they understood by the words. The Court decides the natural and ordinary meaning of the words as a question of fact by attributing to the words the meaning which the Court considers that they would convey to ordinary, reasonable persons. The meaning of the words will include any inference or implication which would reasonably be drawn by ordinary people using their general knowledge and commonsense. Duncan and Neill on Defamation (2nd ed) par 4.04.

106 In deciding whether or not words are capable of conveying an allegedly defamatory meaning, the Court will reject those meanings which can only emerge as the product of some strained or forced or utterly unreasonable interpretation and will assume that the ordinary reader is a person of fair, average intelligence who does not live in an ivory tower, who is not unusually suspicious or naive or avid for scandal and who is not inhibited by strict rules of construction.

107 An imputation should represent the final distillation of the alleged defamatory meaning. The Judge must rule whether the words are capable of bearing each of the defamatory meanings, if there be more than one, put forward by the plaintiff, whether expressly pleaded or not, if such meaning is alleged to be inferred from the natural and ordinary meaning of the words. Where no innuendo is pleaded, it is not essential for the plaintiff to plead what he says are the implied meanings of the words, although he is at liberty to do so provided he makes it clear that he is not relying upon a true innuendo which gives a separate cause of action: Lewis v Daily Telegraph Ltd [1964] AC 234; Sungravure Pty Ltd v Middle East Airlines Airliban SAL [1975] HCA 6; (1975) 134 CLR 1 at 15.

108 Principles of this kind were drawn together by the Privy Council in Jones v Skelton [1963] SR (NSW) 644 at 650. The Privy Council said that if the Court concludes that the words complained of are capable of conveying a defamatory meaning, then it is a question for the jury to decide as to whether the words do, in fact, convey a defamatory meaning. In deciding the first question, the Court will reject those meanings which can only emerge as the product of some strained or forced or utterly unreasonable interpretation. The test is whether, under the circumstances in which the defamation was published, reasonable men to whom the publication was made would be likely to understand it in a libellous sense. The ordinary and natural meaning of words may be either the literal meaning or it may be an implied or inferred or an indirect meaning. Any meaning that does not require the support of extrinsic facts passing beyond general knowledge, but is a meaning which is capable of being detected in the language used can be part of the ordinary and natural meaning of words.

109 The natural and ordinary meaning of words includes not only inferences and conclusions which the ordinary man draws from the words used, but also includes a certain amount of loose thinking, for the ordinary reader does not formulate reasons in his own mind, but gets a general impression: Mirror Newspapers Ltd v World Hosts Pty Ltd [1979] HCA 3; (1979) 141 CLR 632 at 641.

110 Gatley (supra) notes at par 4.3 that words which impute to the plaintiff the commission of a crime for which a person may be made to suffer by way of punishment are actionable without proof of damage. There is some doubt whether it is actionable, per se, to impute to a corporation a crime for which an individual could be imprisoned, although in D & L Caterers & Anor v D'Ajou [1945] KB 210 Stable J decided that it was. The Court of Appeal subsequently reserved the point.

111 The learned author goes on to say that the crime imputed need not be indictable, but if the offence imputed be punishable by fine only, the words are not actionable per se. The exact offence need not be specified. Words involving a general charge of criminality will suffice. Words which merely impute an intention or inclination to commit a crime are not actionable without proof of special damage, for a criminal intention does not amount to a crime. Words which do not definitely charge a crime, but impute a mere suspicion that the plaintiff has committed a crime, or has been charged with a crime, are not actionable without proof of special damage.

112 The decided cases indicate that a special care should be exercised where the words complained of concern inquiries or suspicion. In Mirror Newspapers Ltd v Harrison [1982] HCA 50; (1982) 149 CLR 293, Mason J noted, at 300, that there is now a strong current of authority supporting the view that a report which does no more than state that a person has been arrested and has been charged with a criminal offence is incapable of bearing the imputation that he is guilty or probably guilty of that offence, for the ordinary, reasonable reader is mindful of the principle that a person charged with a crime is presumed innocent until it is proved that he is guilty.

113 In Lewis v Daily Telegraph Ltd (supra), Lord Devlin indicated, at 285, that it is not correct to say as a matter of law that a statement of suspicion imputes guilt. It can be said as a matter of practice that it very often does so, because although suspicion of guilt is something different from proof of guilt, it is the broad impression conveyed by the libel that has to be considered and not the meaning of each words under analysis. A statement that an inquiry is on foot may convey the impression that there are grounds for the inquiry, that is, that there is something to suspect.

114 The law presumes that defamatory words are false and the plaintiff need do no more than prove that defamatory words have been published of him by the defendant. It is open by way of defence to plead that the words are true in substance and in fact. However, in order to succeed in a defence of justification, it is necessary for the defendant to prove the truth of the words complained of not only in their literal meaning, but also in such inferential meanings as the jury may find the words to bear: Duncan and Neill (supra) par 11.05.

115 The plea of justification will succeed if the defendant proves the sting or substance of the defamatory words is true. The standard of proof is the civil standard on the balance of probabilities. This is so even where the defamatory words and the plea of justification allege the commission of a criminal offence. But the gravity of the issue becomes part of the circumstances which the Court has to take into consideration in deciding whether or not the burden of proof has been discharged. The more serious the allegation, the more cogent is the evidence required to overcome the unlikelihood of what is alleged and thus to prove it. Gatley (supra) par 33.10.

116 When one applies these principles to the circumstances of the present case, it is immediately apparent that the plaintiff is advancing a claim in slander and must therefore establish that special damage has been suffered unless the case can be brought within one of the four categories where slander is actionable per se, that is to say, without proof of special damage. The plaintiff did not adduce any evidence of special damage and it therefore seems that the plaintiff seeks to persuade the Court that the words impute to the plaintiff the commission of a crime or criminal conduct. I will return to this aspect of the matter once I have undertaken a more detailed analysis of the meaning of the words. For the time being, I will assume, without deciding, that a company such as the plaintiff can rely on this category of slander, notwithstanding that the question was left open in D & L Caterers & Anor v D'Ajou (supra). Also see Fleming (supra) at 605.

117 The evidence in the present case suggests that, although Mr Vuleta was concerned by what the defendant said, he did not necessary believe the defendant's accusations and it is therefore questionable whether the reputation of the plaintiff was actually damaged by what was said. It follows from earlier discussion, however, that it is not material to know whether the defendant intended to strike at the plaintiff's reputation or whether Mr Vuleta was actually affected by what was said. The Court decides the natural and ordinary meaning of the words by attributing to the words the meaning which the Court considers that they would convey to ordinary, reasonable persons. Consideration must also be given to whether the pleaded imputations can be said to arise from the words complained of.

118 I have already noted that the pleading of the meanings to be attributed to the words is the pleading of a material fact. Accordingly, having regard to the way in which the claim is pleaded, it is not necessary for me to look at the 24 and 25 September words separately. The three discrete imputations contended for by the plaintiff are set out in par 16 of the claim and are said to arise from the totality of words used by the defendant on 24 and 25 September. I have already noted that the concept of covering up the risk appears to preface each of the three discrete propositions.

119 The imputation pleaded in par 16(a) is that the words meant or would be understood to mean that the plaintiff had been covering up the risk that the plaintiff's product did not comply with relevant fire rating standards and/or regulations.

120 If this imputation can be said to arise from the whole of the said words, then I consider that such an imputation is capable in law of conveying a meaning defamatory of the plaintiff because such an imputation would convey to ordinary, reasonable persons that the plaintiff was not only marketing dubious products, but also lacked integrity in that it was attempting to conceal the true position. I have to say, however, that I am not persuaded that a pleaded imputation of this kind can be said to arise from the words in question. The words used do not make any explicit mention of the plaintiff being involved in a cover-up or concealment. The only words possibly bearing upon that aspect of the matter is the defendant's assertion that he had been trying to get the test reports, but without success. To my mind, even as a matter of loose impression, I am not persuaded the ordinary, reasonable person would assume from this that the plaintiff was acting in a clandestine manner. The ordinary person could equally conclude that the reports were in another State or not available for some other reason or that the defendant had not been trying hard enough to get them.

121 Further, the sentences actually spoken by the defendant consistently used the word "may" and it is therefore difficult to transform an assertion expressed in that way into a declarative utterance of the kind reflected in the pleaded imputation that the plaintiff's product "did not comply" with relevant fire rating standards.

122 In other words, in both these respects, it seems to me that the pleaded imputation goes beyond the words actually used and it therefore becomes difficult for the plaintiff to persuade the Court that the imputation complained of was, in fact, defamatory of the plaintiff. To my mind, the words actually used would convey to the ordinary, reasonable person in the context in which the discussion took place that the plaintiff's product may or may not comply.

123 In regard to what is clearly a rather technical matter, it seems to me that even making some allowance for matters of inference and loose impression, the statements made by the defendant would not tend to lower the plaintiff in the estimation of his fellows because once the notion of covering up is removed from the equation, as I believe it should be, one is simply left with a rather equivocal assertion that a certain product may or may not conform to the required standard. To a mind not avid for scandal, in the context in which the words were uttered, this would not adversely affect the plaintiff's standing.

124 I recognise, of course, that the words used might be more potent if presented in a different context. For example, if the suggestion that the plaintiff's product may or may not comply with safety standards appeared on placards hoisted aloft by demonstrators in a picket line on a pavement outside the plaintiff's premises, the assertion would obviously be likely to have a damaging effect. In the actual circumstances of the present case, however, the words were used in the context of a private discussion with a customer who was likely to have some understanding that conformity to prescribed standards could be a complex and rather technical issue.

125 Accordingly, I do not consider that the first imputation, being the imputation pleaded in par 16(a), is defamatory of the plaintiff. This makes it unnecessary for me to determine whether the words complained of can be regarded as a slander actionable per se. However, if I be wrong in the view I have just expressed concerning the meaning of the words complained of, I consider that even on the plaintiff's pleaded case the words do not amount to an imputation that the plaintiff is liable for criminal conduct. The imputation speaks only of the covering up of "the risk" that the plaintiff's product did not comply and this is not sufficiently specific to constitute an allegation of actual criminal conduct likely to result in punishment. For this reason also, I find that the defendant is not liable to the plaintiff.

126 Similar considerations govern my approach to the second imputation pleaded in par 16(b). When the prefatory words are brought into play, the pleaded imputation is that the words meant that the plaintiff had been covering up the risk that it had substituted test reports to give the appearance that its product complied with the relevant fire rating standards and/or regulations when it did not. Again, I cannot find in the words actually used sufficient indicia of the plaintiff having allegedly acted in some clandestine or surreptitious manner amounting to the substitution of test reports or the covering up of the alleged risk.

127 To my mind, in using the word "risk", the pleader is recognising that the words used by the defendant do not add up to a straightforward assertion that there had been a lack of compliance, but, rather, reflect a more equivocal assertion that a certain state of affairs may or may not be so. I consider that in the context of a private conversation between two knowledgable individuals about the product in question, a somewhat equivocal assertion is not likely to have impacted upon the ordinary, reasonable person in a defamatory manner. I find further that, in any event, for the reasons previously given, I am not satisfied that a slander of the kind reflected in this imputation is actionable without proof of specific damage.

128 Properly construed, par 16(c) is a plea that the words in their natural and ordinary meaning meant that the plaintiff had been covering up the risk that there were or were likely to be claims against the plaintiff due to the alleged non-compliance of the product with the relevant fire rating standards which would render the plaintiff insolvent.

129 Again, I am not persuaded that the imputation pleaded can be said to arise from the words used. When I seek to determine whether the words used in fact conveyed a meaning defamatory of the plaintiff, I am not persuaded that the ordinary, reasonable reader would understand them in a defamatory sense. To my mind, the words used, considered in their entirety, amounted to a rather equivocal assertion that the plaintiff's products may or may not comply with the prescribed standards and if the latter turned out to be the case, then there was a possibility that those who used the plaintiff's products would be involved in sizeable replacement work. A mind avid for scandal might arguably be affected by fearmongering of this kind. However, in my view, having regard to the context in which the words were uttered, the ordinary, reasonable person would simply be left with an impression that further inquiries would have to be made as to whether the products complied with prescribed standards or not.

130 Even if it be held that the imputation pleaded in par 16(c) of the claim can be said to arise from the words complained of and is defamatory, for the reasons previously given, I am not persuaded that the plaintiff is entitled to relief in respect of the slander relied on without proof of special damage. This imputation appears to be concerned with consequences in civil law rather than amounting to an allegation of criminal conduct. Accordingly, I am not persuaded that it falls within one of the four categories whereby slander is actionable without proof of special damage.

131 For the sake of completeness, it is desirable that I look at the defence of justification relied upon by the defendant. In doing so, I will assume, in this context, that the three imputations relied upon by the plaintiff do arise from the words complained of and were defamatory of the plaintiff in that each imputation would lower the plaintiff in the estimation of the community and deter third parties from associating or dealing with the plaintiff in the course of its business. I have already noted in the course of my review of the relevant principles that the defendant bears the burden of satisfying the Court upon the balance of probabilities that each of the three pleaded imputations made of and concerning the plaintiff were true.

132 It becomes a central issue in regard to each imputation as to whether the plaintiff's product did in fact comply with the prescribed standards and, if not, whether the plaintiff, being aware of that state of affairs, had taken steps to cover up or conceal the true situation. In my view, the notion of covering up denotes that the plaintiff is aware of the true situation and is consciously taking steps to ensure that the true situation is not apparent to others.

133 The form of the pleading seems to require that the defendant need not positively establish that there was a lack of compliance, but only a risk or possibility that the plaintiff had not complied with the prescribed standards. It is true that in the course of cross-examination, counsel for the defendant made some progress in bringing to light various ambiguities and insufficiencies about the nature and applicability of the test reports in the plaintiff's possession. One has to keep in mind, however, that the imputations complained of are not confined to the installation of the plaintiff's product during a specified period. To my mind, it is not decisive that an assertion made by the deponent in the Sterling affidavit is questionable, because the affidavit was being used for a limited purpose.

134 The evidence before me showed that there had been a range of products constituted in various ways over a lengthy period. In the absence of expert evidence directed to the issue of compliance in respect of the various products, I consider that the evidence brought before me was simply inconclusive as to whether there was a lack of compliance or a risk of such a determination being made. In the absence of expert evidence adduced by the defendant, the Court was not provided with any clear or reliable guidance as to the proper application of the various codes and standards. This was especially important in the context of a case where the plaintiff's products were made up of different constituents from time to time.

135 Further, and in any event, the evidence was not sufficient to allow an inference to be drawn that the plaintiff was aware of the true situation and had attempted to cover up or conceal the true situation. The evidence of Michael Sterling suggested that the plaintiff believed it was in a state of compliance and even as to those products in which test reports did not exist that did not necessarily mean that there had been a failure to comply.

136 Counsel for the defendant seemed to assume that if the statements made by Elizabeth Sterling at par 14 of the Sterling affidavit were shown to be incorrect or questionable in suggesting that LP-Flex had passed the necessary tests, then it must follow that the plaintiff's product did not comply. With respect, this is not necessarily so. It could be that the plaintiff's products did comply, and, upon a thorough search, certificates were available. However, in the haste of preparing an affidavit at short notice for use in the Mareva injunction proceedings, Elizabeth Sterling, who did not claim to be an expert in such matters, had oversimplified or inadvertently misrepresented the position.

137 It is true that the cross-examination of Michael Sterling, to some extent, weighs against such a view of the matter. To my mind, however, the admissions against interest obtained from Michael Sterling under cross-examination were not sufficient to discharge the burden placed upon the defendant of proving affirmatively that the plaintiff's product did not comply and that the plaintiff was covering up the fact and/or the risk of non-compliance.

138 Put shortly, as to this issue, I consider that in the absence of expert evidence as to the true state of affairs concerning the question of compliance, and in the absence of clear evidence as to what was the plaintiff's state of knowledge, the evidence as a whole was simply inconclusive. It follows from such a view of the matter that the defendant failed to discharge the burden of persuading the Court on the balance of probabilities that the imputations in question were true or substantially true.

139 In summary, then, I am not prepared to uphold the plaintiff's claim in defamation on the grounds that the words complained of did not give rise to the imputations contended for by the plaintiff and were not defamatory. If (contrary to this finding) they were defamatory, they were not actionable as slander. In light of these findings, there is no need for me, in strict analysis, to rule upon the defendant's plea of justification, but if I were obliged to do so, I would rule against the defendant.

140 I have already noted that in addition to its claim in defamation, the plaintiff advanced a claim in breach of duty that was expressed in par 20 of the statement of claim in these terms: that in breach of his duty to this Honourable Court not to use material produced in evidence in compliance with Court requirements for collateral purposes, on or about 25 September 1998 in conjunction with speaking the 25 September words the defendant handed to Mr Vuleta a copy of page 7 of and annexure F to the Sterling affidavit.

141 The plaintiff relies upon the rule that, in relation to documents produced by one party to another in the course of discovery in proceedings in a court, there is an implied undertaking, springing from the nature of discovery, by each party not to use any document disclosed for any purpose otherwise than in relation to the litigation in which it is disclosed. Esso Australia Resources Ltd v Plowman (1995) 183 CLR 10 at 32.

142 It is important, however, in applying that rule to the circumstances of the present case, to understand the rationale of the rule. It will therefore be useful to look briefly at a number of previously decided cases bearing upon that aspect of the matter. It is important to notice also that in referring to material produced in compliance with Court requirements being used for collateral purposes rather than to documents produced in the course of discovery, the plaintiff has couched its plea in terms wider than that allowed for in the Esso case and related cases. The evidence before me indicates that the plaintiff was not required to produce the relevant documents (that is to say a copy of page 7 of the Sterling affidavit and related annexure) in the course of discovery, but, rather, the documents were brought before the Court by the plaintiff voluntarily, as it sought to justify its claim to a Mareva injunction.

143 In Distillers Co Ltd v Times Newspapers Ltd [1974] 3 WLR 728, Talbot J noted that those who disclose documents on discovery were entitled to the court's protection against any use of the documents otherwise than in the action in which they were disclosed. He noted that the process of discovery was acknowledged by the courts to be an invasion of a private right to keep one's documents to oneself and, thus, the jurisdiction to restrain publication was based not so much on property or on contract as on the duty to be of good faith. No person is permitted to divulge to the world information which he has received in confidence, unless he has just cause or excuse for doing so. Further, if discovery were to result in documents becoming public, the process of discovery would be in danger.

144 In Harman v Home Department State Secretary [1983] 1 AC 280, the House of Lords held that a solicitor who, in the course of discovery in litigation, obtained possession of copies of documents belonging to his client's adversary gave an implied undertaking to the Court not to use the copies, nor to allow them to be used, for any purpose other than the proper conduct of the action on behalf of his client. The fact that such documents were read out in open court at the hearing of the action, whether admitted in evidence or not, did not bring that implied undertaking to an end, and breach of it was a civil contempt of court.

145 One notices in that case, however, a powerful dissenting judgment by Lord Scarman. He observed that a balance has to be struck between the protection of a litigant's private right to keep his documents to himself, notwithstanding his duty to disclose them to the other side in the litigation, and the right to speak freely about matters of public knowledge. In his view, the obligation of confidentiality in respect of discovered documents applies only so long as the documents themselves are private and confidential.

146 Accordingly, in Lord Scarman's view, the undertaking of the litigant and his solicitor not to use documents disclosed to them on discovery for any purpose other than the action does not apply to the documents once they have been produced and read out, in whole or in part, in the course of a public trial. Whether they be held to be admissible or inadmissible as evidence is immaterial: what matters is whether they have been made part of the proceedings of a public trial. Thus, Lord Scarman said at 319 that documents accepted and marked as exhibits by the court, whether read aloud or not, become, on being exhibited, part of the public record, losing their confidentiality and losing the protection of the undertaking.

147 In Hamersley Iron Pty Ltd v Lovell (1998) 19 WAR 316, the Full Court in this State affirmed the basic rule enunciated by the High Court in the Esso case. The Full Court went on to say it was unnecessary to decide whether the implied undertaking terminated upon the use of the discovered documents in open court during the course of an application for leave to adduce fresh evidence. At most, the implied undertaking would only terminate if the discovered documents were tendered and properly admissible in evidence. In that case, when the discovered documents were published, they had not been held to be admissible (and were subsequently held to be inadmissible) and therefore the implied undertaking had not been terminated.

148 It is apparent from these cases that the rationale of the rule is referable to the fact that the discovery process represents an interference with a private right of confidentiality. In the present case, however, the document in question and the information reflected in the document was not brought to light as a consequence of the requirements of the Court concerning discovery. Shortly after the plaintiff commenced the Mareva injunction proceedings, affidavits were brought into existence on both sides bearing upon the application for an injunction. The plaintiff was not compelled to produce the information and exhibits comprising the Sterling affidavit (especially page 7) as part of a process of discovery. The information and related exhibits were put up by the plaintiff voluntarily in support of a case that was to be argued in open court.

149 It is true that White J expressed some reservations about the admissibility of some of the affidavit material before him as to the issue of whether tests had been complied with. Having regard to the reasoning of the Full Court in the Hamersley Iron case, this consideration might have been important if the information and related exhibits were confidential materials that had been brought before the Court only as a result of the formal discovery process. It is apparent, however, that what might otherwise have been regarded as confidential material had been exposed to view by the plaintiff itself for use in open court. Accordingly, in my view, consistently with the reasoning of Lord Scarman, the rule concerning the implied undertaking not to disclose documents does not apply to the circumstances of the present case.

150 I find support for this view of the matter in the reasoning of Mason J in the Esso case. Having enunciated the basic rule concerning documents produced in the course of discovery, he went on to say at 32 that the implied undertaking not to use discovered documents for any collateral purpose is subject to the qualification that once material is adduced in evidence in court proceedings, it becomes part of the public domain, unless the Court restrains publication of it. This led him to the conclusion in the circumstances of that case that a party who enters into an arbitration agreement is not taken merely on that account to have contracted to keep absolutely confidential all documents produced and information disclosed to that party by another party in the arbitration. He said at 33 that "the obligation of confidentiality attaches only in relation to documents which are produced by a party compulsorily pursuant to a direction by the arbitrator".

151 During the course of argument, I was referred to a recent decision of this Court in Temwood Holdings Pty Ltd v Oliver [1999] WASC 212. One finds in that case at par 13 the rule in the Esso case being cited with approval. Nonetheless, the Court in Temwood was concerned with documents that had come to light as a result of the discovery process and the decision therefore does not bear directly upon the circumstances of the present case where the plaintiff, Uniflex, was responsible for placing the materials before the Court of its own volition.

152 I must now apply these considerations to the circumstances of the present case.

153 In the absence of any evidence to the contrary from the defendant, I find that the defendant did give to Mr Vuleta a copy of page 7 and annexure F of the Sterling affidavit on 25 September 1998. I will accept that at this time, shortly after the ruling made by White J, it was open to the defendant to investigate the question whether the undertaking as to damages given by the plaintiff was sufficient, and it is therefore conceivable that the extract from the Sterling affidavit was handed over in this context. However, in the absence of any evidence from the defendant himself to this effect, I am not satisfied that this was the defendant's purpose in handing-over the material. I am simply left with the evidence that in the context of making some adverse observations about the plaintiff's past practices, the defendant handed over the materials in question.

154 Against this background, I am satisfied by the evidence adduced by the plaintiff, and so find, that the materials were handed to Mr Vuleta for a purpose that was not in relation to the litigation in which the materials had been disclosed. If the materials had come to light as a result of a formal process of discovery, then it could be said that the defendant was acting in breach of an implied undertaking not to disclose documents made available on discovery, with the result that, pursuant to the rule enunciated in the Esso case, the plaintiff would be entitled to obtain relief.

155 It follows from earlier discussion, however, that, in my view, in the circumstances of the present case, the Esso rule does not apply because the documents were not brought forward in the course of discovery, with the result that the implied undertaking cannot be said to exist. My ruling is, of course, confined to the extract from the Sterling affidavit and related exhibits actually handed over by the defendant. My ruling does not apply to the Hanneybel and Sterling affidavits generally; nor does it purport to address any issue as to what use can be made of documents brought before the Court as a result of discovery. Put shortly, my view is that the relevant documents in the present case, not having been brought before the Court as a result of discovery, do not fall within the scope of the Esso rule relied upon by the plaintiff. As I have not been referred to any other procedural rule that might justify the grant of relief, I am obliged to find against the plaintiff in regard to this cause of action.

156 Accordingly, I find against the plaintiff as to this cause of action.

157 The plaintiff has pleaded that it was an implied term of the contract of employment that the defendant would act towards the plaintiff in good faith and, in particular, would not (a) engage in conduct which would destroy the goodwill of the plaintiff and (b) make at any time unauthorised use of or disclose confidential information obtained by him during the course of his employment with the plaintiff.

158 The High Court has observed that for a term to be implied, the following conditions (which may overlap) must be satisfied, that is to say, first, it must be reasonable and equitable, second, it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it, third, it must be so obvious that it goes without saying, fourth, it must be capable of clear expression and, fifth, it must not contradict any express term of the contract. BP Refinery (Westernport) Pty Ltd v Shire of Hastings [1977] HCA 40; (1977) 16 ALR 363 at 365.

159 It is a general rule applicable to every contract that each party agrees, by implication, to do all such things as are necessary on his part to enable the other party to have the benefit of the contract. The plaintiff submits that the common law attaches to the employment relationship a range of duties which can be seen as necessary incidents of the duty of obedience/co-operation. These may conveniently be subsumed under the general heading of "fidelity". They include rendering faithful service to the employer, refraining from wilfully damaging the employer's interests, and respecting the confidentiality of certain categories of information acquired in the course of the employment relationship. See Creighton, Ford and Mitchell: Labour Law (2nd ed) ch 8 par 8.1.

160 The rights and duties normally implied in a contract of employment are reviewed in Chitty on Contracts (26th ed) vol II: Specific Contracts at par 3898 to par 3905. The employee is obliged to serve the employer with fidelity and in good faith. He must not disclose or make public any professional or trade secret or confidential information which he learns by reason of his employment. He impliedly undertakes that he will not use to the detriment of his employer any information which he has obtained in confidence in the course of his employment. The employee can be restrained by injunction from publishing or using any such information. The duty not to disclose confidential information becomes confined, once the employee's employment has ceased, to be a duty not to disclose the employer's trade secrets, and cannot be more widely invoked to place fetters on the ability of ex-employees to compete: Faccenda Chicken Ltd v Fowler [1987] 1 Ch 117.

161 The general rule is that where a term creates a substantive contractual duty, the term cannot be enforced after termination. There may, however, exceptionally, be substantive terms intended by the parties to operate after termination. Examples include restraint clauses in employment contracts and terms prohibiting disclosure by an employee of confidential information. If the parties have expressed an intention that a term is to be enforced notwithstanding termination, or if such a term can be implied, the term can be enforced by way of an injunction: Carter: Breach of Contract (2nd ed) par 1227 and par 1228

162 In Green & Clara Pty Ltd v Bestobell Industries Pty Ltd [1982] WAR 1, the respondent was a supplier of a special type of ceiling. The first appellant managed the respondent's business and while still acting in that capacity acquired a shelf company and submitted a tender for the installation of ceilings in respect of a certain project for which the respondent was also minded to tender. The Full Court in this State held that while the first appellant was manager of the respondent's business a fiduciary relationship existed between him and the respondent, with the result that he was under an obligation not to place himself in a situation where his duty to the respondent and his own interest might possibly conflict. He was therefore obliged to account to the respondent for the benefit of the contract. The Court also held that the obligation to account survived the termination of the relationship out of which it arose and it was irrelevant that the benefits of the contract would not be derived by the appellant until after he had left the employment of the respondent.

163 The case was principally concerned with the nature of the equitable obligations to which a fiduciary was subject. Nonetheless, the reasoning in the case, and especially the reasoning of Kennedy J at 16, suggests that a contract of employment with a manager brought with it an obligation in respect of trade secrets and the confidentiality of customer lists.

164 I am persuaded by these authorities that the implied terms contended for by the plaintiff in the circumstances of the present case should be regarded as terms of the subject contract of employment and that the obligation of confidentiality survived and could be enforced by the plaintiff after termination of the contract.

165 One finds support for this in Faccenda Chicken Ltd v Fowler (supra). In that case, the first defendant was employed as a sales manager and knew the names and addresses of customers in the sector for which he was responsible. The Court of Appeal held that in the absence of express terms, an employee was bound by his implied duty of good faith to his employer not to use or disclose for the duration of his employment confidential information gained in the course of the employment, and was, furthermore, bound by an implied term of his contract of employment not to use or disclose, either during his employment or thereafter, information which was not merely confidential, but which was properly to be described as a trade secret. The Court went on to hold, however, that, in the circumstances of that particular case, neither the sales information nor the information relating to prices amounted to a trade secret and employees were at liberty to use and disclose the information once they had left the plaintiff's employment.

166 The Court said in the course of its reasoning that, in order to determine whether any particular item of confidential information falls within the implied term so as to prevent its use of disclosure by an employee after his employment has ceased, it is necessary to consider all the circumstances of the case. The attitude of the employer towards the information provides evidence which may assist in determining whether or not the information can be regarded as being in the nature of a trade secret. It is significant that, in the circumstances of the present case, as appears from the evidence of Mr Sterling, the plaintiff was conscious of the need for compliance with the Building Code and was obliged to review the constituents of the product from time to time, with a view to achieving compliance. It seems that the information bearing upon compliance was restricted to senior management.

167 The plaintiff submits in the present case that, by reason of the implied term, the defendant was not entitled to set about a course of conduct designed specifically to damage the plaintiff. The plaintiff's case was that the defendant's activities in making the assertions he did, as reflected in the 24 and 25 September words, were undertaken with the intention of damaging the goodwill of the plaintiff's business and represented a disclosure of confidential information in the nature of a trade secret. Counsel for the plaintiff argued that the defendant's conduct in speaking the September words and handing to Mr Vuleta the extract from the Sterling affidavit had to be considered in the context of earlier events, including the defendant's previous assertions in par 87 of the Hanneybel affidavit in which he had arguably set out to damage the plaintiff by referring to a prospective lack of solvency due to the plaintiff's alleged non-compliance with safety standards.

168 It follows from earlier discussion that, in the absence of any evidence to the contrary adduced by the defendant, I am obliged to find that the defendant spoke the 24 and 25 September words. In my view, those words presented to Mr Vuleta information that was adverse to the conduct of the plaintiff's business. I have already noted, in regard to the breach of duty issue, that the handing-over of the documents should not be characterised as the breach of an implied undertaking as to confidentiality within the narrow limits of the Esso rule, because these were documents that had been placed before the Court not pursuant to a process of discovery, but by the plaintiff itself. My observations in that regard, however, were confined to the documents and to the operation of a particular procedural rule.

169 When one has regard to the information conveyed by the spoken words, I conclude that the words, although not defamatory for the reasons previously given, were, and were intended to be, damaging to the plaintiff. When the words and documents are viewed together, I consider that the defendant acted in breach of his obligations under the contract. The effect of the defendant's actions was to divulge confidential information to one of the plaintiff's major customers concerning an alleged lack of compliance with safety standards. In this case, unlike the use of customer lists in the Faccenda Chicken case (supra), the information was in the nature of a trade secret because it was directed to a technical issue of some complexity and was information which would otherwise have remained confidential to the plaintiff. The defendant's actions may not have amounted to a breach of the procedural rule, but, in the absence of any evidence that the defendant was acting in good faith, I am satisfied that he acted in breach of his obligations under the contract. These were obligations which survived the termination of his employment.

170 Accordingly, I conclude that the plaintiff is entitled to relief in respect of the defendant's breach of contract. I am satisfied that in speaking to Mr Vuleta, the defendant indicated that he would speak to other customers in a similar manner. Accordingly, in my view, there is a sufficient basis in the threat of repetition for the plaintiff to obtain restraining orders of the kind proposed.

171 I have already indicated that the relief sought by the plaintiff is by way of a permanent injunction to restrain the defendant from publishing or republishing to any person the allegations contained in par 87 of the affidavit sworn by the defendant on 10 July 1998 or any similar allegations. I will hear from the parties as to the form of this and other orders.