FEDERAL COURT OF AUSTRALIA

Optus Networks Pty Ltd (ACN 008 570 330) v Telstra Corporation Ltd (ACN 051 775 556) [2010] FCAFC 21

THE COURT ORDERS THAT:

1.                   The appellant have leave to appeal from paragraph 3 of the orders of the primary judge made 4 September 2009 insofar as its claim in equity was thereby dismissed.

2.                  The appeal be allowed.

3.                  In lieu of that part of paragraph 3 of the said orders by which the appellant’s claim in equity was dismissed, there be judgment for the appellant on its claim in paragraphs 77 and 78 of the Fifth Consolidated Amended Statement of Claim.

4.                  The matter be remitted to the primary judge for disposition together with the remaining unresolved issues in the proceeding.

5.                  The respondent pay the appellant’s costs of the application for leave, the appeal and of the proceedings before the primary judge on 7, 8 and 10 October 2008.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using Federal Law Search on the Court’s website.

REASONS FOR JUDGMENT

BACKGROUND

1                     The appellant (Optus) and the respondent (Telstra) are engaged in the provision of telecommunications services. Each maintains and operates a telecommunications network for the purpose of carrying telephone calls and other kinds of telecommunications traffic. The networks are, or were at the relevant time, interconnected in accordance with Schedule 1 to the Telecommunications Act 1997 (Cth), which provides the regulatory framework for the provision of such services. The interconnection permits the carriage of telecommunications traffic generated by customers of one party on the other party’s network.

2                     The terms and conditions upon which the telecommunications networks of Optus and Telstra are interconnected are set out in an agreement dated 14 August 1992 as amended from time to time (Access Agreement). The parties are Telstra, Optus and an Optus subsidiary.

3                     When the telecommunications networks of two carriers are interconnected, and telecommunications traffic generated by customers of one carrier passes across the network operated by the other carrier, the latter has access to certain information relating to that telecommunications traffic. This includes information about the quantity, source, destination, duration, time of occurrence and kind of the telecommunications traffic, as well as the value of the telecommunications traffic whether in terms of its aggregate billing value or individual customer billing details and value (traffic information).

4                     At first instance Optus alleged that, at least since 1995 and until at least September 2003, Telstra had used Optus’ traffic information for marketing, promotional and related purposes without the knowledge and consent of Optus by the preparation and use of weekly reports containing information as to Telstra’s market share in the STD and IDD segments of the Australian telecommunications market (market share reports).

5                     Optus alleged that Telstra’s conduct in using Optus’ traffic information and in preparing and using the market share reports involved:

(a)           breaches of the provisions of the Access Agreement restricting the use of “Confidential Information” as defined therein;

(b)          breach of the duty of confidentiality owed by Telstra to Optus; and

(c)           unconscionable conduct in breach of s 51AA of the Trade Practices Act 1974 (Cth).

6                     The primary judge ordered that issues be reserved for separate and later determination pursuant to O 29 r 2 of the Federal Court Rules. The issues reserved related to Optus’ entitlement to injunctive and pecuniary relief and the quantum of any such pecuniary relief, including the extent of Telstra’s use of confidential information by the preparation and distribution of market share reports to officers of Telstra in the relevant years.

7                     The hearing before the primary judge was accordingly confined to what might generally be called issues of liability, including whether the alleged breaches and contraventions occurred, and Optus’ entitlement to consequential declaratory relief.

ACCESS AGREEMENT

8                     Clause 1.1 of the Access Agreement defines “Confidential Information” as follows:

Confidential Information of a party means all information (excluding CLI), know‑how, ideas, concepts, technology, manufacturing processes, industrial, marketing and commercial knowledge of a confidential nature (whether in tangible or intangible form) relating to or developed in connection with or in support of the business of the party and includes the contents of the schedules (and any matter concerned with or arising out of this agreement) and the licences described in clause 14.5(b) but does not include:

(i)                  information which is or becomes part of the public domain (other than through any breach of this agreement); or

(ii)                information rightfully received by another party from a third person without a duty of confidentiality being owed by the other party to the third person, except where the other party has knowledge that the third person has obtained that information either directly or indirectly as a result of a breach of any duty of confidence owed to the first mentioned party; or

(iii)               information which has been independently developed by another party.

9                     Clause 15 imposes restrictions on the use and disclosure of Confidential Information. Clause 15.1 provides in part:

Subject to clause 15.3 … each party must keep confidential all Confidential Information of another party which:

(a)                is disclosed, communicated or delivered to it by a party pursuant to this agreement; or

(b)                comes to its knowledge or into its possession in connection with this agreement,

and must not

(c)                use or copy such Confidential Information except for the purposes of this agreement or any licence granted under clause 14.5(b) or as required by AUSTEL; or

(d)                disclose or communicate, cause to be disclosed or communicated or otherwise make available such Confidential Information to any third person other than its directors, officers, employees, agents, contractors or representatives to whom disclosure is necessary for the purpose of this agreement or any licence granted under clause 14.5(b).

10                  Clause 15.2 provides:

Each party must establish and observe procedures adequate to protect the Confidential Information of another party and, without limiting the generality of the foregoing, must ensure that each of its directors, officers, employees, agents and representatives to whom that Confidential Information is disclosed for the purposes of this agreement is subject to and maintains the confidentiality obligations set out in clause 15.1.

11                  Clause 15.3, to which clause 15.1 is expressed to be subject, sets out certain circumstances in which a party may disclose the Confidential Information of another party. Clause 15.6 provides:

Each party acknowledges that a breach of this clause 15 by one party may cause another party irreparable damage for which monetary damages would not be an adequate remedy. Accordingly, in addition to other remedies that may be available, a party may seek injunctive relief against such a breach or threatened breach.

12                  Clause 10 is related to clause 15, and deals with certain obligations of the parties to provide information to each other pursuant to the agreement. Clause 10.4 requires each party to provide the others with traffic information relating to telecommunications traffic carried pursuant to the interconnection arrangements, including information such as the calling number, billing number, called number, time and duration of communication, applicable fees, routing information and other details. Clauses 10.3 and 10.5 require the parties to provide each other with other information required for billing purposes. Information provided under the agreement may only be used for the purpose for which it was given: clause 10.7. The general effect of clause 10.10 is that a party is not required to provide another party with information on its traffic volumes, routing or accounting rates for IDD telecommunications traffic other than as required to enable the other party to bill it for intercommunication services.

13                  Clause 16 is a complicated provision covering 16 pages. It is headed “Liability and Indemnity”. Clause 16.1 states what it calls a “General Principle”:

Save to the extent that another provision of this agreement expressly provides for (or expressly excludes or limits) a remedy, a liability or a form of compensation in relation to an act, omission or event, this clause 16 shall regulate the liability (whether arising in contract, in tort, under statute or in any other way and whether due to negligence, wilful or deliberate breach or any other cause) of a party to each other party under and in relation to this agreement and in relation to any act, omission or event relating to or arising out of this agreement.

14                  Clause 16.2, which is expressed to be subject to provisions including clauses 14.6, 16.3, 16.4(c), 16.5, 16.6(b) and 16.7(c), provides that one party is not liable to another on any cause of action described in clause 16.1 in respect of the matters there set out. These include “consequential, special or indirect liability” (par (a)), liability for the acts of certain third parties (par (b)), network failure or delay in providing a service (par (c)), and acts or omissions of third parties not under the direct control of a party (par (d)).

15                  Clauses 16.2A and 16.2B impose caps on the liability of a party on any of the causes of action described in clause 16.1 in relation to or arising out of any one event, or series of related events, of the type described in clause 16.2. The caps range from $1 million for a Single Event Amount to $30 million for a Special Aggregate Amount. The amounts are indexed in accordance with a formula in clause 16.13.

16                  Clause 16.3 is headed “Specified Remedies for Specified Breaches”. Paragraph (a) provides:

In respect of any act, omission or event described in any of paragraphs (b) to (g) inclusive of this clause 16.3 (and in respect of any further act, omission or event relating to or consequential upon such an act, omission or event relating to or consequential upon such an act, omission or event) which amounts to a breach by an Access Carrier of an obligation under this agreement –

(i)                  the sole remedy and compensation for the Interconnecting Carrier shall be the remedy and compensation identified in this clause 16.3 in respect of that act, omission or event,

(ii)                the liability and obligation of the Access Carrier (whether arising under contract, in tort, under statute or in any other way) shall be limited to providing to the Interconnecting Carrier the remedy and compensation identified in this clause 16.3 in respect of that act, omission or event, and

(iii)               paragraph 16.2(b) shall apply and the remainder of clause 16.2 shall not apply, and

(iv)              the Access Carrier shall not have any liability (whether arising under contract, in tort, under statute or in any other way) to the party which is not the Interconnecting Carrier.

The term “Access Carrier” means the Carrier which provides or is to provide a Service to the Interconnecting Carrier. “Carrier”, in relation to public mobile telephone services, means Telstra or the Optus subsidiary, and in relation to all other domestic or international telephone services, means Telstra or Optus. “Interconnecting Carrier” means the Carrier to which a Service is or is to be provided.

17                  Paragraphs (b) to (h) then identify various breaches by an Access Carrier of obligations under the agreement. Paragraphs (b) to (f) deal with delays in the provision of certain services. There is no par (g). Paragraph (h) deals with any interruption in the provision of a service. Speaking generally, the remedy and compensation for delays is the provision of alternative arrangements. Using par (d) as the example, if alternative arrangements are not provided, the Access Carrier is required to:

waive the Applicable Percentage (as determined pursuant to clause 16.3(i)) of the relevant usage charges for that delayed Service in the affected area service for a period (from when the delayed Service is first provided) which is equal to the period of delay.

The remedy and compensation for interruption of a service is a pro rata reduction in any fixed recurring charges otherwise payable by the Interconnecting Carrier.

18                  Clause 16.4(a) deals with damage to tangible property of a party to the agreement or a third party. The party causing the damage is required to indemnify the “innocent party” against all costs and expenses reasonably incurred in making good the damage. Paragraph (b) deals with damage to tangible property caused intentionally or by negligence. The party causing the damage is required to indemnify the “innocent party” against all liability, loss, damage and expenses arising from or relating to the damage or loss. Paragraph (b) of clause 16.2 applies to clause 16.4. The other paragraphs of clause 16.2 do not.

19                  Clause 16.5(a) provides that clause 16.2 does not apply to any liability of a party arising directly from the death or personal injury of an officer, employee, agent, representative or contractor of any other party caused by or resulting from any negligent act or omission of the “liable party” or any of its officers, employees, agents, representatives or contractors. In cases to which clause 16.5(a) does not apply, a party is required to indemnify each “innocent party” against all liability arising from or relating to the death or personal injury of any officer, employee, agent, representative or contractor of the indemnifying party: par (b). Clause 16.2 does not apply to par (b).

20                  Clause 16.6 requires a party to indemnify each other party against all liability and loss arising directly from a claim by a third party against the “innocent party” in respect of or arising out of any act or omission of the indemnifying party in the course of using the services provided by the innocent party. Only par (b) of clause 16.2 applies to clause 16.6.

21                  Clause 16.7 is headed “Limitation of liability to customers and others”. Paragraph (a) provides that a party is not liable to another party for loss incurred in connection with a claim made against the other party in relation to an event arising out of the agreement or a service provided under it, by a person to whom the other party provides a telecommunications service who has a contractual relationship with the other party, “to the extent that the liability could have been excluded or reduced by the other party in that contract … regardless of whether such liability was excluded or reduced”.

22                  Clause 16.7(b) requires a party to indemnify each other party against all liability arising from any claim made against the “innocent party” in relation to any act, omission or event arising out of the agreement or a service provided under it, by a person to whom the indemnifying party provides a telecommunications service, “to the extent that the liability … could have been excluded or reduced by the Indemnifying Party in its contract with that person, regardless of whether such liability or loss was excluded or reduced”. Clause 16.2 does not apply to par (b).

23                  Clause 16.8 provides:

Each party undertakes to each other party (and acknowledges that equitable remedies are an appropriate means of enforcing its undertaking) that if it brings any claim, demand, action or proceeding against any officer, employee, agent, representative or contractor of the other party in relation to any act, omission or event relating to or arising out of this agreement, it will observe the provisions of this Clause 16 as if that officer, employee, agent, representative or contractor were entitled to the benefit of this Clause 16 to the same extent as the other party.

24                  Other provisions of the Access Agreement will be noted later in these reasons.

ORDER ON CONTRACT CLAIM

25                  On 30 April 2009 the primary judge upheld Optus’ claim in contract: Optus Networks Ltd v Telstra Corporation Ltd (No 2) [2009] FCA 422. On 10 July 2009 his Honour dismissed its claims in equity and under s 51AA of the Trade Practices Act: Optus Networks Ltd v Telstra Corporation Ltd (No 3) [2009] FCA 728. On 4 September 2009 he ordered that on all issues other than those reserved for later determination, judgment be entered on the contract claim based on findings that:

(a)                [Telstra] used information which is traffic information … which is also Confidential Information of [Optus] for the purposes of clause 1.1 of the Access Agreement … or Communication Information of [Optus] for the purposes of clause 1.1 of the Access Agreement otherwise subject to the requirements of confidentiality in clause 15 of the Access Agreement.

(b)                [Telstra] breached clause 15.2 of the Access Agreement by:

(i)            using Traffic Information from the NUMIS 100 system to prepare weekly STD and IDD market share reports (‘Market Share Reports’);

(ii)           insofar as the Market Share Reports contain Traffic Information, being Confidential Information or Communication Information of [Optus] …, distributing the Market Share Reports among [Telstra’s] personnel; and

(iii)         insofar as the Market Share Reports contain Traffic Information, being Confidential Information or Communication Information of [Optus] …, using one or more of the Market Share Reports for the purpose of:

(A)              marketing, including considering or developing strategy for marketing, products or services of [Telstra] to existing or prospective customers; or

(B)              promotion, including considering or developing strategy for promotion, of products or services of [Telstra] to existing or prospective customers; or

(C)              selling, including considering or developing strategy for selling, products or services of [Telstra] to existing or prospective customers.

26                  His Honour directed Optus to serve on Telstra a list of categories of documents for discovery by Telstra in respect of damages and particulars of loss and damage.

PRIMARY JUDGE’S REASONS ON CLAIM IN EQUITY

27                  The primary judge’s reasons for dismissing the appellant’s claims in equity were brief and can be quoted in full:

[4]        … where, as here, there is not only a contract between the parties, but a contract which, in its terms, defines ‘Confidential Information’ on an exhaustive basis (cl 1.1 of the Access Agreement) and regulates the obligations of each party in relation to the Confidential Information of the other party on a comprehensive basis (cl 15 of the Access Agreement), there is, in my view, no reason for the intervention of equity for the simple reason that there is no need for its intervention to achieve justice between the parties for conduct which is common to both the finding of breach of contract and the ground relied on for equitable intervention.

[5]        Moreover, the conclusion expressed at [4] above is reinforced where, as here, the contract contains a provision such as cl 16.1 ….

[6]        In these circumstances, I decline to find any breach of a duty of confidentiality owed by Telstra to Optus overlapping or concurrent with my finding of Telstra’s breach of contract.

LEAVE TO APPEAL

28                  Optus seeks leave to appeal from the dismissal of its claim in equity. It contends that:

(a)           The dismissal of its claim is attended by significant doubt.

(b)          If the decision is wrong, it will suffer significant consequences. Although it succeeded in its contract claim, its pecuniary remedy is limited to damages: Hospitality Group Pty Ltd v Australian Rugby Union Ltd (2001) 110 FCR 157 at [158]‑[159]. By contrast, in respect of a successful claim in equity, an account of profits would be available. There is likely to be considerable difference in scope between the two remedies. (An account of profits is sought in the pleadings as an alternative to damages for breach of the Access Agreement.)

(c)           It is appropriate that the availability of an account of profits be determined now, before significant resources are expended in the preparation for and conduct of a hearing on issues of quantum.

(d)          The dismissal of the equity claim is interlocutory only in a technical sense. It finally determines Optus’ rights on the claim in equity.

(e)           The order does not concern a point of practice.

DISPOSITION

29                  In our view the issue raised by the application for leave, and by the appeal if leave be granted, is whether by the Access Agreement the parties have excluded equitable obligations of confidence. It is true, as the primary judge said, that “Confidential Information” is defined in an exhaustive fashion (“means”). However, we do not see that as indicating an intention to exclude equitable obligations. All the parties have done by their definition is codify what is to be treated as confidential information for the purposes of their contract.

30                  The primary judge described clause 15 as a regulation of the obligations of each party in relation to the confidential information of the other on a comprehensive basis. We do not agree that this admittedly detailed provision discloses an intention to exclude equitable obligations in relation to confidential information. Clause 15.6 (see [11]) points in the other direction. Although an injunction is the only example given, the provision makes it clear that there may be other available remedies. In a clause contemplating remedies to deal with the inadequacy of damages as a remedy for breach of a confidentiality clause, an account of profits would seem to be an obvious “other remedy”.

31                  Clause 20.22 of the Access Agreement is relevant in this connection. It provides:

Subject to –

(a)                clauses 14.11 and 16.3 and any other provision of this agreement which provides for a remedy or form of compensation to the exclusion of any other remedy or form of compensation, and

(b)                the other provisions of clause 16,

the rights, powers and remedies provided in this agreement are:

(i)                  cumulative; and

(ii)                not exclusive of the rights, powers or remedies provided by law independent of this agreement.

An account of profits is a remedy provided by law independent of the agreement.

32                  Clause 14.11, to which clause 20.22 is subject, is instructive. Clause 14 deals with intellectual property rights. By clause 14.6 each party indemnifies each other party against all liability arising directly from any claim of infringement by the “innocent party” of the rights of a third person arising from the use by the innocent party of intellectual property disclosed or licensed by the indemnifying party under the agreement. Clause 14.9 provides that if it is determined by an independent tribunal, or if it is agreed between the parties to a dispute, that intellectual property licensed or provided by a party for the purposes of the agreement has infringed a third party’s intellectual property rights, the first‑mentioned party will procure for each user a right to continue using the infringing intellectual property, or will modify or replace it so that the infringement is removed. Clause 14.11 then provides:

Each party acknowledges to the others that clauses 14.6 and 14.9 set out the only remedies and forms of compensation available to a party in relation to or arising from an allegation agreement or determination ... that Intellectual Property disclosed, licensed or provided by another party under or for the purposes of this agreement has infringed or infringes any rights of another person.

The contrast between clause 14.11 on the one hand and clauses 15.6 and 20.22(b)(ii) on the other  is striking.

33                  The primary judge saw in clause 16.1 reinforcement for his conclusion. Clause 16.1 achieves nothing by itself. In order for it to operate, one of the ensuing provisions of clause 16 must apply. Clause 16.2(a) does not preclude liability for breach of clause 15. It allows recovery of loss directly attributable to the breach. We do not need to determine the ambit of clause 16.2(a). It is sufficient to say that the words “consequential, special or indirect” are concerned to rule out, for example, loss that might fall within the second limb of the rule in Hadley v Baxendale (1854) 9 Exch 341 or indirect economic loss. None of the situations in pars (b), (c) or (d) applies. Clauses 16.2A and 162B do not preclude liability, but only impose caps on amounts recoverable. None of the events in clause 16.3(b) to (h) applies. Nor do clauses 16.4, 16.5, 16.6 or 16.7. Accordingly we do not agree with the primary judge that clause 16.1 reinforces the view he favoured. In our view there is nothing in clause 16 to indicate that “equitable principles” are excluded by the Access Agreement. Clauses 20.22 and 15.6 are powerful indications to the contrary. As is clause 16.8 (see [23]).

34                  Telstra placed reliance on the observations of Gordon J in Coles Supermarkets Australia Pty Ltd v FKP Ltd [2008] FCA 1915 (Coles Supermarkets) at [63] where her Honour rejected an argument that equitable and legal obligations of confidence can co‑exist in reliance on Del Casale v Artedomus (Aust) Pty Ltd (2007) 73 IPR 326 at [118]. There Campbell JA said that “If there was a contractual obligation that covered the topic, there would, of course, be no occasion for equity to intervene to impose its own obligation”. However that does not cover the present case, where Optus wishes to be able to seek an account of profits, and the question is whether the contract permits that. In our view clauses 15.6 and 20.22 show that it does.

35                  Gordon J relied on Deta Nominees Pty Ltd v Viscount Plastic Products Pty Ltd [1979] VR 167 at 195 for the proposition that equity does not intervene where there is an adequate remedy at law. There Fullagar J, having found that certain confidential information was in the eyes of equity the plaintiff’s property, who was entitled to restrain the defendants from using the information beyond certain limits, went on to say that because the plaintiff was entitled by reason of contract to perpetual injunctions restraining the defendants from manufacturing the goods to which the information related, equity would withhold any further relief for breaches of confidence because the remedies derived from contract were adequate. Those observations are not applicable to the present case because, at this stage, it is not known whether damages will be an adequate remedy. Again, we refer to the contemplation in clause 15.6 that an account of profits is available under the agreement, and to clause 20.22.

36                  In Coles Supermarkets at [64] Gordon J said that quite apart from authority, the conclusion that contractual and equitable obligations cannot co‑exist would follow as a matter of logic and basic principles:

If a party were allowed to elect whether to bring an action in equity for breach of confidence (which Coles does to get an account of FKP’s profits on the Woolworth’s deal, in the hopes that those profits are more than its damages), that would effectively eliminate the efficient breach theory of contract because whenever a defendant entered into inconsistent contracts the party whose contract ended up being not performed could then capture any extra profit made by the defendant by suing in equity instead of recovering his own losses at law.

37                  After Coles Supermarkets was decided the High Court in Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272 at [13] made unfavourable observations about the doctrine of efficient breach. The whole Court said the efficient breach theory took no account of the existence of equitable remedies, such as specific performance and injunction, which ensure or encourage the performance of contracts rather than the payment of damages for breach. We need not pursue the efficient breach matter further, because, as we have said, the Access Agreement (in particular clauses 15.6 and 20.22) preserves equitable rights. We can discern no reason why parties cannot agree that one who claims that its confidential information has been misused can elect to sue either for damages for breach of contract under clause 15 or for an account of profits under clauses 15.6 and 20.22.

38                  The notion that no equitable duty of confidence arises where there is a comparable contractual duty is opposed to much authority. Dr Dean says that “Equitable protection … may be used in preference to an existing contractual obligation or alongside a contractual obligation”: Dean, The Law of Trade Secrets and Personal Secrets (2^nd ed, 2002) at [2.55] where many examples in the case law are recorded. They include Morison v Moat (1851) 9 Hare 241, Robb v Green [1895] 2 QB 315, Mense v Milenkovic [1973] VR 784, Attorney‑General v Jonathan Cape Ltd [1976] QB 752 and Nicrotherm Electrical Company Ltd v Percy (1957) 74 RPC 207. See also Australian Medic‑Care Co Ltd v Hamilton Pharmaceuticals Pty Ltd (2009) 261 ALR 501 at [628]‑[629] per Finn J and Gurry, Breach of Confidence (1984) pp 39‑46.

CONCLUSION

39                  Having regard to the manner in which the primary judge proceeded, he did not make specific findings in relation to the elements of Optus’ claim for breach of confidence in equity. There are four elements:

(a)           the information in question must be identified with specificity;

(b)          it must have the necessary quality of confidence;

(c)           it must have been received by Telstra in circumstances importing an obligation of confidence, and

(d)          there must be an actual or threatened misuse of the information without Optus’ consent.

See Smith Kline & French Laboratories (Aust) Ltd v Secretary, Department of Community Services and Health (1990) 22 FCR 73 at 87.

40                  The primary judge’s reasons on the contract claim and par 1 of his orders show that element (a) is made out. His Honour was satisfied that the information in question fell within the definition of Confidential Information in clause 1.1 of the Access Agreement. That requires the information to be “of a confidential nature”. Accordingly element (b) is satisfied. The existence of the Access Agreement establishes that the information was received by Telstra in circumstances importing an obligation of confidence. Thus element (c) is made out. The information was used for the preparation of Telstra’s market share reports. Element (d) is made out.

41                  We will grant leave to appeal and allow the appeal. The order dismissing Optus’ claim in equity will be set aside, and in lieu thereof it will be ordered that there be judgment for Optus on that claim. Optus is entitled to make an informed election between damages for breach of clause 15 and an account of profits. If it should elect for an account, the grant of that relief remains a matter for the Court: Australian Medic‑Care Co Ltd 261 ALR at [674].

Associate:

Dated:         4 March 2010