FEDERAL COURT OF AUSTRALIA

Elecon Australia Pty Limited v PIV Drives GmbH [2010] FCAFC 56

THE COURT ORDERS THAT:

1.                  The appeal be dismissed.

2.                  The appellants pay the respondents’ costs of the appeal.

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.

THE COURT ORDERS THAT:

1.                  The appeal be dismissed.

2.                  The appellant pay the respondent’s costs of the appeal.

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.

NSD 1430 OF 2009

REASONS FOR JUDGMENT

INTRODUCTION

1                                             The issues raised in these two appeals are identical.  The issues arise substantially from a licence agreement (the Know-How Contract) made on 26 March 1998 between an Indian company, Elecon Engineering Company Limited (Elecon Engineering), and a German company, PIV Antrieb Werner Reimers GmbH & Co KG (PIV Antrieb).  Amongst the wares produced by PIV Antrieb were modular gear units and drives suitable for use in substantial industrial settings.  The Know-How Contract provided for PIV Antrieb to supply its manufacturing secrets and know-how about the manufacture of the gear units and drives to Elecon Engineering and for Elecon Engineering to have an exclusive licence to manufacture and to sell them in India.  The Know-How Contract also permitted Elecon Engineering, during its pendency, to sell the gears in various places including in Australia.  In return for the rights granted to it, Elecon Engineering paid PIV Antrieb certain fixed sums and also had an ongoing obligation to pay royalties at the rate of 4% on all articles manufactured and sold or leased under the Know-How Contract.  The duration of the Know-How Contract was seven years with the possibility of extension for three years by mutual consent.

2                                             The Know-How Contract was terminated in 2002 before it had run its full course in circumstances to which it will presently be necessary to return.  The first question is whether Elecon Engineering had any continuing right to use, after termination of the Know-How Contract, the manufacturing secrets and know-how imparted under it.  Elecon Engineering believed that it did and, consistently with that belief, it tendered successfully, through an Australian subsidiary, Elecon Australia Pty Limited (Elecon Australia), for a contract to supply conveyor drives, involving the use of the licensed gears and drives, to a joint venture constructing a coal handling and preparation plant in central Queensland.  One of the disappointed tenderers intimated to that joint venture that Elecon Australia did not have the right to sell the modular gears in Australia, a suggestion that, upon Elecon Australia becoming aware of it, precipitated the litigation giving rise to the present appeals.

3                                             By the time of those events in 2004 PIV Antrieb had, for some years, been in a species of external administration following the commencement of insolvency proceedings on 11 January 2001 in the District Court in Bad Homburg in the Federal Republic of Germany which resulted in the commencement of an administration from 1 March 2001.  As a result of that state of affairs, under an instrument of 25 October 2001 all the intangible and movable assets of PIV Antrieb were assigned to another German entity, PIV Drives GmbH (PIV Drives), with effect from 1 November 2001.  The assets assigned to PIV Drives included the manufacturing secrets and know-how that were the subject of the Know-How Contract.  However, there was no assignment of the Know-How Contract as such. 

4                                             For reasons not presently material, PIV Drives in turn was ultimately owned by an Italian company, Brevini Riduttori SpA/Brevini International Holdings BV (Brevini Italy).  Brevini Italy, as events transpire, was the ultimate holding company of the unsuccessful tenderer in central Queensland, Brevini Australia Pty Limited (Brevini Australia).  Brevini Australia’s suggestion to the joint venture that Elecon Australia did not have the right to sell the modular gears in Australia is to be seen, therefore, not as officious intermeddling but rather as an assertion of the proposition that Elecon Engineering and its local Australian subsidiary, Elecon Australia, had no remaining rights of manufacture or sale under the by then terminated Know-How Contract.

5                                             No doubt concerned that its customers were being told it had no right to sell the modular gears in Australia, Elecon Australia commenced proceeding NSD 1423 of 2004 against Brevini Australia on 30 September 2004, to restrain the continued making by Brevini Australia of representations of that kind.  Undertakings were given by Brevini Australia that resolved that proceeding on an interim basis.

6                                             For their part, on 23 December 2004, PIV Drives and Brevini Australia commenced their own proceeding, NSD 1955 of 2004, against Elecon Australia, Elecon Engineering and the chairman and managing director of Elecon Engineering, who is a director of Elecon Australia, in which they accused Elecon Engineering and Elecon Australia of infringing their copyright in certain modular gear catalogues, of infringing three registered trade marks belonging to the successor of PIV Drives and of a breach of confidence.  Brevini Australia and PIV Drives claimed injunctions restraining Elecon Australia and Elecon Engineering from using or disclosing any of the manufacturing secrets and know-how imparted under the Know-How Contract.  The claim was based on the provisions of the Know-How Contract and on general equitable principles concerning breach of a duty of confidence.

7                                             These two actions eventually came on before a judge of the Court, who determined that, following the termination of the Know-How Contract, Elecon Engineering had no further rights of manufacture.  Therefore, for reasons published on 17 November 2009, the primary judge dismissed proceeding NSD 1423 of 2004 in its entirety.  In proceeding NSD 1955 of 2004, his Honour rejected the defence of Elecon Engineering and Elecon Australia that there had been neither an infringement of copyright in its use of the catalogues nor an infringement of the registered trade marks because its use in both cases had been permitted under the Know-How Contract.  His Honour also found that the breach of confidence case was made good.  On 18 December 2009, his Honour granted relief substantially as claimed by PIV Drives and Brevini Australia in proceeding NSD 1955 of 2004. 

8                                             In appeal NSD 1429 of 2009, Elecon Engineering and Elecon Australia appeal to the Full Court from the orders made in proceeding NSD 1955 of 2004.  In appeal NSD 1430 of 2009, Elecon Australia appeals to the Full Court from the orders made in NSD 1423 of 2004. 

9                                             The task confronting the primary judge was a good deal more substantial than that which confronts the Full Court.  The principal issue in both appeals is whether Elecon Engineering continued to have rights under the Know-How Contract following its termination.  That issue involves the construction of cl 16 of the Know-How Contract.  Elecon Australia and Elecon Engineering accept that, if the construction adopted by the primary judge is accepted by the Full Court, all other issues in the appeals but one must be decided against it.  The one issue concerns the entitlement of PIV Drives and Brevini Australia to equitable relief.  It is also necessary to say something about the trade mark issues raised in paragraph 6 of the amended notice of the appeal in NSD 1429 of 2009. 

CONSTRUCTION OF CLAUSE 16

10                                          Two matters are to be noted.  First, cl 16 of the Know-How Contract provides:

Termination

Without prejudice to any express provisions for termination contained in the contract, the contract may be terminated for any cause sufficient to justify termination under the proper law of contract.

Before terminating the contract the licensor shall give a notice clearly specifying the grounds on which the termination is desired.  He shall give the licensee to rectify the defects within 90 days from the date of receipt of notice by the licensee.  Failure on the part of the licensee to rectify the cause of defect within a period of 90 days shall entitle the licensor to terminate the contract.

If this agreement due to major default is terminated on the part of licensor, the licensee shall be entitled to continue manufacturing of the articles without reservations based on the technical information already transferred by the licensor.

The agreement can be terminated by licensor or licensee upon any one of the two going into bankruptcy, liquidation or court receivership without any liability or claim on the other party for such an event.  Licensor or licensee shall have the right of termination of agreement without any liability on account of change of ownership with a major change in management.

(emphasis added)

11                                          Secondly, the Know-How Contract was terminated by Elecon Engineering on 25 March 2002.  The critical part of cl 16 in the appeals is the third paragraph and the essence of the issue is this: the paragraph clearly confers on Elecon Engineering a right to continue to manufacture articles based on information already provided by PIV Antrieb and that right plainly survives the termination of the Know-How Contract as a whole.  However, that right exists only if the termination referred to in the third paragraph has occurred.  The question is whether that termination is one that may be effected by Elecon Engineering, as Elecon Engineering and Elecon Australia contend, or by PIV Antrieb (or its successors) as PIV Drives and Brevini Australia contend and as the primary judge found.

12                                          The primary judge thought that the terms and structure of cl 16 were clear (at [77]), a view with which we entirely agree.  Under cl 17, the Know-How Contract was governed by Indian law and the Solicitor-General for India himself gave evidence in the proceedings about the content of that law so far as it related to the interpretation of contracts.  In substance, Indian law appeared to be largely the same as Australian law:  the contract was to be construed according to the primary and natural meaning of the language chosen by the parties, the word “default” connoted some form of failure and the expression “major default” did not have a precise meaning.  The Solicitor-General expressed an opinion about the meaning of “major default” in the Know-How Contract but his Honour rejected it as inadmissible by reason of it infringing the principle that the application of foreign law to particular facts is the provenance of the Court and not an expert (see National Mutual Holdings Pty Ltd v The Sentry Corporation (1989) 22 FCR 209 at 226).  Plainly, he was correct so to do.  As the primary judge noted, however, that conclusion does not imply any criticism of the learned Solicitor-General who, of course, did but answer the questions posed for his consideration.

13                                          The primary judge reasoned this way on the proper construction of cl 16:  the first paragraph of cl 16 conferred a right on either party to terminate the Know-How Contract for cause, that is, where either party would have been entitled to terminate under the general law; the second paragraph qualified PIV Antrieb’s right by requiring it, in substance, to issue a show cause notice.  The third paragraph further qualified PIV Antrieb’s right of termination by providing that, when PIV Antrieb did terminate the Know-How Contract, Elecon Engineering would continue to be able to manufacture articles based on the manufacturing secrets and know-how already imparted.  The expression “major default” referred, in his Honour’s view, to a failure to comply with the show cause procedure contemplated in the second paragraph of cl 16.

14                                          So viewed, the right of termination in question was PIV Antrieb’s, although the third paragraph conferred a limited form of benefit on Elecon Engineering in the event of termination.  We say limited because the right of manufacture continued by the third paragraph was not, like the right of manufacture and sale under the Know-How Contract, exclusive within the territory of India.  In the event, the expression “terminated on the part of the licensor” meant “terminated by the licensor”.  Consequently, the third paragraph was not enlivened if the Know-How Contract was terminated by Elecon Engineering.  Since Elecon Engineering was the party that had, in fact, terminated the Know-How Contract, it followed that the right of continued manufacture did not come into existence and, therefore, Elecon Engineering had no right to issue the catalogue or to use the trade marks or the manufacturing secrets and know-how in Australia.

15                                          Elecon Engineering and Elecon Australia were bound to attack that reasoning if the appeals were to go anywhere.  Their arguments were:

(a)        the expression “terminated on the part of the licensor” should be construed as referring to the situation where PIV Antrieb repudiated the Know-How Contract giving rise to a right to terminate in the licensee;

(b)        the expression “if this agreement due to major default is terminated on the part of the licensor” should be construed to mean “if this agreement is terminated by the licensee due to major default”;

(c)        the primary judge’s reasoning, which treated “major default” as referring to a failure to comply with the régime in the second paragraph, was contrary to the evidence of the Solicitor-General, who thought the expression “major default” denoted repudiatory conduct;

(d)        the primary judge’s construction gave rise to absurdity:  the suggested absurdity arose from the tension said to exist between giving the licensor a right to terminate in the face of repudiatory conduct by the licensee but at the same time giving that licensee who, ex hypothesi, had evinced an intention not to be bound by the provisions of the Know-How Contract, a continuing right to manufacture the articles.

16                                          We cannot accept any of these arguments.  As to (a), the proposed interpretation is at odds with the wording of the clause: “on the part of the licensor” simply does not mean “by the licensee”.  Quite apart from that, the argument rests on an erroneous appreciation of how termination for breach works.  Even assuming “major default” referred to a repudiation by the licensor, it would not be correct to say that the Know-How Contract was “terminated” by that repudiatory conduct.  At best, the repudiatory conduct of the licensor would give rise to a right in the licensee to terminate, but the conferral of such a right cannot be described as the termination of the Know-How Contract. 

17                                          The argument encounters insuperable difficulties when one pauses to ask how the clause operates when the repudiation is not followed by an act of termination on the part of the licensee.  On the view of things advanced by Elecon Engineering and Elecon Australia, the clause must be activated, so that the licensee then has the benefit of two licences, one under the unterminated Know-How Contract, the other under the third paragraph of cl 16.  They did not accept that this would be the situation because the licensee, if it had not terminated the Know-How Contract, would not be calling in aid of cl 16.  However, that is not an answer to the construction difficulty that arises; rather, it is an attempt to ignore the problem.

18                                          As to (b), we would reject this argument for two reasons.  First, we embrace the primary judge’s conclusion that it involves switching the word order around in a way that is far too extreme to be plausible.  Secondly, quite apart from that problem, the reversal of the word order implicit in the construction has the direct consequence that the meaning of the expression “on the part of the licensor” in substance ends up being “by the licensee”, a result that should be rejected.

19                                          As to (c), the Solicitor-General’s evidence was that “major default” did not have a precise meaning, although he expressed the view that it was likely to mean repudiatory conduct.  However, as we have already observed, the meaning of the words in the Know-How Contract was not, as the primary judge correctly held, a matter for the Solicitor-General’s opinion.  The true task was the construction of those words in the context of cl 16 applying Indian law.  So viewed, no error whatsoever is disclosed in the primary judge’s approach.  Indeed, it is difficult to ascribe any other sensible meaning to “major default” apart from the one identified by the primary judge.

20                                          As to (d), we discern no absurdity.  The Know-How Contract contemplated substantial expenditure by the licensee before the manufacturing process came to fruition.  There is nothing absurd about the parties recognising the expenditure already incurred by permitting a non-exclusive temporary licence to persist in the case of work already done. 

21                                          Elecon Engineering and Elecon Australia argued that the absurdity was underscored because the licence that resulted under the third paragraph of cl 16 was not only perpetual but was not subject to any obligation on Elecon Engineering’s part to pay royalties.

22                                          Neither of those arguments should be accepted and the suggested underscoring does not, therefore, take place.  The argument that the licence was perpetual was based on the words “without reservations” in cl 16 and the observation that that included temporal reservations.  We do not accept this.  We would read those words as referring to reservations on the rights or abilities of Elecon Engineering to manufacture or sell the articles.  Its right to manufacture and sell was not to be trammelled by the kinds of considerations that might normally attend the termination of the Know-How Contract.  The parties were hardly likely to have agreed that, upon Elecon Engineering’s breach, it was to get a perpetual licence.  Nor, correspondingly, does it seem at all likely that Elecon Engineering, as licensee, was to be freed of the obligation to pay royalties on the articles thereafter manufactured.  Clear words would be required for such an outlandish outcome, which words are not to be found within the four walls of cl 16.

23                                          Elecon Engineering and Elecon Australia sought to derive comfort from the fact that the third paragraph of cl 16 may have been included in the Know-How Contract by reason of a perception of the parties that the Indian government required its inclusion.  A portion of a letter of 20 November 1997 from PIV Antrieb to Elecon Engineering was said to support this.  It read:

We are informed by a specialist in cooperation contracts with Indian partners at the German Machine Manufacturers Ass. (VDMA) that as per the Indian laws minimum royalties are permitted which anyway are going to be set off annually against regular payment of royalties.  Please re-check this point which we consider as an important clause in the contract.

24                                          We do not see that as in any way advancing the contentions of Elecon Engineering and Elecon Australia on this argument, even assuming, which we do not, that it would be admissible for that purpose.  There is simply no logical connexion between the requirements of the Indian government and the reading of “without reservations” as meaning a temporally unlimited licence.

ENTITLEMENT TO EQUITABLE RELIEF

25                                          The contentions advanced on behalf of Elecon Australia and Elecon Engineering in relation to the entitlement to equitable relief are not without considerable difficulty, having regard to the pleadings and the notice of appeal.  It is desirable to say something about both before dealing with the arguments advanced at the hearing of the appeals.

26                                          In their further amended statement of claim of 13 February 2009 (the Statement of Claim), PIV Drives and Brevini Australia make the following allegations in relation to their claim for relief for breach of confidence:

·                    Under the Know-How Contract, PIV Antrieb provided confidential information to Elecon Engineering for the purpose of Elecon Engineering making gear units and drives in accordance with and pursuant to the terms of the Know-How Agreement.

·                    The confidential information was imparted in circumstances where Elecon Engineering knew that the confidential information was confidential information of PIV Antrieb and that Elecon Engineering was bound to keep the confidential information confidential and not use it or disclose it for any purpose unless pursuant to the Know-How Agreement.

·                    Accordingly, the confidential information was imparted by PIV Antrieb to Elecon Engineering in circumstances that gave rise to an equitable duty owed to PIV Antrieb and its successors in title to keep the confidential information confidential, such duty of confidence subsisting beyond the termination of the Know-How Contract.

·                    By reason of the assignment of 25 October 2001, PIV Drives acquired all rights in relation to the confidential information.

·                    The confidential information imparted by PIV Antrieb to Elecon Engineering under the Know-How Agreement remained subject to the equitable duty owed to PIV Antrieb and its successors in title to keep the confidential information confidential.

·                    By not later than 25 March 2002 or, alternatively, 22 May 2002, the Know-How Contract was terminated.

·                    By reason of the termination of the Know-How Contract, any rights granted to Elecon Engineering to use the confidential information were terminated.

·                    Elecon Engineering has, after the termination of the Know-How Contract, manufactured gear units and drives using the confidential information.

·                    At all times since at latest 22 May 2002, the manufacture and sale in Australia by or on behalf of Elecon Engineering of gear units and drives manufactured using the confidential information has been in breach of the equitable duty of confidence owed by Elecon Engineering to PIV Antrieb and to its successor in title, PIV Drives.

·                    Further, in breach of its equitable obligation of confidence, Elecon Engineering has disclosed the confidential information to Elecon Australia for the purpose of manufacture by Elecon Australia and sale in Australia of gear units and drives made in accordance with the confidential information.

·                    Elecon Australia was at all material times aware that the confidential information was confidential to PIV Antrieb and its successor in title, PIV Drives.

27                                          In their second further amended defence of 2 March 2009 (the Defence), Elecon Engineering and Elecon Australia substantially admitted the allegation in the Statement of Claim that Elecon Engineering had received confidential information in circumstances giving rise to an equitable duty owed to PIV Antrieb and its successors in title to keep the confidential information confidential, such duty to subsist beyond the termination of the Know-How Contract.  However, they asserted that, by reason of conduct on the part of PIV Drives and PIV Antrieb, PIV Drives and Brevini Australia are not entitled to equitable relief as claimed. 

28                                          The conduct alleged is as follows:

·                    The assignment by PIV Antrieb of all of its assets and undertaking on 25 October 2001 amounted to a repudiation of the Know-How Contract and its effect was to prevent PIV Antrieb from performing its obligations under the Know-How Contract.

·                    On 1 November 2001 PIV Drives was purchased by Brevini Italy.

·                    Any rights that PIV Antrieb held in relation to the confidential information ceased on 25 October 2001 when, by its conduct in transferring all of its assets and undertaking to PIV Drives, PIV Antrieb repudiated the Know-How Contract, which repudiation Elecon Engineering accepted. 

·                    The rights that PIV Antrieb held, in relation to the confidential information under the Know-How Contract, were not transferred to PIV Drives by the assignment.

·                    PIV Drives and Brevini Australia are therefore not entitled to rely upon the rights under the Know-How Contract.

It is difficult to discern how those assertions disentitle PIV Drives to assert its rights in relation to breach of confidence in relation to confidential information that was transferred to it by PIV Antrieb.

29                                          The primary judge acknowledged a contention on behalf of Elecon Engineering and Elecon Australia that there had been no effective assignment of PIV Antrieb’s interest in the confidential information and that it was therefore necessary to join PIV Antrieb to the proceeding.  However, his Honour found that any transfer of the confidential information to PIV Drives by PIV Antrieb was subject to the licence granted to Elecon Engineering for so long as that licence should endure.  There was no challenge to that finding. 

30                                          The primary judge also referred to an estoppel defence, to the effect that, because PIV Drives had taken insufficient steps to protect the interest that it now claims, it allowed Elecon Engineering and Elecon Australia to adopt an assumption, to their detriment, that they were permitted to use the confidential information, such that that PIV Drives is now estopped from asserting its rights.  His Honour found that clear notice had been given to Elecon Engineering of the claim made by PIV Drives on 22 May 2002 and that Elecon Engineering understood that claim.  His Honour therefore rejected the factual basis for any estoppel. 

31                                          The primary judge next referred to a contention advanced on behalf of Elecon Engineering and Elecon Australia that PIV Drives had acted unconscionably in acquiring any equity on which it relies.  The contention involved an assertion that, by reason of the assignment, PIV Antrieb had been disabled from fulfilling its obligations under the Know- How Contract and PIV Drives was complicit in that action.  His Honour rejected the premise upon which that contention depended.  His Honour considered that the contention should not be assessed in the abstract but should be resolved by reference to such contractual obligations as remained to be fulfilled by PIV Antrieb.  Relevantly, his Honour found that PIV Antrieb was obliged to check drawings provided by Elecon Engineering in connection with its own projects and to provide "all necessary assistance" to enable it to produce drawings.  However, his Honour found that PIV Antrieb was never asked to check any drawings and there was no evidence that any request for support was made or any form of support withheld between 1 November 2001 and 25 March 2002, when Elecon Engineering gave notice of termination. 

32                                          The primary judge found that arrangements remained in place where it would have been possible for PIV Antrieb, through its administrator, to ask PIV Drives for support and, after consideration of the matter on a case by case basis, for PIV Drives to provide it.  His Honour found that there was no evidence that the administrator would have been unable to respond to a request from PIV Antrieb.  Thus, the contention really depended on conjecture in a context where the possibility did not ever arise.  His Honour found, therefore, that there was an insufficient basis to conclude that PIV Antrieb had been disabled in the way contended. 

33                                          The primary judge observed that the action to restrain breach of confidence is not based in contract.  Rather, it appeals to the general equitable jurisdiction to grant relief against an actual or threatened abuse of confidential information.  The rational basis for that equitable jurisdiction does not lie in proprietary right but in the notion of an obligation of conscience arising from the circumstances in or through which the information was communicated or imparted (see Moorgate Tobacco Co Limited v Philip Morris Limited [No. 2] (1984) 156 CLR 414 at 438).

34                                          The primary judge had no doubt that the intellectual property that was assigned by PIV Antrieb with effect on 1 November 2001, including the confidential information that had been imparted to Elecon Engineering, was capable of protection.  His Honour accepted that, because the benefit of the Know-How Contract was not assigned by PIV Antrieb to PIV Drives, the cause of action of PIV Drives could not be based upon a contractual promise.  Nevertheless, his Honour saw no reason to doubt that the interest in the confidential information was directly assignable, such that the title of PIV Drives to sue does not depend upon the assignment of any contractual promise under the Know-How Contract. 

35                                          Although confidential information is not property in the usual sense, it may be transferred by one person to another and the person to whom it is transferred has standing to take action to protect the confidentiality of the information.  The Court may therefore grant at the behest of the person to whom, as a purchaser, the confidential information is transferred, injunctions and equitable compensation for breaches of the confidence (see TS & B Retail Systems Pty Ltd v 3Fold Resources Pty Ltd (No 3) (2007) 158 FCR 444 at [72]-[77]).  His Honour therefore concluded that it was not necessary that PIV Antrieb be joined as a party.  His Honour was satisfied that Elecon Engineering had breached the obligation of confidence that it owed to PIV Drives and that both it and Elecon Australia may be restrained, at least in Australia, from further breach of that confidence. 

36                                          In the amended notice of appeal, the only ground relevant to the finding of breach of the obligation of confidence and the granting of relief on that basis was that the primary judge erred in concluding that PIV Drives and Brevini Australia were entitled to the equitable relief claimed.  There was no more specific particularisation of that ground.  However, in their written submissions in support of that ground, Elecon Australia and Elecon Engineering advanced the following argument:

·                    PIV Drives and Brevini Australia should have been refused equitable relief in relation to the claims of breach of confidence as a consequence of the conduct whereby PIV Antrieb had repudiated the Know-How Contract:  that was essentially an assertion that PIV Drives did not have clean hands and therefore should not be granted equitable relief.

·                    The primary judge should have found that PIV Antrieb repudiated the Know-How Contract and therefore should have concluded that the involvement of PIV Drives in the conduct giving rise to the repudiation disentitled it and Brevini Australia from injunctive relief.

·                    The primary judge failed to recognise that an ongoing obligation of PIV Antrieb under the Know-How Contract was to ensure that Elecon Engineering had the benefit of the exclusive use in India of the manufacturing secrets and know-how necessary to manufacture and sell the gear units and drives and failed to recognise the significance of the capacity of PIV Antrieb to continue to supply technical information relating to the gear units and drives.

·                    The negotiations for the assignment by PIV Antrieb to PIV Drives were kept secret from Elecon Engineering, which was therefore unable to take steps to protect its rights under the Know-How Contract and PIV Antrieb failed to take steps to protect those rights.

·                    The transfer of the confidential information from PIV Antrieb to PIV Drives destroyed the benefit of the exclusive licence held by Elecon Engineering under the Know-How Contract.

·                    The involvement of PIV Drives in the repudiation of the Know-How Contract was unconscionable conduct by PIV Drives.

·                    PIV Drives should therefore be denied equitable relief.

37                                          However, his Honour expressly held that PIV Drives received the relevant manufacturing secrets and know-how from PIV Antrieb subject to the licence to Elecon Engineering under the Know-How Contract, for so long as that licence should endure.  That holding was not impugned by any contention advanced in the appeal.  There was no evidence that German law in that regard differed from Australian law.  That is effectively an answer to the contention advanced in the Defence and in the written submissions. 

38                                          However, in the course of oral argument, the contention was put in a different way.  The argument may be summarised as follows:

·                    While confidential information is not property, it has some attributes similar to the attributes of property.

·                    Protection of confidential information is granted in equity when it is shown that an obligation of confidentiality has arisen from the circumstances in which the information is communicated or imparted.  

·                    The confidential information in question was imparted to Elecon Engineering on the basis that Elecon Engineering would have exclusive use of the information in India.

·                    Elecon Engineering paid a substantial licence fee for the grant of the exclusive licence.

·                    PIV Antrieb, as licensor under the Know-How Contract, was obliged to keep the information secret in India and not make the information available for use by a competitor of Elecon Engineering in India, otherwise the benefit of the exclusive licence would be reduced.

·                    By reason of the mutuality of the promises made in the Know-How Contract, Elecon Engineering was bound by its duty of confidence only for so long as PIV Antrieb maintained its exclusivity in India.

·                    PIV Drives is a subsidiary of Brevini Italy, which is a competitor of Elecon Engineering with a sales network in India including a sales office in Mumbai near Elecon Engineering’s plant.

·                    Accordingly, by assigning the information to PIV Drives without express reservation of the rights of Elecon Engineering, PIV Antrieb failed to maintain the exclusivity in India of Elecon Engineering.

·                    Following the assignment by PIV Antrieb to PIV Drives taking effect on 1 November 2001, PIV Antrieb could no longer do anything to protect the right of exclusivity granted to Elecon Engineering and made no arrangement to protect the rights of Elecon Engineering under the Know-How Contract.

·                    From the time of the assignment on 1 November 2001 until the termination of the Know-How Contract, Elecon Engineering was in a situation where it was bound by the duty of confidence undertaken in exchange for exclusivity but did not have the benefit of exclusivity in India.

·                    On the other hand, Brevini Italy, a competitor of Elecon Engineering, through its subsidiary PIV Drives, had the capacity to compete in India.

39                                          It is significant that it was not put as part of the argument that Brevini Italy or its subsidiaries had in fact disclosed or in any way made use of the confidential information in India prior to the termination of the Know-How Contract.  The most that was suggested is that there was some evidence to suggest that Brevini Italy or its subsidiaries could have done so had it wished. 

40                                          There was no error in the conclusion of the primary judge that the assignment of the confidential information by PIV Antrieb to PIV Drives was subject to the exclusive right that had been conferred on Elecon Engineering under the Know-How Contract.  Any such right, of course, endured for only so long as the Know-How Contract endured.  It is common ground that the Know-How Contract came to an end on 25 March 2002.  There is no basis upon which the mere possibility of action by Brevini Italy or its subsidiaries in India prior to that time could have discharged Elecon Engineering from the duty of confidence by which it was bound when it received the confidential information under the Know-How Contract.

41                                          That is the conclusion reached by the primary judge.  His Honour made no error in granting equitable relief in respect of breach of the duty of confidence owed by Elecon Engineering to PIV Antrieb and its successor in relation to the confidential information imparted to Elecon Engineering under the Know-How Contract. 

TRADE MARKS

42                                          The orders made by the primary judge on 18 December 2009 included a declaration that Elecon Engineering and Elecon Australia had infringed Australian registered trade mark 946730 (POSIRED) and Australian registered trade mark 960995 (PIV).  The registered trade marks were described in the declaration as the PIV Trade Marks.  The primary judge also made an order that Elecon Engineering and Elecon Australia be restrained from using, as a trade mark, any sign that is substantially identical with or deceptively similar to the PIV Trade Marks in relation to the goods or services for which they are registered.  The primary judge also ordered that there be an inquiry as to damages or, in the alternative, an account of profits in relation to a number of matters including “the infringements of the PIV Trade Marks”. 

43                                          Those orders were based on the primary judge’s finding that three matters supported the claim of trade mark infringement.  The first concerned representations made in a catalogue dated 2000 and entitled “Elecon range of transmission products”, which was said to have been supplied on or about 18 October 2004.  The second was a letter dated 26 March 2003 from Terry Hall, a director of Elecon Australia, to an unidentified recipient in which one of the PIV Trade Marks (POSIRED) was used.    The third was a 1999 catalogue, which the primary judge found was in circulation in Australia until some months after the publication of another catalogue in April 2004.

44                                          In ground 6 of their amended notice of appeal, Elecon Engineering and Elecon Australia contended that the primary judge erred in finding that certain documents exhibited to an affidavit sworn by Christopher Bayliss, the Managing Director of Brevini Australia, established infringing use of the PIV Trade Marks.  Those documents included the 2000 catalogue and the letter dated 26 March 2003 but, significantly, not the 1999 catalogue. 

45                                          As the argument developed in oral submissions, Elecon Engineering and Elecon Australia focussed on whether the primary judge erred in allowing the tender of a post-it note as part of the tender of a number of catalogues, including the 2000 catalogue, which Mr Bayliss described in his affidavit as “a bundle of catalogues and promotional material provided by Elecon Australia to a potential customer of Elecon Australia on or about 18 October 2004 (Elecon Promotional Material)”.  The post-it note was attached to one of those catalogues, but not the 2000 catalogue.  It read:  “Received by Customer – 18/10/04”.  Although an objection to the tender of the post-it note was pressed, no objection, apparently, was pressed with respect to the reading in evidence of the description given in the affidavit.  Even so, according to the submission made by Elecon Engineering and Elecon Australia, that description, which also embraced the 2000 catalogue, by itself, was not sufficient to prove use in Australia of the PIV Trade Marks.  They made the same submission in their written submissions with respect to the letter dated 26 March 2003.

46                                          PIV Drives and Brevini Australia submitted that the primary judge’s findings in this regard were simply instantiation of the acts of infringement of the PIV Trade Marks and that the extent of infringement was a question to be considered as part of any subsequent inquiry as to damages or an account of profits (see Nokia Corporation v Liu (2009) 179 FCR 422 at [39]-[41]).  In conformity with that submission, they accepted that, ultimately, it will be a matter for them, in connection with the holding of any inquiry as to damages or on the taking of any account of profits, to establish all infringements for which they seek damages or profits.  In that connection they said that they would not insist upon the primary judge’s findings to which we have referred as the starting point for that purpose. 

47                                          The scope of an inquiry as to damages, and, it would follow, an account of profits, normally corresponds to the width of the injunction that is granted (see National Broach and Machine Co. v Churchill Gear Machines Ltd [1965] 1 WLR 1199 at 1204-1205, Nokia at [34]-[36]).  Here, the injunction is in broad terms, unconfined by reference to particular infringements or, indeed, any form of infringement.  The declaration is similarly unconfined.  The order providing for the inquiry or, alternatively, the account, relevantly refers to “the infringements of the PIV Trade Marks”.  Those orders comprehend all infringing use of the PIV Trade Marks by Elecon Engineering and Elecon Australia to be established at the inquiry or at the time of taking the account.   

48                                          It is trite that an appeal can only brought from a judgment, and not a finding of fact.  If nothing else, the declaration, injunction and orders for an inquiry or an account would be supported by the primary judge’s finding that the PIV Trade Marks were infringed by the circulation in Australia of the 1999 catalogue, in respect of which there is no challenge on this appeal.  At the outset, therefore, Elecon Engineering and Elecon Australia were confronted with the problem that ground 6 of the amended notice of appeal is inutile.  Be that as it may, given the statement on behalf of PIV Drives and Brevini Australia that they would not rely on the primary judge’s findings for the purpose of proving quantum, whether of damages or profits, Elecon Engineering and Elecon Australia did not further seek to contest the findings to which their ground of appeal was directed, even if that course was available to them.  In the circumstances it is not necessary for us to deal with ground 6 of the amended notice of appeal.   

CONCLUSION

49                                          The appeals must be dismissed.  Elecon Engineering and Elecon Australia should pay the costs of PIV Drives and Brevini Australia of the first appeal and Elecon Australia should pay the costs of Brevini Australia of the second appeal. 

Associate:

Dated:         28 May 2010