FEDERAL COURT OF AUSTRALIA

Nexus Adhesives Pty Ltd v RLA Polymers Pty Ltd [2012] FCAFC 135

THE COURT ORDERS THAT:

1.    The appeal be dismissed.

2.    The appellants pay the respondent’s costs of and incidental to the appeal.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

THE COURT:

INTRODUCTION

1        After a 16 day trial, in a judgment given on 29 April 2011 (RLA Polymers Pty Ltd v Nexus Adhesives Pty Ltd (2011) 280 ALR 125) (the first judgment), the learned primary judge found that the appellants had used confidential information (RLA’s confidential information) which is the property of the respondent RLA Polymers Pty Ltd (RLA) in developing a product manufactured and sold by the first appellant, Nexus Adhesives Pty Ltd (Nexus), namely, the Nexus 820 premium sheet vinyl adhesive (Nexus 820) in breach of duties of confidence owed by the appellants to RLA.

2        His Honour rejected an additional claim by RLA that Nexus had also used RLA’s confidential information in developing another adhesive product, Nexus 840. There is no issue in the present appeal concerning the Nexus 840 adhesive.

3        The second to fourth appellants, Jonathan Charles Clewlow (Clewlow), Ishu Sofat (Sofat) and Brett Nixon (Nixon) were employees of RLA who, after leaving their employment with RLA, were involved in the establishment of Nexus which became a direct competitor of RLA in the business of manufacturing and supplying vinyl adhesives.

4        The primary judge found that, through the actions of Clewlow, Sofat and Nixon, Nexus gained a springboard advantage in the development of Nexus 820. For this reason, his Honour ordered that the Registrar take an account of the profits (if any) made by Nexus from the sale of Nexus 820 adhesive between the date in September 2007 when the first sale of Nexus 820 was made and 14 March 2008. His Honour took the view that a period of approximately five and a half months represented the springboard advantage gained by Nexus from using RLA’s confidential information. On 29 April 2011, his Honour also ordered Nexus to pay to RLA as damages the amount found upon the taking of accounts by the Registrar as ordered.

5        In a second judgment given on 2 June 2011 (RLA Polymers Pty Ltd v Nexus Adhesives Pty Ltd [2011] FCA 606) (the second judgment), the primary judge ordered that the appellants pay interest on the damages quantified by the Registrar. He also ordered that the appellants pay 75% of RLA’s costs of the proceedings at first instance.

THE APPEAL AND THE PRINCIPLES WHICH GOVERN IT

6        By their Notice of Appeal and in their submissions made to the Full Court (both written and oral), the appellants have mounted a detailed and lengthy attack on the findings of fact made by the primary judge. They also allege that his Honour made a number of errors of law. As a general observation, it must be said that the appellants have argued the appeal upon the basis that every important finding of fact made by the primary judge is susceptible to challenge and that this Court should, in effect, examine afresh any finding of fact which the appellant challenges. This approach pays insufficient regard to the well settled principles which govern the exercise of the Full Court’s appellate jurisdiction in a matter such as this. In Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424, the Full Court concluded that, in a matter such as the matter with which we are presently dealing, the appeal is by way of rehearing. At [21] (p 435), Allsop J (with whom Drummond and Mansfield JJ agreed) said that, notwithstanding that the appeal was by way of rehearing, there remained a need to show error on appeal. At [24]–[27] (pp 435–436), his Honour said:

24     What is error in any given case depends, of course, not only on the evidence, but also on the nature of the findings or conclusions made by the primary judge. The demonstration of error may not be straight-forward where findings or conclusions involve elements of fact, degree, opinion or judgment or when the findings or conclusions in question can be seen as made with the advantage of hearing the evidence in its entirety, presented as it unfolded at the hearing with the opportunity over the course of the hearing and adjournments for reflection and mature contemporaneous consideration and assessment, in particular in a long and complex hearing [citations omitted].

25     This is not to elevate ordinary factual findings to the protected position of those based on credit, but it is to make clear, first, the advantages of the trial judge and, secondly, the need for demonstration of error. The inability to identify error may arise in part from the unwillingness of the appeal court to be persuaded that it is in as good a position as the trial judge to deal with the issues, because of the kinds of considerations referred to at [24] above. Or, it may be that the nature of the issue is one such that (though not a discretion) there cannot be said to be truly one correct answer. In such cases the availability of a different view, indeed even perhaps the preference of the appeal court for a different view, may not be alone sufficient …

26     Where parties do not finally record their bargain in a formal document but, perforce of circumstance, leave the state of their communings as a mixture of conversations (between different people), letters and drafts, the findings and conclusions of the trial judge as to what was agreed (in the sense of consensus) and whether or not such agreement was intended to be legally binding may well be ones reached with all the advantages referred to by, amongst others, Kirby J in Earthline, and perhaps with the advantage of seeing and assessing the witnesses. Such findings and conclusions are the very kind of assessments to which the words of Lord Hoffmann in Biogen Inc v Medeva plc [1997] RPC 1 at 45 (cited with approval by Heydon JA in Williams) are especially apposite:

“The need for appellate caution in reversing the judge’s evaluation of the facts is based upon much more solid grounds than professional courtesy. It is because specific findings of fact, even by the most meticulous judge, are inherently an incomplete statement of the impression which was made upon him by the primary evidence. His expressed findings are always surrounded by a penumbra of imprecision as to emphasis, relative weight, minor qualification and nuance (as Renan said, la [vérité] est dans une nuance), of which time and language do not permit exact expression, but which may play an important part in the judge’s overall evaluation.”

27     However, as was made clear in Cabal, this Court is bound to deal with the appeal as directed by Warren v Coombes.

7        At [30], his Honour emphasised that the proper approach is not to ask the Full Court to survey all of the evidence without ever attempting the necessary task of positively demonstrating that the trial judge was wrong. As his Honour remarked, it is not appropriate to treat the appeal as though it were a new trial on the evidence constrained only by the unassailable findings of fact and credit findings. The views and conclusions of the trial judge must be shown to be wrong. They should not simply be put to one side and the case reargued all over again.

8        The obligation to conduct a review within the principles stated in Warren v Coombes (1979) 142 CLR 531 was reiterated by the High Court in Fox v Percy (2003) 214 CLR 118. The plurality (Gleeson CJ, Gummow and Kirby JJ), after considering the nature of an appeal by way of rehearing and the limitations inherent in the appellate process, said at [25] (p 126–127):

25     Within the constraints marked out by the nature of the appellate process, the appellate court is obliged to conduct a real review of the trial and, in cases where the trial was conducted before a judge sitting alone, of that judge’s reasons. Appellate courts are not excused from the task of “weighing conflicting evidence and drawing [their] own inferences and conclusions, though [they] should always bear in mind that [they have] neither seen nor heard the witnesses, and should make due allowance in this respect”. In Warren v Coombes, the majority of this Court reiterated the rule that:

“[I]n general an appellate court is in as good a position as the trial judge to decide on the proper inference to be drawn from facts which are undisputed or which, having been disputed, are established by the findings of the trial judge. In deciding what is the proper inference to be drawn, the appellate court will give respect and weight to the conclusion of the trial judge but, once having reached its own conclusion, will not shrink from giving effect to it.”

As this Court there said, that approach was “not only sound in law, but beneficial in ... operation”.

9        Their Honours went on to say at [28] (p 128) that the mere fact that a trial judge necessarily reached a conclusion favouring the witnesses of one party does not relieve an appellate court from its duty to conduct a real review. However, their Honours’ observations at [28]–[29] (p 128) make it clear that what is ordinarily required in cases where the appellate court is asked to depart from such findings is “incontrovertible facts”, or a conclusion that the decision at trial is “glaringly improbable” or “contrary to compelling inferences”.

10        In the present case, the primary judge has distilled the vast body of evidence presented to him into a sensible and digestible judgment. It was incumbent upon the primary judge to assess the worth and reliability of the evidence given by each of Clewlow, Sofat and Nixon against his findings of primary fact and the inferences which he drew from those findings in order to come to his conclusions in relation to the issues which were at the heart of the case before him, namely, whether the information relied upon by RLA as confidential and as constituting a trade secret was appropriately characterised as having that status and whether Clewlow, Sofat, Nixon and Nexus used that information as a springboard in the development of Nexus 820.

11        It is plain from the first judgment that his Honour did not accept the denials of the individual appellants to the effect that they did not use RLA’s confidential information in the development of Nexus 820.

12        The appellants also rely upon a submission to the effect that the primary judge overlooked or ignored certain important evidence. That submission is based upon an assertion that, because his Honour chose not to refer specifically to every piece of evidence relied upon by the appellants in the proceedings below, his Honour must have overlooked that evidence. We do not accept this approach as a correct approach in principle. In Mifsud v Campbell (1991) 21 NSWLR 725 at 728, Samuels JA said that it is unnecessary for a judge to refer to all of the evidence but a failure to refer to evidence that is critical to an issue may constitute error. Further, in State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (in liq) (1999) 160 ALR 588 at 619, Kirby J observed that the position was a fortiori where the trial was a long one, the exhibits numerous, the issues multiple and the oral and written submissions detailed and protracted.

13        As a general observation, we do not accept that the succinct expression of his Honour’s reasons in the first judgment is a matter for criticism nor do we accept that it demonstrates that important evidence was overlooked. Rather, it may fairly be described as a commendable distillation of the relevant facts, issues and findings.

14        The appellants specified 16 grounds of appeal in their Notice of Appeal. Many of these grounds contain what can be described as multiple sub-grounds. With one or two exceptions, the grounds of appeal involve challenges to the primary judge’s findings of fact.

15        In their written submissions in support of their appeal, the appellants advanced their arguments by reference to seven issues. Those issues were then related back to the grounds of appeal specified in the Notice of Appeal. RLA, on the other hand, made its written submissions by reference to the grounds of appeal, rather than the issues identified by the appellants. However, in oral argument, the debate was further refined by the appellants’ Counsel who reduced the issues to four areas of dispute.

16        We propose to deal with the appeal by reference to the seven issues identified by the appellants in their written submissions. In addressing those issues, we will apply the principles explained by Allsop J in Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd and the High Court in Fox v Percy. In particular, we accept that, in order to succeed in the appeal on any of the grounds specified in their Notice of Appeal, the appellants must demonstrate error on the part of the primary judge.

THE PARTIES AND THEIR BUSINESSES

17        RLA was established in the 1960s under the name “Rubber Latex Australia”. It is now a wholly owned subsidiary of Australia Vita Pty Ltd. Its ultimate parent company is Vita Caymen Ltd. RLA’s business has undergone two expansions which are relevant to the present case. The first occurred in 1994 when RLA acquired the business of Polymer Engineering, a flooring adhesives manufacturing company which, at that time, produced a vinyl floor adhesive manufactured and sold under the product name “Polymer Engineering 3300”; a vinyl adhesive manufactured and sold as “Polymer Engineering 165”; and a pressure sensitive adhesive manufactured and sold as “Polymer Engineering 999”. The transaction pursuant to which the business of Polymer Engineering was acquired by RLA involved the transfer to RLA of all intellectual property and confidential information owned by Polymer Engineering which included, in particular, the chemical formulations and manufacturing processes for the three products to which we have referred above. RLA also acquired all Polymer Engineering’s materials, equipment and a plant in Thomastown, Melbourne. It also became the employer of several members of Polymer Engineering staff, including Clewlow. The purpose of the acquisition was to enable RLA to enter the flooring adhesives market by expanding its product range which previously had not extended to flooring adhesives. The second relevant expansion took place in 1996, when RLA acquired the “Roberts” branded range of flooring adhesive products from Pacific Dunlop.

18        As a result of the acquisition of Polymer Engineering’s business and the Roberts branded range of flooring adhesive products, RLA obtained access to, and the rights over, particular product formulations which eventually led to the development of two valuable and successful adhesive products, namely, PE 265 and Roberts 656. RLA continues to sell PE 265 and Roberts 656 to distributors and also sells both products under a number of different brand names used by distributors who, in turn, onsell them to customers in the floor covering market.

19        At [11]–[15] (pp 129–130) of the first judgment, the primary judge set out the evidence before him as to the development of PE 265. PE 265 is a vinyl sheet adhesive designed for bonding commercial and domestic vinyl sheet products such as vinyl sheeting and PVC-backed carpets. The product took approximately 16 months to develop. It was released for commercial distribution in May 1995.

20        At [16]–[17] (p 130) of the first judgment, his Honour described the development of Roberts 656. Roberts 656 is a pressure sensitive adhesive intended for use with carpet tiles, foam underlay and vinyl composition tiles in both domestic and commercial settings. Roberts 656 was first developed in 2001 and was initially based on the technology of Polymer Engineering 999, with the aim of reducing odour and improving tackiness.

21        At [5]–[7] (pp 127–128) of the first judgment, his Honour outlined, at a general level, the types of ingredients that are commonly found in commercial adhesives. His Honour said:

5    The following is an extract from the CETEC Expert Witness Report (CETEC Report) and is an uncontroversial summary of the types of adhesive ingredients which make up PE 265, Nexus 820, Roberts 656, and Nexus 840.

… PE 265 and Nexus 820 and Roberts 656 and Nexus 840 are Contact Adhesives and Pressure Sensitive Adhesives respectively.

A Contact Adhesive is typically a mixture of ingredients dissolved in a solvent. These ingredients are usually made up of a polymer(s), filler(s), possibly pigment(s) and/or additives. With a Contact Adhesive, the product may be applied to one or both substrate surfaces, these are subsequently allowed to solvent dry and become tacky, before the two adhesive surfaces are brought together to create the bond.

Pressure Sensitive Adhesives form a bond by the application of light pressure between the two substrate surfaces. Thus, in the case of a carpet tile, the adhesive is applied to the tile and thereafter simply pressed into position on the floor.

6    The CETEC Report was tendered by RLA and comprised two reports prepared by CETEC Pty Ltd (CETEC). The first report set out a number of chemical and documentary analyses and conclusions arising from them and detailed the instructions and materials received by CETEC. The second report was a supplementary report prepared by CETEC after the respondents’ witness statements had been filed and was prepared in response to an inquiry as to whether CETEC’s original opinions had changed, and, if so, how. The authors of the CETEC Report, and expert witnesses called by RLA, were Dr Vytenis Peter Garnys, managing director and principal consultant of CETEC (Dr Garnys) and David Anthony Bate, Senior Consultant of CETEC (Bate).

7    It is common ground between the parties to this proceeding that most adhesives contain the following raw materials which are readily obtainable from trade suppliers:

(a)    base resins such as polymers which constitute the main ingredient in the adhesive and provide adhesion and tack;

(b)    a “tackifier”, such as a resin;

(c)    a solvent, such as water;

(d)    thickeners;

(e)    filler;

(f)    biocide, pH adjusters and other additives.

The base resin or polymer is the most prevalent raw material in the adhesive formula, providing the basic performance properties of the adhesive.

22        Nexus was incorporated on 8 August 2006 by Clewlow and Sofat. They are the directors of Nexus. Each of them holds 50% of the issued shares. Nexus began trading in September 2006 predominantly in carpet compounds. It sold its first flooring adhesives in May 2007.

23        Clewlow was employed by RLA from January 1994 until his resignation on 28 July 2006. He had previously worked for Polymer Engineering for six years and joined RLA upon its acquisition of the Polymer Engineering business in January 1994. During his service with RLA, Clewlow developed considerable knowledge in the use and application of flooring adhesives and their constituent ingredients. However, he did not have any experience or training in the development or manufacture of the products themselves. Clewlow became disaffected when he was not appointed as Managing Director of RLA.

24        Sofat was employed by RLA from March 1998 until her resignation on 4 August 2006. She is a technical person. She was involved in the development and sales of latex underlay and carpet backing compounds. She did not perform any technical work on PE 265 or Roberts 656 or any other RLA flooring adhesives.

25        Sofat had had some experience with flooring adhesives during her employment at Roberts Australia where she had worked as a junior laboratory assistant for a short period of approximately six months in 1985. That position was a fairly junior position and did not involve the development of formulations. Following her time at Roberts Australia, Sofat did not have any significant direct involvement with flooring adhesives again until she commenced work on developing flooring adhesives for Nexus. Before commencing work at RLA, Sofat had been employed by Nuplex Industries Pty Limited (Nuplex) and Dunlop Flooring, predominantly in connection with carpet compounds and underlays.

26        Clewlow approached Sofat in June 2006 suggesting to her that she should leave RLA and come and join him at Nexus once the business was established.

27        Nixon was employed by RLA between February 2002 and 19 January 2007. He was primarily involved in sales and promotion of RLA products rather than working as part of RLA’s technical staff in the development of products such as PE 265 or Roberts 656. As at August 2006, he had considerable experience in the flooring adhesives industry. That experience had been concentrated on the use and application of flooring adhesives. He had no training or experience in chemistry or the development of chemical formulations for products like PE 265, Roberts 656 or Nexus 820.

28        Nixon joined Nexus as Manager of the Adhesives Division on 19 March 2007.

THE FIRST JUDGMENT OF THE PRIMARY JUDGE

29        After introducing the parties and generally describing their products, at [31]–[40] (pp 132–134), the primary judge summarised RLA’s claims, the appellant’s defences to those claims and the issues arising for consideration and determination by him. His Honour observed that RLA alleged that each of Clewlow, Sofat and Nixon owed both a contractual and equitable duty of confidence to RLA arising from the terms of their respective contracts of employment and the relationship of employment which each of them had with RLA. Each of Clewlow, Sofat and Nixon admitted that they owed duties of confidentiality to RLA. Next, RLA alleged that the formulations and processes for manufacturing each of PE 265 and Roberts 656 were confidential information of RLA and also trade secrets of RLA. It was then alleged that, in breach of their duties of confidence, each of Clewlow, Sofat and Nixon disclosed to each other and to Nexus certain confidential information which was the property of RLA which Nexus then used to bring Nexus 820 (and indeed Nexus 840) to the market much sooner than would have occurred had the appellants not misused RLA’s confidential information. RLA alleged that Nexus used RLA’s confidential information as a springboard to bring its products to market in a shorter timeframe than would otherwise have been the case and in direct competition with those of RLA.

30        RLA also alleged that the appellants had been guilty of misleading and deceptive conduct or conduct which was likely to mislead or deceive in contravention of s 52 of the Trade Practices Act 1974 (Cth) (the Trade Practices Act) and its cognate State provisions by representing to consumers that Nexus 820 and Nexus 840 had been developed by Nexus. It was also alleged that the appellants had breached s 53(c) of the Trade Practices Act and the cognate State legislative provisions.

31        At [40] (p 134), the primary judge said that the two matters in dispute between the parties were:

(a)    Whether the information which RLA claimed was both confidential and a trade secret truly bore that status; and, if so,

(b)    Whether the appellants misused that information in developing either or both Nexus 820 and Nexus 840.

32        At [42]–[75] (pp 135–146) of the first judgment, his Honour then discussed the relevant legal principles as to what is confidential information and a trade secret and then considered those principles in the context of the present case.

33        At [45]–[47] (pp 137–138), the primary judge found that the description of RLA’s confidential information given by RLA in the latest iteration of its Statement of Claim at [10] of that pleading was sufficient to capture as a subset of the specified confidential information:

… the type, relative proportions and number of polymers specified in the formulas for PE 265 and Roberts 656.

34        That finding led to the rejection of a submission made by the appellants to his Honour that the description of the confidential information in RLA’s Statement of Claim was too wide with the consequence that confidential or trade secret status should not be allowed to individual ingredients in PE 265 and Roberts 656.

35        His Honour accepted at [47] (p 138) that this quality of confidence attached to the information even though the individual ingredients constituting, inter alia, PE 265, were readily available from industry suppliers. One such supplier was BASF which supplied “starting point formulations” (SPFs) for particular polymers to the appellants and Nexus. His Honour found, at [50] (p 139), on the evidence before him that, although SPFs may contribute to the ultimate production of an adhesive, significant further development is usually required.

36        Moreover, his Honour found at [52] (p 139) that, although it would have been possible to independently ascertain the confidential information involved in the manufacture of PE 265, this would require the expenditure of time, effort and money, such that the information could not be said to be in the public domain.

37        His Honour went on to hold that RLA’s confidential information was both confidential and a trade secret. In particular, at [62] (p 142) of the first judgment, his Honour held that the number, type and amount of polymers in both PE 265 and Roberts 656 constitute a trade secret. At [62]–[64] (pp 142–143), his Honour said:

62    It is, in my view, quite clear from the evidence that each of Clewlow, Sofat and Nixon, in fact, knew that the confidential information was confidential to RLA in the context of the adhesives industry. In accordance with the principles enunciated in Australian Medic-Care and GlaxoSmithKline, I consider the confidential information to have the “necessary quality of confidence about it” to import an obligation of confidence enforceable by an action like the present. I have also been led to characterise the confidential information, and certain specific items of that information, as a “trade secret”. I do not accept that certain aspects of the confidential information, such as the number, type and amount of polymers in a formulation, can be considered part of an employee’s “stock of knowledge” which can legitimately be drawn upon when working for a new employer. As indicated at [59] above, the “know-how” exemption does not apply where the knowledge constitutes a “trade secret”, which in this case comprises specific items of the confidential information that can fairly be regarded as a separate part of an employee’s stock of knowledge but which “a person of ordinary honesty and intelligence would recognise to be the property of his old employer”. Accordingly, for the reasons explained in the following paragraph, I consider that the number, type and amount of polymers in both PE 265 and Roberts 656 constitute a “trade secret”.

63     In these proceedings, both parties acknowledged that the key components of the adhesive products PE 265, Roberts 656, Nexus 820 and Nexus 840, are acrylic polymers. The polymer content of each adhesive makes up of the bulk of the raw material used in both pressure sensitive adhesives and vinyl flooring adhesives and is considered to be the main “cost driver” as it is the most expensive ingredient in the finished product. In my view, any knowledge of the type, number and quantity (that is, weight) of polymer used in a specific adhesive formulation constitutes a “trade secret”, provided that the information is not in the public domain. Accordingly, any “stock of knowledge” taken away by the respondents on leaving RLA, which included such information about the polymers used in PE 265 and Roberts 656, was a “trade secret”, and not available to be used to further the development of a competitive product. Although such knowledge might have formed a separate part of an employee’s stock of knowledge it was, nevertheless, information which “a person of ordinary honesty and intelligence would recognise to be the property of his old employer”.

64    In the interests of maintaining the confidentiality of information possessed by both parties, I shall identify the ingredients used in each product with a particular pseudonym. It is clear that the parties regard the polymers as the main constituent of their respective adhesives. Where necessary later in these reasons, I shall assign other pseudonyms to other ingredients. Accordingly, the two polymers in PE 265 are hereafter referred to as Polymer A and Polymer B. The polymer in Roberts 656 is Polymer B. The polymers in Nexus 820 are Polymer 1, Polymer 2 and Polymer A. The polymers in Nexus 840 are Polymer B and Polymer 3. I shall also make reference to a Nuplex Polymer 4 and a Nuplex Polymer 5, which were considered in the development process by the respondents but ultimately not used in their final formula for Nexus 820 or Nexus 840.

38        His Honour concluded that, given the considerable amount of time, effort and resources put in to the development of PE 265 (and Roberts 656) by RLA and given the obvious importance to RLA of the formulation and manufacturing processes of those two products, they bore the necessary confidential quality. His Honour also found that RLA had taken steps to preserve the confidentiality of its confidential information.

39        His Honour concluded (at [66] (p 143) of the first judgment) that each of Clewlow, Sofat and Nixon owed both a contractual and an equitable duty of confidence to RLA, arising out of their employment contracts with RLA and out of the employment relationship itself. Each was under a duty not to use or to disclose any of the confidential information which he or she had retained once he or she had left the employment of RLA.

40        At [67]–[69] (pp 144–145), his Honour went on to say:

67    During the course of his or her employment, each of the respondents had access to the confidential information and, in particular, to System 21 which contained the product formulations for PE 265 and Roberts 656. Further, the evidence before the court in the form of witness statements of the respondents and their oral evidence under cross-examination indicates that each of them acquired confidential information in the sense of being exposed to it during the employment and retaining knowledge of it after leaving. This is evident from the following:

(a)     In his witness statement, Clewlow claimed that, while employed at RLA, he “had access to many if not all of the RLA formulations. I also had intimate knowledge of the PE 265 and R 656 formulations, but from a costing point of view only”. Clewlow affirmed this assertion during cross-examination.

(b)    In her first witness statement, Sofat claimed that she had acquired knowledge of the two polymers used in PE 265 from her “stock taking days at RLA”, where she came into contact with the Flooring Adhesive shed which contained large storage tanks for the two polymers used in PE 265. Further, she explained in her first witness statement that, when she started developing Nexus 820, she had been “aware of the raw materials and polymers used in PE 265”, though she did not know their specific quantities. Under cross-examination she confirmed her possession of this knowledge.

(c)    During cross-examination Nixon conceded that he knew most of the ingredients in Roberts 656 and PE 265 and his answers to Mr Derham’s questioning seemed to suggest that he had some knowledge of specific quantities. Nixon admitted, in his witness statement of 4 September 2009, that, while working for Nexus Adhesives he had found an old notebook from his employment with RLA which contained some notes about “items and quantities contained in the PE265 adhesive product”. He claimed that he had mentioned what was contained in his old notebook “in passing” to Sofat. Sofat claimed in her first witness statement that it had been Nixon who had told her of the two polymers in PE 265 and their proportions when he joined Nexus, and that she had written these in her notebook (notebook).

68    It is also clear from the evidence that the respondents had disclosed the retained knowledge described at [67] above to each other. In RLA’s submission, in breach of their duty of confidence they thereby authorised and encouraged its use when developing adhesives for Nexus Adhesives. The evidence supporting a finding to that effect is as follows:

(a)    Sofat gave evidence during cross-examination that she was aware of Clewlow’s knowledge of the formulations for PE 265 and Roberts 656 and that Clewlow had “encouraged” her to try out, as part of her development process, what he remembered to be the key polymer ingredients in PE 265, in their approximate proportions.

(b)    As mentioned at [66] above, Nixon also conceded that he had shared with Sofat the information regarding the polymers in PE 265, as well as their proportions and cost.

(c)    Sofat conceded that she had transcribed into her notebook on two separate occasions what Nixon had told her about the ingredients in PE 265. It appears from Sofat’s first witness statement that Nixon had provided her at some stage in March 2007 with details of the PE 265 polymers, their proportion and cost, and then later, “on a date between 30 July 2007 and 28 August 2007 [I] was having a further conversation with Brett Nixon and he listed some further components of PE 265, which I wrote down in my note book”.

69    On this evidence, at the least, the respondents have been in breach of their obligation under the terms of their respective contracts not to use or disclose to any third party either during or after their employment, trade secrets and information confidential to RLA. Under the principles enunciated in Australian Medic-Care, the agreed elements of the action for breach of confidence have been made out. However, for RLA to obtain the remedies which it seeks, it must make good its claim that the respondents’ breaches of their duty of confidence have led to their disclosing and using their knowledge of the confidential information to bring to market competing adhesive products more quickly than would otherwise have been the case, effectively using that information as a “springboard” to develop their own products. Accordingly, there needs to be proof to the requisite standard that the respondents used the confidential information in that way and to that effect.

41        Clewlow, in particular, had intimate knowledge of costing information referable to the ingredients of PE 265 and Roberts 656. It appears that Nixon also had knowledge of costing. His duties at RLA were similar to that of Clewlow and Sofat gave evidence that he provided her with confidential information about the cost of the two crucial polymers (referred to at [27] (p 132) and [134] (p 164)).

42        At [70]–[75] (pp 145–146), his Honour set out the relevant principles in relation to the springboard doctrine.

43        At [76] (p 147), his Honour proceeded to address the question of whether the appellants had misused RLA’s confidential information. At [76]–[78] (p 147), his Honour articulated the four potential broad inferences available to be drawn. At [79]–[80] (p 148), his Honour rejected what he described as “the ruse inference”. In the end, his Honour rejected the proposition that the whole of the activity undertaken by Nexus in purporting independently to develop Nexus 820 and Nexus 840 had been a “ruse” to mask the unlawful use of RLA’s confidential information. However, he found at [78] (p 147) and [99] (p 155) that, notwithstanding their desire to produce the adhesives independently, the respondents misused particular items of confidential information, namely the type, number and amount of polymers used by RLA, which constituted a trade secret, in the development of the Nexus products.

44        At [100]–[146] (pp 155–169), his Honour set out his reasons for concluding, as he did, that the appellants used parts of RLA’s confidential information in numerous ways throughout the development process of Nexus 820. In this part of his Honour’s judgment, his Honour found four particular misuses. The first misuse (dealt with at [102]–[108) (pp 155–157)), was that, right from the very start of the development process of Nexus 820, in late October 2006 or early November 2006, the formulation of PE 265 had been a reference point for Sofat’s work. This first use led to a gradual incorporation of PE 265 technology into the formulation of Nexus 820.

45        His Honour’s conclusion as to this use was based in large measure upon references to the formula for PE 265 in an exercise book maintained by Sofat when she was employed by RLA. One such reference was to a table set out in the exercise book and reproduced by the primary judge at [103] (pp 155–156). The learned primary judge went on to deal with this at [105]–[107] (p 156) as follows:

105    On the other hand, RLA contended, the formulation in the table at [103] above matches the formulation for PE 265 as it stood when Sofat left RLA. Evidence of the formulation for PE 265 at the time when Sofat left RLA confirms this contention. Even the specific brand of biocide used in the above formulation (not identified in these reasons) is identical to that used in PE 265. Accordingly, it is evident that Sofat’s intention was to “try” a particular formulation using the same two acrylic polymers, gum rosin and biocide as were present in PE 265. This is claimed by RLA to be evidence of Sofat reinforcing what she knew, or had been told, of PE 265. This evidence tends to show that Sofat knew the PE 265 formula and was using it at this early “research stage” in the development of Nexus 820.

106    When confronted during cross-examination with this parallel between the exercise book formula and the PE 265 formula, Sofat accepted its existence and suggested that the reason for it “could have been” because she had noted the ingredients that she knew were in PE 265 as something to try while developing a vinyl sheet adhesive. When asked by Mr Derham QC why she had made those notes under the heading, “Try”, her answer was simply “Why not?” RLA argues that this evidence establishes that, from the very start of the development process of Nexus 820, in late October 2006 or early November 2006, the formulation for PE 265 had been a reference point for Sofat’s work. I accept this argument.

107    I am not satisfied that Sofat’s explanation for reproducing in the exercise book the PE 265 formulation is sufficient to exclude as the preferable inference that the respondents did in fact use the confidential information. However, it seems to me that her evidence suggests that she did not comprehend, at that time, that she was using the confidential information illegitimately. As I have outlined above, the test being objective in nature, and it having been found that a reasonable person would understand such information to have been confidential, whether she knew that to use the confidential information as she did was impermissible is, for the purposes of liability at least, irrelevant. Sofat ought to have known that to use the confidential information to confer a possible competitive benefit on Nexus Adhesives was prohibited.

46        The second use dealt with by his Honour is addressed at [109]–[131] (pp 157–163).

47        It was RLA’s submission to his Honour that the development process for Nexus 820 was driven by the appellant’s desire to target, in particular, the RLA polymers used in PE 265 and Roberts 656 with a view to replacing them with what the appellants believed to be the Nuplex equivalent polymers. In this passage of the first judgment, his Honour considered the evidence of Sofat and how her testimony at trial measured up against the contents of her exercise book. His Honour observed at [111] (p 157) that the exercise book is replete with references to the polymers used in PE 265 including specific weights and relative proportions. One such reference was reproduced at [112] (p 158) and his Honour set out Sofat’s evidence in cross-examination in which she said that Clewlow had encouraged her to try the different polymers, ie Polymer A and Polymer B, in her formulation.

48        At [113] (p 158) of the first judgment, his Honour said:

113    In my view, this evidence of Sofat under cross-examination supports the inference that, during Sofat’s actual laboratory development of Nexus 820 at some point between 31 January 2007 and 26 March 2007, Clewlow disclosed to her the two polymers in PE 265 and their relative proportions and, as a result of that disclosure, the use which was then made of that part of the confidential information was to replace the BASF polymers contained in PE 265 (that is, Polymers A and B) with the Nuplex “equivalents” or “replacements”. This inference becomes more compelling when one turns to the evidence of the utilisation of Polymer B.

49        At [114] (pp 158–159), his Honour found that there was no logical explanation for the use of Polymer B in a vinyl flooring adhesive unless the developer was intending to target a replacement polymer as submitted by RLA.

50        His Honour concluded that, from 31 January 2007, when Sofat began actively developing Nexus 820, Clewlow encouraged, and Sofat engaged in, the use of RLA’s confidential information for the purpose of progressing the development of Nexus 820.

51        Importantly, his Honour found at [115] (p 159) that Sofat’s answers to questions about why Polymer B was being considered were “not helpful” and were “somewhat evasive”.

52        At [117]–[131] (pp 159–163), his Honour dealt with similar submissions directed to Nexus 840.

53        At [132] (p 164), his Honour said:

Other ingredients

132     When one has regard to ingredients other than the main polymers, there is insufficient evidence to support the inference that there was a simple targeting of the ingredients of Roberts 656 and substituting for them like or equivalent ingredients. Information about the ingredients of adhesives of the relevant type was readily available in the public domain, from the literature to the SPFs available from companies such as BASF and Nuplex. I also find that knowledge of the type of ingredients used in the relevant adhesives was part of the respondents’ general stock of knowledge when they left RLA. Notwithstanding that finding, I consider that use of the specific types or brands of ingredients in the weights and relative percentages in which they were present in the RLA products would amount to a breach of confidence. The evidence does not enable me to impute that kind of use to the respondents. Nor do I make any finding against the respondents of misuse of confidential information in choosing any of the other ingredients in Nexus 820 and Nexus 840.

54        At [133]–[135] (pp 164–165), his Honour dealt with the third misuse of RLA’s confidential information. In the course of dealing with that third use, his Honour recorded that, in Sofat’s exercise book, there was a detailed transcription of the key polymers in PE 265 and their relative weights, including their dry weights (at [134] (p 164)). This entry, which was based in part on confidential costing information given to her by Nixon, allowed Sofat to determine the cost of the ingredients of PE 265.

55        At [135] (p 164–165), his Honour said:

… the costing of the constituent ingredients is critical in bringing an adhesive to market and, as both sides accept, the key ingredients in these adhesives were the polymers. Therefore, knowledge of the precise costs of the principal polymers in PE 265, when used as a comparator in developing a competing product, would, in my view, constitute a trade secret. Accordingly, I accept that the confidential information was misused by the respondents in order to establish “cost drivers” and aid in the development of Nexus 820. If the respondents had not possessed that information but had been compelled to undertake independent development and research from material in the public domain it is likely that the commercial development of Nexus 820, would have occupied more time and resources than it did. As a result, the entry on to the market of Nexus 820 would have been delayed, denying the respondents the “springboard” benefit which they achieved.

56        At [136]–[146] (pp 165–169), his Honour dealt with the fourth misuse of RLA’s confidential information. His Honour found that the formulation of PE 265 was used to assist Nexus in solving what was described at trial as the “post thickening problem” which had become apparent in mid August 2007 but which was resolved by the end of September 2007.

57        Ultimately, Polymer A came to be used in Nexus 820 and was introduced at this time in order to deal with the post thickening problem. His Honour found that there was an irresistible inference that the formula PE 265 was studied and analysed with a view to ascertaining whether one of its important ingredients should be introduced into Nexus 820 in order to solve the post thickening problem.

58        At [143]–[145] (pp 168–169), his Honour said:

143    I regard as inadequate the respondents’ explanation of their activities in relation to the confidential information. The inference I prefer is that Sofat and Nixon used the confidential information which Nixon had communicated to Sofat to compare the ingredients in PE 265 with those in Nexus 820 in an attempt to identify the cause of the “post thickening problem”. That misuse of the confidential information led, ultimately, to the discovery that the problem could be overcome by adding Polymer A to the formulation of Nexus 820. How the addition of Polymer A was arrived at as the solution is unclear from the respondents’ evidence. Sofat gave differing accounts of how Polymer A came to be used in Nexus 820, which RLA argued was indicative of her inability to make the facts accord with her version of events. Her first explanation has been set out at [137] of these reasons. In essence, she claimed that “at BASF’s suggestion, [she] looked at incorporating [Polymer A] into the Nexus 820 formulation.” RLA contended that her evidence in this respect should be given little or no weight because nobody from BASF had been called to corroborate it and no evidence had been adduced of the nature of Sofat’s purported initial investigations into the suitability of using Polymer A. Nor, RLA claimed, was there evidence of the results of her later investigations of polymer combinations and the stability of the end product. Even if it be accepted that BASF had provided advice to try Polymer A, Sofat’s reliance on that advice was said to be contradicted by her “Development Notes” which she provided to the respondents’ solicitors and were later relied on by Mr Turner in his expert’s report. There were two versions of the “Development Notes”, one of which made no reference to how or why Sofat decided to use Polymer A in Nexus 820, while the other stated that:

Nuplex thought a small addition of V275 may assist. (As per Graham’s report – discovery 58) – Attachment 9. As there was no lab sample availa[b]le, and BASF still had a complicates [sic] method of ordering samples, I took the decision to work with [Polymer A], stock of which I had in the lab and timing was crucial.

144    As RLA has argued, that explanation of why Sofat resorted to Polymer A is inconsistent with her witness statement. It is also contrary to the evidence of Dr Farquharson who recommended that Sofat should use Polymer 1 instead of V 275 and Polymer 4 instead of Polymer A.

145    Accordingly, I regard this aspect of Sofat’s evidence as failing to explain how she came to include Polymer A in Nexus 820. Rather, I have found persuasive the transcription of the PE 265 ingredients into Sofat’s notebook, the “batch” samples incorporating the precise polymers used in PE 265 and the other evidence in Sofat’s notebook set out at [133] above. That being the available evidence, I prefer the inference that the respondents discovered, in the time that they did, that Polymer A was a solution to the “post thickening problem” because they were using the PE 265 formulation as a comparator. I reject Sofat’s explanation as to how she resolved the “post thickening problem”.

59        At [146] (p 169), his Honour said that he was reinforced in the conclusion which he had expressed at [145] (p 169) by the fact that there were no records showing a trial and error process in respect of other alleged solutions to the post thickening problem. His Honour also referred in this paragraph to the radical change in the formulation which came about by the introduction of Polymer A. Moreover, he referred to the commercial imperatives upon Nexus to find a solution. He said:

… although I accept that the respondents were under pressure to solve the “post-thickening problem”, it would have been foolhardy to launch the reworked Nexus 820 on to the market without some certainty that the problem would not recur. Had Nexus 820 failed again, the damage to the reputation of Nexus Adhesives may well have been irreparable.

60        His Honour dealt at [147]–[151] (pp 169–170) with the effect of the expert evidence adduced by each party. He said that he had taken that evidence into account in making an assessment of how long independent development of adhesives like Nexus 820 should have taken.

61        He referred at [149] (p 170) to objections taken by the respondents at the trial to the admissibility of some parts of an expert’s report relied upon by RLA. However, he said he had made his findings on liability without relying on the report. His Honour also said at [150] (p 170) that the parts of the report on which he relied were not the subject of objection and thus:

None of the respondents’ objections affects my reliance on this information which, in any event, has been only peripheral to the central findings.

62        At [152]–[170] (pp 170–174), his Honour dealt with the impact of the springboard effect in the present case.

63        At [157] (p 171), his Honour said that he was satisfied that steps were taken to develop Nexus 820 as soon as Nexus was incorporated in August 2006. His Honour also found at that paragraph that physical production of trial batches did not occur before February 2007.

64        In these paragraphs of his Honour’s first judgment, his Honour undertook a detailed analysis of the evidence, both lay and expert, directed to the question of springboard. He found at [165] (p 173) that, making the best use possible of the whole of the evidence, the period to be occupied in the independent development of a new adhesive was nine to twelve months.

65        At [169]–[170] (p 174), his Honour said:

169    In the light of the findings summarised above about the actual time taken to develop Nexus 820, I consider that the “research phase” of that process occupied approximately 1 month, during the period from late October 2006 until late February 2007. I further find that the “physical development phase” lasted for approximately 3 months, from the beginning of February 2007 to the beginning of May 2007 when the first commercial release of Nexus 820 occurred. In consequence, it probably took the respondents about 4 months in all to develop Nexus 820 and bring it to the market. That period is obviously well short of the nine to 12 months which I have postulated as the time frame in which a reasonably well-resourced producer could be expected to develop a new adhesive from “scratch” and launch it on the market. However, as I have found at [136] of these reasons, the respondents were first apprised of the “post thickening problem” in mid-August 2007. That problem was resolved in the space of a month, between late August 2007 and late September 2007. Accordingly, it is appropriate to add an extra month to the time imputed to the actual development of Nexus 820, making a total time of 5 months before the respondents achieved a marketable version of Nexus 820, at least 4 months and up to 7 months earlier than they would have had they not used the confidential information.

170    Although I regard the evidence canvassed earlier in these reasons as sufficient of itself to fix the respondents with liability for misuse of the confidential information, my findings in that respect derive additional support from the conclusion just explained, that the actual development of Nexus 820 occupied a period as short as only 5 months.

66        At [174] (p 175), his Honour determined that the springboard advantage comprised five and a half months. Ultimately, his Honour did not separately consider the claims under the Trade Practices Act and the State Fair Trading Acts.

CONSIDERATION OF THE APPEAL

67        As mentioned at [16] above, we propose to adopt the structure chosen by the appellants in their written submissions as the basis for our consideration of the appeal. In doing so, we have also had regard to the way in which the appeal was addressed in oral argument.

Issue 1: The cost information was not pleaded to be confidential (Ground 4(a))

68        In support of this ground, the appellants submitted that it was not open to the primary judge to make the finding which he made at [135] (pp 164–165) of the first judgment (which we have extracted at [55] above) because the cost of the polymers in PE 265 had not been pleaded as part of RLA’s confidential information.

69        In support of this submission, the appellants focussed on the proposition at law which they had advanced to the primary judge that it was incumbent upon a claimant for relief for misuse of its confidential information to specify with great particularity the confidential information which it alleges has been misused and that, once so specified, it was not open to the Court to characterise the confidential information in some other way.

70        At par 10 of the final iteration of its Statement of Claim, RLA provided particulars of its allegation that the product formulations and processes for manufacturing PE 265 and Roberts 656 were confidential and also were trade secrets. Included within subpar (a) of those particulars was the allegation that the product formulations and processes consist of detailed and technical information as to the quantities of raw materials, order of mixing, equipment settings (including timing, temperature and speed parameters) and other information relevant to the manufacture of the products.

71        It was also alleged in that subparagraph of the particulars that the formulations and processes were arrived at after a lengthy period of technical development by RLA’s employees.

72        His Honour (at [45] (pp 137–138)) rejected a similar argument advanced by the appellants to the effect that it was not open for his Honour to find that the type, relative proportions and number of polymers specified in the formulas for PE 265 and Roberts 656 constituted confidential information of RLA and a trade secret of RLA, given the width of the description of the confidential information given by RLA in its Statement of Claim.

73        In making this complaint, the appellants misconstrued the substance of his Honour’s findings in relation to the third misuse of RLA’s confidential information. When proper regard is had to the findings which his Honour made at [133] (p 164), [134] (p 164) and the first part of [135] (p 164), the focus of his Honour’s attention was the provision by Nixon to Sofat of the precise quantities of the specific polymers in PE 265 which enabled Sofat then to calculate the precise dry weight of each of those ingredients. It was that information which, when coupled with publicly available costing information, allowed Sofat to cost Nexus 820 but also to compare that cost with the cost of PE 265 to RLA. This capacity to make that comparison by using the information which Nixon passed to Sofat was a misuse of important confidential information belonging to RLA.

74        As submitted by RLA on the appeal, this use fell squarely within the springboard principle.

75        We do not think that the appellants have made out ground 4(a) in their Notice of Appeal.

Issue 2: It was public knowledge that Polymer A and Polymer B were used in products like PE 265 and Nexus 820. Nexus was not misusing a trade secret by using those ingredients (Grounds 1–7).

76        Polymer A was introduced into the formula for Nexus 820 in September 2007. It had not been in that formula up until that time. Sofat attempted to explain why that polymer was introduced when it was. The primary judge rejected her explanation.

77        The appellants submitted that Polymer A had been included in SPFs supplied by BASF by no later than 6 October 2006. They go on to submit that the potential use of Polymer A was therefore drawn to the attention of Sofat by BASF right at the start.

78        This issue, as expressed in the submissions advanced on appeal, conflates a number of grounds.

79        The appellants submitted that there was evidence which, in effect, supported their case below that Sofat had arrived at a consideration of using Polymer A and Polymer B from information provided to her by BASF. They submitted that there was evidence to support that theory.

80        But these submissions ignore the findings which the primary judge made in respect of the second misuse of RLA’s confidential information (esp at [111]–[116] (pp 157–159)).

81        The appellants’ submissions on appeal do no more than advance a competing set of contentions by reference to pieces of evidence which, we have to say, are not compelling. The appellants had not come to grips with the need to demonstrate error in the findings which his Honour made. The particular findings which are relevant to a consideration of this issue are very much dependent upon his Honour’s rejection of Sofat’s evidence and his Honour’s appreciation of the entirety of the evidence, including the fact that Clewlow had passed on information to her which, in effect, constituted the formula for PE 265.

82        In particular, his Honour rejected a number of central planks in the submissions now made by the appellants. First, at [96]–[99] (pp 154–155), he found that the meeting with BASF attended by Sofat and others occurred in early November 2006 and the evidence demonstrated why the correct inference was that the Nexus parties used the type, number and amount of polymers in RLA’s formulation, which constituted a trade secret, in various ways throughout the development process.

83        Most importantly, his Honour’s findings were informed in large part by the absence of any logical explanation for the use of Polymer B and Sofat’s unhelpful or evasive answers to questions about that topic.

84        It is true, as Mr Mitchell pointed out, that Polymer B was not used in Nexus 820, its offset, Polymer 2 having in fact been used. However, the importance of the primary judge’s finding on this issue was not that it ended up in the formula, which of course it did not, but rather that Polymer B was actually considered by Nexus in the development process.

85        His Honour’s findings were clearly open to him and have been explained in sufficient detail to warrant appropriate respect on appeal. The submissions made by the appellants failed to demonstrate appellable error.

86        We reject the submissions directed to issue 2.

Issue 3: Nexus did not misuse RLA’s trade secrets

87        The appellants submitted that evidence of independent development appeared to have been overlooked and that that evidence was important.

The First and Fourth Uses: Use as a “reference point” or “comparator” is meaningless and not unlawful (Grounds 2(a), 5(c) and 5(d))

88        The appellants submitted that the terms “reference point” and “comparator” were meaningless and were apt to mislead when the Court came to determine the important issue of whether there had been a misuse of confidential information. They pointed to the entries in Sofat’s exercise book where she recorded the PE 265 formula and submitted that the mere fact that that entry had been made did not constitute use of the confidential information but merely evidence of knowledge of it.

89        The findings which the primary judge made at [102]–[106] (pp 155–156) led to findings at [107] (p 156) that RLA’s confidential information was, in fact, used by the appellants. Once again, critical to those findings was his Honour’s assessment of Sofat’s evidence and other evidence which fed into the findings which his Honour made.

90        Mr Mitchell submitted that the only adverse credibility finding made by the primary judge about the evidence of Sofat was his finding at [115] (p 159). That was a finding which addressed Sofat’s evidence of the reasons why Polymer B was considered. As we have already said, his Honour found Sofat’s evidence on this topic unhelpful and evasive. Mr Mitchell submitted that the finding should be limited to the context in which it was made.

91        However, this submission overlooks the fact that his Honour considered all of Sofat’s evidence and rejected her denial that she made use of the confidential information about the 50/50 ratio of Polymer A and Polymer B which was recorded at an early place in Sofat’s exercise book.

92        Mr Mitchell sought to overcome this proposition by pointing to evidence of subsequent independent development of Nexus 820, including the exercise book itself. He submitted that the primary judge did not properly grapple with the force of the exercise book in demonstrating independent development of the adhesive.

93        However, the short answer to this is that his Honour considered all of the evidence and did not accept Sofat’s explanation. Indeed, the material to which we were taken, including the exercise book, showed that there were gaps in Sofat’s evidence.

94        Whether or not there may have been certain documentary evidence available, which the primary judge said was not existent, is not to the point. The submission overlooks the critical findings made by the primary judge at [105]–[107] (p 156) that the evidence of the notations in the exercise book, including the notation “try”, tended to show that Sofat knew of the PE 265 formula and was using it at an early research stage in the development of Nexus 820.

95        The effect of his Honour’s reasoning process was that he was not satisfied with Sofat’s explanation and concluded that the preferable inference was that the Nexus parties used the confidential information.

96        We do not consider that there is any force in Mr Mitchell’s criticism of his Honour’s findings that the Nexus parties used RLA’s formula as a reference point or a comparator. His Honour’s finding is consistent with the explanation of the springboard principle given in well-established authorities. The principle was succinctly summarised, by reference to those authorities, by Goldberg J in Dart Industries Inc v David Bryar & Associates Pty Ltd (1997) 38 IPR 389 at 408–409. His Honour there said, in a passage cited by the primary judge at [73] (p 146), that if a person wishes to design a product without it being alleged that the person has used confidential information:

… he must proceed through an independent design sequence and not use confidential information as a springboard to jump through the sequence.

97        The appellants have failed to make good their submissions in respect of this sub-issue.

The Second Use: Targeting and replacing (Grounds 3(a) and 3(b))

98        The appellants submitted that the finding of targeting and replacement (in respect of the second misuse of RLA’s confidential information) was contrary to the evidence. In support of this proposition, the appellants referred to the evidence of Dr Farquharson which suggested that the Nuplex polymers which were used in both the initial and final formulations of Nexus 820 were not truly offsets for Polymer A and Polymer B which were used in PE 265. The submission was that the trial judge appeared to have overlooked Dr Farquharson’s evidence without identifying a reason for doing so.

99        His Honour found that Polymer B was not the “natural choice” for experimentation in a truly independent process (at [115] (p 159) of the first judgment). The evidence showed that both Clewlow and Sofat believed that the Nuplex offsets were equivalent to Polymer A and Polymer B. The evidence of Dr Farquharson, which, it may be accepted, tended to suggest that that was not the fact, does not assist the appellants. This is because, as we said earlier, his Honour considered answers given by Sofat in cross-examination as to why Polymer B was being considered and tested in preference to many other available polymers as not helpful and as being “somewhat evasive”. The real question with which his Honour was concerned was why Polymer B was being considered in the first place.

100        His Honour has explained in some detail why it was that he made the finding which he did concerning targeting. Once again, the appellants have failed to come to grips with the need to demonstrate error on the part of his Honour.

The Fourth Use: Use as a comparison to resolve “post thickening” (Grounds 5(a) and 5(b))

101        The appellants submitted that the introduction of Polymer A into the final formulation of Nexus 820 within a very short time after Nixon imparted the essential elements of the formula for PE 265 including specific weights to Sofat was “a coincidence”. His Honour, on the other hand, and by way of contrast, explained in great detail (at [136]–[146] (pp 165–169) why it was that he had come to the conclusion which he did that RLA’s confidential information was used to resolve the post thickening problem. As was the case with a number of other findings made by his Honour, the findings were made by a careful analysis of Sofat’s exercise book and other evidence as well as an assessment of Sofat’s credibility. The findings are perfectly logical, consistent and amply supported by the evidence. It is not enough to demonstrate error on the part of the primary judge to simply assert that the introduction of Polymer A into the final formulation of Nexus 820 was a coincidence, particularly when his detailed, rational and reasonable analysis of the evidence amply justifies the findings which he made.

Misuse not just use (Grounds 3(c) and 6(a))

102        The appellants submitted that mere knowledge of the formula did not constitute misuse. That may be. However, the primary judge found misuse not mere knowledge. That was a question of fact as to which his Honour’s finding reveals no error.

Issue 4: Use did not advantage Nexus in the development of Nexus 820

103        In support of the grounds embedded in this issue, the appellants point to the fact that the formula for Nexus 820 is different from the formula for PE 265 and that, in its development, different polymers were deliberately chosen in order to differentiate it from PE 265. Furthermore, so it was submitted, the proportions of the two main polymers in Nexus 820 (Polymer 1 and Polymer A) are different from the proportions of the two polymers in PE 265 (Polymer A and Polymer B).

104        These submissions do not come to grips either with RLA’s case or with the primary judge’s findings. The whole thrust of his Honour’s findings is that RLA’s confidential information was used as a springboard in the development of Nexus 820, not carried across in precise terms into that formulation.

105        Once again, the appellants’ submissions miss the point and do not demonstrate error on the part of the primary judge.

Issue 5: The evidence disclosed no use that advanced development. It was not open to assess damages based on actual development compared to an “expected” development time

106        This issue raises challenges to his Honour’s approach to assessing the impact of the springboard advantage.

107        In arriving at the five and a half month period of advantage which his Honour determined, his Honour reviewed the evidence tendered on behalf of each of the parties and ultimately found that, had Nexus not had its springboard advantage, it would have taken ten and a half months to develop Nexus 820. His Honour also held that, in fact, it took Nexus five months to develop Nexus 820. His Honour therefore deduced that the springboard advantage comprised five and a half months.

108        In arriving at his ten and a half month development period, his Honour (at [165] (p 173)) said that he had not found the expert’s reports on either side compelled a particular period as the likely development time. He then explained why.

109        The appellants complain that the CETEC report was admitted into evidence subject to objection but that his Honour never ruled on the objection in the first judgment. The appellants complain that they did not know what evidence they had to meet. This submission has no substance. The report was admitted into evidence and the appellants must be taken to have appreciated that, had they wished to do so, they would need to meet the evidence contained in that report.

110        We find that the approach which his Honour took is consistent with the approach to the assessment of headstart damages explained by the NSW Court of Appeal in United States Surgical Corporation v Hospital Products International Pty Ltd [1983] 2 NSWLR 157 at 233A–C. The Court’s decision was reversed on other grounds. The passages to which we have referred were referred to with apparent approval by Gleeson CJ, Gummow and Hayne JJ in Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181 at [50] (p 201).

Issue 6: The Trade Practices Act and Fair Trading Act claims should have been dismissed (Ground 15)

111        The primary judge held that an account of profits would adequately compensate RLA for (inter alia) damages for any contravention by the appellants of the Trade Practices Act or the State Fair Trading Acts. He made no separate assessment of damages under those statutes. Implicit in those remarks was the proposition that RLA had made good its claims pursuant to those statutes.

112        The appellants complain that his Honour made no findings as to their liability under those statutes and that therefore RLA’s claims based upon them should have been dismissed.

113        We do not agree.

114        In effect, the contraventions of the Trade Practices Act and the cognate State legislation were subsumed into his Honour’s conclusions in respect of the claims for damages for breach of the duties of confidentiality and infringement of RLA’s trade secrets.

115        These submissions do not support the ground of appeal and we reject them.

Issue 7: The primary judge erred by making a costs order without taking into account whether RLA would receive any damages (Ground 16)

116        This ground relates to one of the decisions made by his Honour in the second judgment.

117        His Honour dealt with the question of costs at [13]–[19] of that judgment.

118        His Honour said that he had come to a clear view that RLA’s costs should partly follow the event and be paid as to 75% by the appellants. His Honour said that, as a matter of broad impression, RLA had succeeded on the central issue of whether its confidential information was, in fact, a trade secret. That issue had been vigorously contested by the appellants from the inception of the proceedings until judgment, but, ultimately, without success.

119        His Honour went on to say that RLA’s success on the central issue was translated into a victory in respect of Nexus 820 which was apparently more profitable and sold in much greater volumes than Nexus 840 on which the appellants succeeded. The time occupied at trial in the contest about the two adhesives, as far as it was divisible at all, was broadly in the proportions of 75 to 25.

120        His Honour was unimpressed with the submission made on behalf of the appellants that RLA was likely to recover a small sum of money in the region of $30,000 or even less, plus interest. His Honour expressly noted that, having regard to the complexity of the factual and legal issues involved, the present case was a case appropriate to be litigated only in the Federal Court or the Supreme Court. His Honour commented (at [18]) that much of the time spent in dealing with the expert evidence was to be laid at the appellants’ feet. They had persisted in relying upon successive witness statements of Mr Turner and others, a great deal of which was obviously inadmissible and was ultimately excluded.

121        Finally, his Honour did not consider that RLA’s rejection of two Calderbank offers was unreasonable.

122        Whilst it is true that s 43 of the Federal Court of Australia Act 1976 (Cth) confers a general discretion as to costs, that discretion must be exercised judicially. The discretion is designed to compensate a successful litigant for its costs of the litigation. Very often, a proper exercise of a discretion will involve an award of costs in favour of the successful litigant.

123        On appeal, the essence of the appellants’ submission was that the primary judge had erred in awarding costs at the time when he did so because it was premature to address the question of costs at that time given that the financial outcome of the litigation was not yet known and might well have ended up in a favourable outcome for the appellants notwithstanding their losses before the primary judge.

124        In addition to the matters which his Honour took into account on the question of costs to which we have referred at [99]–[106] above, his Honour also took into account the fact that, given the length and complexity of the trial and the preparations therefor, he, as the docket judge, was best placed to determine whether an order for costs should be made at the stage which it was and, if so, in what terms.

125        The exercise of the Court’s discretion in respect of costs is quintessentially a matter which, on appeal, must be assessed in accordance with the principles laid down by the High Court in House v The King (1936) 55 CLR 499 at 504–505. In the present case, there is no suggestion that his Honour applied the wrong principles. Rather, the submission is that he misapplied the correct principles as he understood them.

126        We do not agree with these submissions. It was perfectly open to his Honour to decide to make an order for costs at the stage at which he did and well within his discretion to make an order in the terms in which he did.

127        This ground of appeal must be rejected.

CONCLUSIONS

128        For all of the above reasons, we are not persuaded that his Honour erred in any of the findings which he made which the appellants have challenged on appeal. The appeal must therefore be dismissed with costs.

129        There will be orders accordingly.

Associate:

Dated:    19 September 2012