FEDERAL COURT OF AUSTRALIA

 

Elecon Australia Pty Ltd v Brevini Australia Pty Ltd [2009] FCA 1327

EVIDENCE – expert evidence about foreign law – tests to be applied.

CONTRACTS – whether termination of a contract might be attributed to a legal cause in existence at the time of termination but not relied upon – anticipatory breach – need to show that a party is wholly and finally disabled from performance on the date when performance is required.

EQUITY – breach of confidence – whether confidential information is property – whether confidential information may be protected if not property – whether an entity entitled to the benefit of an express covenant of confidence must be joined to proceedings commenced by a party to whom the confidential information was assigned.

TORT – passing off – need to plead damage as an element of the cause of action.

TRADE MARKS – consideration of prior use by a predecessor in title – prior use includes use by a person under the control of the predecessor in title.

 

TRADE PRACTICES – misleading and deceptive conduct – evidence of consumers and retailers as to the likelihood of deception critical if a special market is involved – accessorial liability under s 75B of the Trade Practices Act 1974 (Cth) – need to show intentional participation – failure to plead necessary mental elements.

Copyright Act 1968 (Cth) ss 10, 31(1), 36, 115, 116, 196(3)

Evidence Act 1995 (Cth) s 136

Trade Marks Act 1995 (Cth) ss 6, 7, 8, 120(2), 122(1)(c), 122(1)(f), 122(1)(e), 123, 124

Trade Practices Act 1974 (Cth) ss 52(1), 53(A), 53(C), 53(D), 75B

Indian Contract Act 1872 ss 3, 39, 66

Indian Evidence Act 1872 ss 91, 92

Allstate Life Insurance Co v Australia and New Zealand Banking Group Limited (No 6) (1996) 64 FCR 79

Avel Pty Ltd v Multicoin Amusements Pty Ltd (1990) 171 CLR 88

B.P. Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266

Carr v J A Berriman Pty Ltd (1953) 89 CLR 327

Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337

Commissioner of Taxation v Lamesa Holdings BV (1997) 77 FCR 597

EOS Australia Pty Ltd v Expo Tomei Pty Ltd (1998) 42 IPR 277

Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89

Foran v Wight (1989) 168 CLR 385

General Electric Co (of USA) v General Electric Co Limited [1972] 1 WLR 729

Lloyd Werft v Bremerhaven GmbH v Owners of Ship “Zoya Kosmodemyanskaya” (1997) 79 FCR 71

Interlego AG v Croner Trading Pty Ltd (1992) 39 FCR 348

Mid-City Skin Cancer & Laser Centre Pty Ltd v Zahedi-Anarak (2006) 67 NSWLR 569

Moorgate Tobacco Co Ltd v Philip Morris Ltd (1984) 156 CLR 414

National Mutual Holdings Pty Ltd v The Sentry Corporation (1989) 22 FCR 209

Secured Income Real Estate (Australia) Ltd v St Martin’s Investments Pty Ltd (1979) 144 CLR 596

Smith Kline & French Laboratories (Aust) Ltd v Department of Community Services and Health (1990) 22 FCR 73

Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245

Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165

TS & B Retail Systems Pty Ltd v 3Fold Resources Pty Ltd (No 3) (2007) 158 FCR 444

Yorke v Lucas (1985) 158 CLR 661

Heydon JD, Cross on Evidence (7^th Australian edition, LexisNexis Butterworths, 2004)

Padia RG (ed), Pollock & Mulla – Indian Contract and Specific Relief Acts (13^th ed, LexisNexis Butterworths, 2006)

ELECON AUSTRALIA PTY LIMITED v BREVINI AUSTRALIA PTY LIMITED

 

NSD 1423 of 2004

 

 

PIV DRIVES GMBH and BREVINI AUSTRALIA PTY LIMITED v ELECON AUSTRALIA PTY LIMITED, ELECON ENGINEERING COMPANY LIMITED  and PRAYASVIN BHANUBHAI PATEL

 

NSD 1955 of 2004

 

 

 

BUCHANAN J

17 NOVEMBER 2009

SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY general division	NSD 1423 of 2004

 

BETWEEN:

ELECON AUSTRALIA PTY LIMITED Applicant

AND:	BREVINI AUSTRALIA PTY LIMITED Respondent

 

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY general division	NSD 1955 of 2004

 

BETWEEN:	PIV DRIVES GMBH First Applicant   BREVINI AUSTRALIA PTY LIMITED Second Applicant
AND:	ELECON AUSTRALIA PTY LIMITED First Respondent   ELECON ENGINEERING COMPANY LIMITED Second Respondent   PRAYASVIN BHANUBHAI PATEL Third Respondent

 

JUDGE:	BUCHANAN J
DATE OF ORDER:	17 NOVEMBER 2009
WHERE MADE:	SYDNEY

 

THE COURT ORDERS THAT:

 

1.         The application in matter NSD 1423 of 2004 is dismissed.

2.         The respondent in matter NSD 1423 of 2004 is released from the undertaking which it gave on 6 October 2004.

3.         In matter NSD 1955 of 2004, the proceedings against the third respondent be dismissed.

4.         Matter NSD 1955 of 2004 be adjourned for further consideration of remedies concerning breach of copyright, infringement of trade marks and breach of confidence.

THE COURT DIRECTS THAT:

1.         The proceedings be listed for directions on a date to be arranged with the Associate to Buchanan J to fix a timetable to deal with:

(a)        remedies in relation to copyright, infringement of trade marks and breach of confidence; and

(b)        costs of the proceedings in both matters to date.

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 eSearch on the Court’s website.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY gENERAL dIVISION	nsd 1423 of 2004

 

 

BETWEEN:	ELECON AUSTRALIA PTY LIMITED Applicant
AND:	BREVINI AUSTRALIA PTY LIMITED Respondent

 

 

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY gENERAL dIVISION	NSD 1955 of 2004

 

BETWEEN:

PIV DRIVES GMBH First Applicant   BREVINI AUSTRALIA PTY LIMITED Second Applicant

AND:	ELECON AUSTRALIA PTY LIMITED First Respondent   ELECON ENGINEERING COMPANY LIMITED Second Respondent   PRAYASVIN BHANUBHAI PATEL Third Respondent

 

 

JUDGE:	BUCHANAN J
DATE:	17 NOVEMBER 2009
PLACE:	SYDNEY

REASONS FOR JUDGMENT BUCHANAN J: TABLE OF CONTENTS INTRODUCTION..........................................................................................................	[1]
The two proceedings...................................................................................................	[1]
The parties in NSD 1955 of 2004...............................................................................	[2]
General Background..................................................................................................	[6]
THE KNOW-HOW CONTRACT.................................................................................	[24]
Governing law of the contract....................................................................................	[25]
The subject matter of the contract.............................................................................	[50]
The territorial reach of the contract..........................................................................	[63]
Termination of the contract........................................................................................	[74]
The operation of clause 16.....................................................................................	[74]
Each party purports to terminate...........................................................................	[97]
The effect of valid non-stated grounds for termination........................................	[123]
Was PIV Antrieb in breach?......................................................................................	[137]
Non-provision of information generally...............................................................	[138]
Non-provision of particular information..............................................................	[152]
The conduct of the insolvency administrator........................................................	[161]
The insolvency proceedings...................................................................................	[165]
Conclusions about the contract..................................................................................	[167]
NSD 1955 OF 2004.................................................................................................	[171]
Copyright.....................................................................................................................	[171]
Trademarks.................................................................................................................	[201]
Trade Practices...........................................................................................................	[224]
Passing off...................................................................................................................	[245]
Breach of Confidence.................................................................................................	[249]
Mr Patel......................................................................................................................	[270]
NSD 1423 OF 2004.................................................................................................	[273]
SUMMARY....................................................................................................................	[280]
NSD 1955 of 2004.......................................................................................................	[280]
NSD 1423 of 2004.......................................................................................................	[285]
Costs............................................................................................................................	[286]
Future Proceedings.....................................................................................................	[287]

 

INTRODUCTION

The two proceedings

1                          A German company and an Indian company have sued each other over events which occurred in Australia.  The proceedings in NSD 1423 of 2004 were commenced first in time.  They have been temporarily accommodated by undertakings.  Most of the factual and legal issues they concern have been subsumed in proceedings NSD 1955 of 2004.  It is convenient therefore to deal primarily with NSD 1955 of 2004.

The parties in NSD 1955 of 2004

2                          The first applicant (“PIV Drives”), a German company, is the assignee of intellectual property owned by another German company, P.I.V. Antrieb Werner Reimers GmbH & Co. KG (“PIV Antrieb”) which is in “insolvency administration” pursuant to court orders made in Germany.  The second applicant (“Brevini Australia”), an Australian company, is a subsidiary of Brevini Riduttori SpA/Brevini International Holdings B.V., (“Brevini Italy”), an Italian company which is the ultimate owner of PIV Drives.  Brevini Australia has the right, in Australia, to exploit the intellectual property of PIV Drives.

3                          The first respondent (“Elecon Australia”) is an Australian company which is a subsidiary of the second respondent (“Elecon Engineering”), an Indian company.  The third respondent (Mr Patel) is the chairman and managing director of Elecon Engineering and a director of Elecon Australia.  It is alleged that he is accessorily liable for some of their conduct.

4                          Although it was events in Australia, directly concerning Elecon Australia and Brevini Australia, which explain why the two proceedings were commenced, the underlying dispute has its origins in the relationship between PIV Antrieb and Elecon Engineering, and in the question of what rights, if any, Elecon Engineering retained, as against PIV Drives, to the benefit of a licence agreement it had with PIV Antrieb after PIV Antrieb was placed in insolvency administration.

5                          In order to understand that question, some further general explanation is required before the detailed issues are discussed.

General Background

6                          PIV is an acronym.  It stands for Positive Infinitely Variable, a term which is associated with large industrial reduction gearboxes.  The term PIV, according to evidence given by Mr Michael Kissel, the managing director of PIV Drives, was used for a power transmission system invented in 1924.  In 1928 a company was formed in Germany to exploit the invention.  It was called Ketten-und Getrebe GmbH.  In 1936 the name of the company was changed to P.I.V. Antrieb Werner Reimers GmbH & Co. KG.  Mr Kissel deposed that during the 1940s to 1960s PIV Antrieb developed a number of industry specific variable speed drives including a high performance continuous variable transmission which became the basis of the “Multi-tronic” transmission used in the automobile industry.  During the late 1970s parallel and right angle shift gear reducers with universal mounting arrangements were designed and developed by PIV Antrieb.  They are known by the term “POSIRED”.

7                          In about 1991, PIV Antrieb developed a series of helical and bevel helical gears for use in its PIV gearboxes which it called the POSIRED 2 series.  Promotion of the POSIRED 2 series was carried out, in part, by the publication of a catalogue whose first edition was published in March 1995.  One feature of the POSIRED 2 series was that the gearbox housings were modular.

8                          PIV Antrieb was placed in insolvency administration on 1 March 2001.  It is not a party to the present proceedings. 

9                          According to evidence given by Mr Patel, Elecon Engineering was formed in India in 1951 by Mr Patel’s father and a business partner.  Elecon Engineering was listed as a public company in India on 28 November 1961.  The name “Elecon” was a derivative of the core business of manufacturing elevators and conveyors.  A major part of its business involves the manufacture of gears through its Gear Division.  From the time Mr Patel joined Elecon Engineering on 1 July 1983 until 2005 he was, apart from his other responsibilities, the chief executive officer of the Gear Division of Elecon Engineering.  He gave evidence that Elecon Engineering commenced to manufacture helical and bevel helical gear units during the 1970s pursuant to a collaboration agreement with another German company.  Mr Patel came to the view that it would be desirable that Elecon Engineering had the capacity to manufacture modular gearboxes which he thought to have a number of advantages over gearboxes with fabricated housings.  In his assessment, development of the technology by Elecon Engineering itself would take two to three years and would require a team of engineers.  Elecon Engineering had some experience in collaborating with foreign technology owners and decided to investigate that possibility.  In the mid 1990s, Mr Patel met a representative of PIV Antrieb at a trade fair in Germany.  Discussions followed which in due course resulted in a contract between Elecon Engineering and PIV Antrieb (“the know-how contract”).  This contract required approval by the Reserve Bank of India.  Its terms are at the heart of the issues which arise for consideration in the present proceedings. 

10                        The know-how contract was written in English and was expressed to be governed by Indian law.  It was signed on 26 March 1998 by Mr P Wendland who was then the managing director of PIV Antrieb and by Mr Patel’s father who was then the chairman of Elecon Engineering and managing director jointly with Mr Patel.  The know-how contract provided for a licence to Elecon Engineering to use technical know-how and information, to be supplied by PIV Antrieb, in the manufacture and sale of POSIRED 2 series gearboxes, extruder drives, crane drives and mixer drives.  Elecon Engineering was required to pay 1,000,000 Deutsche Marks in three instalments (one-third after the agreement was approved by the Reserve Bank of India, one-third against dispatch of technical documentation and one-third on the commencement of commercial production or 18 months after receipt of the technical documentation, whichever was earlier).  The contract required PIV Antrieb to supply information, drawings, plans and other technical documents described in an annexure to the contract.  All were to be treated as secret both during and after the life of the contract.  The contract was to last for seven years and was capable of extension for a further period of three years by mutual consent if approved by the Indian Government.  Elecon Engineering was to pay a royalty of 4% of the ex-factory selling price of all contract products and parts thereof manufactured and sold or leased or used commercially by the licensee during the life of the contract.  It was to mark all articles made under licence with serial numbers and to affix to such articles a plaque which was inscribed “Licence P.I.V.-Reimers”.  Specific provisions were made for termination of the contract, to which it will be necessary to return.

11                        Over the next two years there were disagreements between PIV Antrieb and Elecon Engineering about the extent of compliance by PIV Antrieb with its obligation to provide information.  Although about 12,500 “documents” were provided, mostly in the form of electronic files, Elecon Engineering was not satisfied and withheld the second payment due under the contract.  Part of the difficulty arose from the fact that PIV Antrieb had not drafted all the drawings and plans which would be necessary to manufacture the whole POSIRED 2 range.  Accordingly it was provided in the contract that “Drawings which are not available yet will be designed and sent on licensee’s request”.

12                        Efforts to resolve the disagreement about the provision of documents, in order to release the payments which Elecon Engineering had withheld, led to two meetings in Bad Homburg in Germany.  Each meeting resulted in a “Confidential Agreement”.  In my view those agreements, having regard to their terms which will be discussed in due course, operated to modify the provisions of the know-how contract with respect to the provision of information and the responsibility of PIV Antrieb and Elecon Engineering respectively for the production of technical drawings. 

13                        The first meeting was held on 13 April 2000.  It recorded a division of responsibility for the production of drawings which varied the original understanding.  Broadly speaking, it required that PIV Antrieb would produce any necessary drawings to respond to its own orders and provide them without charge to Elecon Engineering, and Elecon Engineering would do any necessary detailed drawings with its own staff for “projects coming up in India” and provide them to PIV Antrieb for checking and any necessary correction.

14                        The second meeting occurred on 7, 8, 9 and 10 August 2000.  It recorded a detailed resolution of outstanding issues and, generally, an acceptance by Elecon Engineering that all documents available at that date had been received.  This agreement finally resulted in an undertaking by Elecon Engineering to pay the balance of the amount outstanding under the know-how contract.  Although there was some dispute in the proceedings about whether the whole of the lump sum payment due under the contract was in fact ultimately remitted by Elecon Engineering to PIV Antrieb it is not necessary, for the purpose of the present proceedings, for that issue to be resolved.

15                        PIV Antrieb encountered financial difficulties.  By a court order made by the Bankruptcy Court in Bad Homburg dated 28 February 2001, PIV Antrieb was placed in “insolvency proceedings” effective from 1 March 2001 and Dr Wellensiek of Wellensiek Lawyers was appointed the insolvency administrator.

16                        Dr Wellensiek wrote to Elecon Engineering on 12 March 2001 to advise it of the insolvency proceedings and his appointment as insolvency administrator, although Elecon Engineering obviously had some knowledge of developments because it wrote to Dr Wellensiek on 30 January 2001 making a number of representations and claims.  Dr Wellensiek’s letter of 12 March 2001 made it clear that any claims which had been lodged prior to the formal institution of the insolvency proceedings on 1 March 2001 were ineffective and would need to be resubmitted.  It will be necessary, in due course, to say a little more about the letter of 30 January 2001.  It appeared to foreshadow termination of the know-how contract but it became clear that it was not treated by the parties as effective notice of termination of the contract.

17                        It appears from the evidence that, as part of his administration of the business and assets of PIV Antrieb, Dr Wellensiek was a party to plans and arrangements to transfer the assets, but not existing contractual rights and obligations, to a new company which in due course became known by the name of the first applicant.  Initially, a contract was executed on 25 October 2001 (to take effect on 1 November 2001) between Dr Wellensiek as insolvency administrator of PIV Antrieb and a company then known as Einhunderteinste Vermögensverwaltungsgesellschaft mbH Frankfurt (“Einhunderteinste”).  Mr Kissel signed the asset sale agreement on behalf of the purchaser.  Then, on 31 October 2001, employment of all of the staff of PIV Antrieb was terminated and on 1 November 2001 a substantial number of those staff, including the whole design division and senior management such as Mr Kissel, became employed by Einhunderteinste.  On the same day, Einhunderteinste was purchased by Brevini Italy.  Later, Einhunderteinste changed its name to that now used by PIV Drives.

18                        On 28 November 2001, Elecon Engineering wrote to PIV Antrieb asking for information about its “present position” and whether it had been taken over so that Elecon Engineering could “take necessary steps” under the know-how contract.  On 14 January 2002, Mr Kissel wrote on behalf of PIV Drives to Elecon Engineering informing it that the business activities of PIV Antrieb had been transferred to PIV Drives with effect from 1 November 2001.  The letter appeared to contain an offer that PIV Drives become a party to the know-how contract although with altered arrangements for termination.  There was some suggestion in Mr Kissel’s evidence that this letter did not refer to the know-how contract but to an agency agreement.  It is not necessary to resolve that uncertainty.  The significance of this communication was that it prompted a letter from Elecon Engineering to PIV Antrieb dated 25 March 2002.  That letter purported to terminate the know-how contract with effect from 1 November 2001.  Finally, on 22 May 2002, Dr Wellensiek wrote to Elecon Engineering also giving notice of termination of the know-how contract “with immediate effect”.  He asserted that “the know-how made available to you under the contract may no longer be used by you”.

19                        Elecon Engineering continued to use the know-how and the technical information which had been provided to it by PIV Antrieb and to manufacture and sell gearboxes which bore the mark PIV.  In May and July 2004 and February 2005 there were exchanges of correspondence between attorneys in India representing PIV Antrieb and Elecon Engineering respectively about the consequences of termination of the know-how contract.  The representative of PIV Antrieb, who claimed to be instructed by its managing director, Mr Wendland (although by this time PIV Antrieb had no staff and was still under the direct control of the insolvency administrator), sought an end to the use, by Elecon Engineering, of the know-how and technical information earlier provided to it.  The representative of Elecon Engineering claimed various breaches of the know-how agreement and claimed compensation.  In his letter of July 2004, Elecon Engineering’s representative claimed, apparently for the first time, and somewhat confusingly having regard to other aspects of the letter, that Elecon Engineering had retained the right to continue using the technical information which had been transmitted by PIV Antrieb and to manufacture gearboxes using that information.

20                        Although the letters make no reference to it things had, at the same time, come to a head in Australia.  In about April 2004, a joint venture between Barclay Mowlem Construction Pty Limited and Roberts & Schaefer Pty Limited (“the Barclay Mowlem joint venture”) was awarded a contract to design and construct a coal handling and preparation plant to be located at the Blackwater coal mine in central Queensland.  Elecon Australia won a tender to supply conveyor drives to the joint venture.  Brevini Australia had tendered also for this contract but was unsuccessful.  On or about 17 September 2004, upon becoming aware that Elecon Australia’s tender had been accepted, Brevini Australia made some suggestion to representatives of the Barclay Mowlem joint venture that Elecon Australia did not have the right in Australia to sell the gear units which it proposed to provide to the joint venture.  On 30 September 2004, Elecon Australia commenced the proceeding in NSD 1423 of 2004 against Brevini Australia in this Court alleging that the latter had engaged in misleading and/or deceptive conduct and seeking relief, including an interlocutory restraint upon Brevini Australia from making any representation that Elecon Australia had no right to sell the gear units in question and from interfering in any way in the performance by it of its arrangements with the joint venture.  The issues which arose for immediate consideration in those proceedings were resolved temporarily by an undertaking from Brevini Australia which satisfied the claim for interlocutory relief.  Shortly thereafter, on 23 December 2004, PIV Drives and Brevini Australia (“the Brevini interests”) commenced the proceeding in NSD 1955 of 2004 against Elecon Australia, Elecon Engineering and Mr Patel (“the Elecon interests”).  Those proceedings alleged breach by Elecon Australia and Elecon Engineering of the Copyright Act 1968 (Cth), the Trade Marks Act 1995 (Cth), the Trade Practices Act 1974 (Cth), asserted that they had passed off their products as the products of PIV Drives which were offered for sale in Australia by Brevini Australia and alleged that Mr Patel was liable as an accessory for the purposes of the trade practices and the passing off claims.  Later amendments added allegations that Elecon Australia and Elecon Engineering breached a confidence, by which they were bound, by continuing to use the know-how and technical information transmitted to Elecon Engineering by PIV Antrieb.

21                        It will be convenient, hereafter, to refer to the latter proceedings as the main proceedings and the earlier proceedings as the initial proceedings.  For all practical purposes the proceedings have been heard, and may be resolved, together.

22                        Apart from consideration of the individual claims the central issue upon which, for the most part, those claims and the defences to them rest concerns the circumstances of the termination of the know-how agreement and the extent to which, if at all, Elecon Engineering continued, as its representative asserted in July 2004, to have an ongoing right to use the know-how and technical information which had been transmitted to it by PIV Antrieb.  It was accepted by the Brevini interests that if such a right existed it was a good answer to all the claims which they had made and rendered their defence to the initial proceedings unavailing.  On the other hand, although the Elecon interests relied primarily upon the existence of a continuing right of manufacture and sale they erected a series of alternative defences to individual claims in the main proceedings.

23                        An assessment of the parties’ positions must commence, therefore, with an examination of the contractual arrangements between PIV Antrieb and Elecon Engineering.  In particular, it will be necessary to reach a conclusion about the legal foundation for termination of the know-how contract, and the rights and obligations which ensued as a result.  When that has been done the individual causes of action may be examined.

THE KNOW-HOW CONTRACT

24                        There are three principal issues which arise from the know-how contract.  The first arises from the fact that the contract was declared to be subject to the law of India.  The question which arises is whether there were any terms in the contract which bore a special meaning under Indian law and, otherwise, how Indian law would regard the contractual obligations with which the present case is concerned.  A second issue concerns whether Elecon Engineering had any right to sell gearboxes in Australia.  The third issue concerns the rights of the parties to terminate the contract and, on the facts of the present case, when termination of the contract was effected, by whom and for what reason.  Arising from those conclusions will be further conclusions concerning the rights and obligations of the parties upon termination of the contract.  There are also a series of subsidiary issues which require attention.

Governing law of the contract

25                        Clause 17 of the know-how contract provided:

Law applicable

 

This contract is made out and signed in English language and shall be governed by the Indian law.

26                        The Elecon interests called expert evidence from Mr Goolam E Vahanvati, a senior legal practitioner in India who is the Solicitor-General of India.  Mr Vahanvati provided two expert reports.  The second report responded to questions put to him as a result of an expert report by Mr Chetan Sharma, also a senior legal practitioner.  Mr Sharma’s report was eventually not read or relied upon by the Brevini interests and I need give it no further attention.

27                        As evidence was given in the proceedings by an expert in Indian law, it is desirable that I should distil the principles which are to be applied to an assessment of evidence of that kind.  Evidence of the content of foreign law is admissible but opinion about how the foreign law would apply to the facts of the case in question is not.  In National Mutual Holdings Pty Ltd v The Sentry Corporation (1989) 22 FCR 209 Gummow J said (at 226):

The existence, the nature and the scope of any rules and principles of the law of a foreign jurisdiction are to be treated as an issue of fact upon which evidence is receivable; on the other hand, the effect of the application of those rules and principles, as so ascertained, to the particular facts and circumstances of the instant case is a question of law for the court of the forum, upon which evidence is not receivable.

28                        Similarly Lindgren J said in Allstate Life Insurance Co v Australia and New Zealand Banking Group Limited (No 6) (1996) 64 FCR 79 (at 83):

… evidence of opinion as to the proper application of foreign law to fact is not admissible.

29                        Lindgren J’s distillation of the principles was expressly approved by a Full Court in Commissioner of Taxation v Lamesa Holdings BV (1997) 77 FCR 597 at 603 and referred to with approval in Lloyd Werft v Bremerhaven GmbH v Owners of Ship “Zoya Kosmodemyanskaya” (1997) 79 FCR 71 at 93.

30                        I propose to apply these principles to a consideration of Mr Vahanvati’s evidence, which was virtually unchallenged.  During the hearing, I disallowed certain aspects of his evidence where he responded to an invitation by solicitors acting for the Elecon interests to express a view about the application of Indian law, as he had identified it, to the facts of the present case.  That ruling implied no criticism of Mr Vahanvati.  The questions he was asked sought to elicit a statement of opinion which, under Australian law, was clearly inadmissible.  The responsibility for that lay with those who formulated the questions.

31                        A number of the matters with which Mr Vahanvati was asked to deal receded into the background as the proceedings progressed or became otherwise irrelevant.  I do not propose to say anything about those issues.  Other matters will require specific mention when I deal with particular aspects of the know-how contract.  However, some general points may conveniently be made at this stage.

32                        Indian law closely follows English law.  One of the leading texts on Indian contract law is Pollock & Mulla – Indian Contract and Specific Relief Acts (“Mulla”) which was first published in 1905 and is now in its 13^th edition (Padia RG (ed), 2006, LexisNexis Butterworths).  Mr Vahanvati made frequent reference to Mulla as an authoritative exposition of the principles of Indian contract law.  In his discussion of the subject it became clear, as it is also from Mulla, that the law appropriated from England must be read subject to any relevant Indian statutory provision, particularly the Indian Contract Act 1872 which, although not exhaustive, has primary force where applicable and also ss 91 and 92 of the Indian Evidence Act 1872.

33                        Two matters arising from this discussion might be mentioned at once.  There was considerable debate in the proceedings about the term “major default”, whether a major default had been committed by PIV Antrieb, either directly or through the insolvency administrator Dr Wellensiek, and whether a major default by PIV Antrieb entitled Elecon Engineering to terminate the know-how contract.  Another area of debate concerned beliefs and intentions, on the part of PIV Antrieb and Elecon Engineering respectively, at the time the contract was made, about its future operation.

34                        Mr Vahanvati’s evidence was that the concept of default is well known in India but that the Indian Contract Act does not use the term major default.  The general law requires a construction of the term in accordance with natural meaning.  He referred to Mulla at page 281.  At that page the following passage appears:

An author of a formal document intended to be acted upon by others should be presumed to have used words with meaning.  Contracts ought to be construed according to the primary and natural meaning of the language chosen by the parties, and grammatical or natural or usual meaning given to the words used in the contract.

(Footnotes omitted.)

35                        Mr Vahanvati referred to Indian case law which equated default with failure.  His opinion was that a major default under Indian law would be something more than “a mere failure to perform some part of the contract, which would not result in the complete non-performance of the contract”.  He thought guidance was available from s 39 of the Indian Contract Act, which provides:

39.  Effect of refusal of party to perform promise wholly. –

When a party to a contract has refused to perform, or disabled himself from performing, his promise in its entirety, the promisee may put an end to the contract, unless he has signified, by words or conduct, his acquiescence in its continuance.

36                        He referred also to the discussion in Mulla about essential terms of contracts at pages 1015-1016 which reads:

As to failure in performing particular terms of a contract, no positive general rule can be laid down as to its effect.  The question in every case is whether the conduct of the party in default is such as to amount to an abandonment of the contract or a refusal to perform it, or, having regard to the circumstances and the nature of the transaction, to ‘evince an intention not to be bound by the contract’.  In other words, a party renunciating must ‘evince an intention’ not to go on with the contract, which may be by words or by conduct, provided it is clearly made.  The test, whether the intention is sufficiently evinced by conduct is whether the party renunciating has acted in such a way as to lead a reasonable person to the conclusion that he does not intend to fulfill [sic] his part of the contract.  One view is that the material intention is not that with which the contract is broken, but that with which it was made.  Parties can undoubtedly make any term essential or non-essential; they can provide that failure to perform it shall discharge the other party from any further duty of performance on his part, or shall not so discharge him, but shall only entitle him to compensation in damages for the particular breach.  Omission to make the intention clear in this respect is the cause of the difficulties, often considerable, which the courts have to overcome in this class of cases.  The other view is that both intentions are material, first that with which the contract was made, for unless there is a breach of a vital term, there can be no repudiation under this section; secondly, that with which the contract is broken, for unless the defendant is refusing to perform the said vital term, there can be no repudiation.  Before the plaintiff can repudiate, both these circumstances must concur:

(i)    a term held fundamental;

(ii)   refusal to perform that term by the defendant.

Proof of (i) will depend upon the intention of the parties at the making of the contract; and proof of (ii) on the intention of the party in default at the time of breach.

37                        Accordingly, Mr Vahanvati stated:

In my opinion, the words ‘major default’ would be a failure to perform an essential term or a vital term of the contract.  It must be such that it results in making it impossible for the other party ‘to go on’.

38                        He summarised the position in his second report in this way:

To summarise, the term ‘major default’ would be a default or a breach or a failure to perform an essential or fundamental term of the contract.  If a party is in major default, the other party under Section 39 of the Contract Act is entitled to terminate or put an end to the contract.  In other words, the words ‘major default’ would be failure to perform an essential term or a vital term of the contract.  It must be such that it results in making it impossible for the contract ‘to go on’.

39                        It is convenient to record at this point, although the context will appear more clearly in due course, that the mere appointment of an insolvency administrator would not amount to a major default under Indian law, although conduct of an insolvency administrator may do so.

40                        I disallowed, as evidence, statements of opinion by Mr Vahanvati about whether the conduct of the insolvency administrator, Dr Wellensiek, who transferred assets from PIV Antrieb to PIV Drives, amounted to major default.  I did so having regard to the principles already identified.  The opinion sought and expressed did not relate to the content of Indian law but rather to the application of Indian law to the facts of the present case. 

41                        The second aspect of Mr Vahanvati’s evidence, to which I earlier referred, concerned evidence of belief or intent at the formation of a contract.  The necessity to take evidence from witnesses from overseas with limited time in Australia resulted in little attention being given, in the ordinary way, to the resolution of objections to affidavit evidence before oral evidence was taken.  However, it was understood that the adoption of such procedures was without prejudice to the potential necessity to apply a stricter view at the time that the evidence was being assessed. 

42                        It has been said that “[t]he burden of proof rests on the party asserting that foreign law differs from domestic law” (see Heydon JD, Cross on Evidence (7^th Australian edition, LexisNexis Butterworths, 2004), p 1358).  Evidence given about subjective understandings of parties to contracts and agreements is generally inadmissible in both India and Australia when such a document requires construction in legal proceedings

43                        In Australia, in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 (“Toll”) the High Court sounded the following warning (at [35]):

35        A striking feature of the evidence at trial, and of the reasoning of the learned primary judge, is the attention that was given to largely irrelevant information about the subjective understanding of the individual participants in the dealings between the parties.  Written statements of witnesses, no doubt prepared by lawyers, were received as evidence in chief.  Those statements contained a deal of inadmissible material that was received without objection.  The uncritical reception of inadmissible evidence, often in written form and prepared in advance of the hearing is to be strongly discouraged.  It tends to distract attention from the real issues, give rise to pointless cross-examination and cause problems on appeal where it may be difficult to know the extent to which the inadmissible material influenced the judgment at first instance.

 

44                        At [36] the Court referred to Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 (“Codelfa”) at 352 where Mason J observed:

We do not take into account the actual intentions of the parties and for the very good reason that an investigation of those matters would not only be time consuming but it would also be unrewarding as it would tend to give too much weight to these factors at the expense of the actual language of the written contract.

 

45                        Indian law is to similar effect.  Mr Vahanvati referred to Mulla, at page 275:

In construing a contract, the court must look primarily at the words used in the contract itself, unless they are such that one may suspect that they do not convey the intention correctly.  If the words are clear, there is very little the court can do about it.  This precludes the parties from giving direct evidence to show that their real intention was different from that reflected in the document.

(Footnotes omitted.)

 

46                        The matter is also dealt with by the Indian Evidence Act, ss 91 and 92 which provide, in part (subject to exceptions and provisos not here relevant):

91.  Evidence of terms of contracts, grants and other dispositions of property reduced to form of document. – When the terms of a contract, or of a grant, or of any other disposition of property, have been reduced to the form of a document, and in all cases in which any matter is required by law to be reduced to the form of a document, no evidence shall be given in proof of the terms of such contract, grant or other disposition of property, or of such matter, except the document itself, or secondary evidence of its contents in cases in which secondary evidence is admissible under the provisions hereinbefore contained.

92.  Exclusion of evidence of oral agreement. – When the terms of any such contract, grant or other disposition of property, or any matter required by law to be reduced to the form of a document, have been proved according to the last section, no evidence of any oral agreement or statement shall be admitted, as between the parties to any such instrument or their representatives in interest, for the purpose of contradicting, varying, adding to, or subtracting from, its terms.

47                        Mr Vahanvati said:

Under Section 91, when a transaction has been reduced to writing, the writing becomes the exclusive memorial thereof and no evidence can be given to prove the transaction, except the document itself.

and:

Thus the legal position that emerges is that if the language is clear and unambiguous no extrinsic evidence is admissible.

48                        Apart from the statutory foundation provided by ss 91 and 92 of the Indian Evidence Act, unsurprisingly, given its English antecedents, Indian law does not appear to me to be relevantly different on this question than Australian law.

49                        The limitations imposed by Indian law, including ss 91 and 92 of the Indian Evidence Act, were no doubt infringed in the present case.  Despite the provisional admission of evidence which infringed those limitations that evidence must now be regarded as irrelevant, as it would be under Australian law.  I do not propose to explore the subjective beliefs and understanding of the parties at the time the know-how contract was made, or to have regard to post-contractual conduct as an aid to its construction, except where it is clear that the contract itself was modified or supplanted by later written agreements.

The subject matter of the contract

50                        Clause 1 of the know-how contract provided:

CLAUSE 1

1.1       Technical Field of Application

            The contract (license) concerns designing, manufacturing and sales of helical gear units and bevel helical gear units system POSIRED 2 according to catalogue nos 264/. as well as POSIRED 2 related single screw extruder drives 265/. crane drives and mixer drives.

1.2       Nature of the Licence

            The licence is for making and using.

            The licence is exclusive.

            The license is not assignable and the licensee shall not assign his right or obligations thereunder to a third party.  The licensee shall not without the consent of the licensor bring the licence into the assets of a company.

1.3       Sub-Licences

            The licensee shall not grant sub-licences without the consent of the licensor.

51                        It is useful to read Clause 1 in the context set by the recitals which immediately preceded it, which were in the following terms:

WHEREAS

The licensor possesses the know-how as well as manufacturing and technical knowledge concerning the manufacture of helical gear units, bevel helical gear units system POSIRED 2 according to catalogue no. 264/. as well as POSIRED 2 related single screw extruder drives according to catalogue no. 265/. crane drives and mixer drives.

The licensor is prepared to cooperate with the licensee and put at his disposal the know-how.

The licensor possesses manufacturing secrets and know-how concerning the manufacture of the subject matter of this licence.  This aforementioned know-how has already been the subject of industrial exploitation by the licensor, the licensor having manufactured on a large scale helical gear units and bevel helical gear units system POSIRED 2 for industrial application.

52                        The method by which the matters variously described in the recitals as know how, manufacturing and technical knowledge and manufacturing secrets were to be put at the disposal of Elecon Engineering was addressed by clauses 3, 6, 7 and 8 of the contract as follows:

CLAUSE 3

 

Drawings and Descriptive Documents

The licensor shall supply to the licensee all reproducible drawings, plans and other technical documents (named in annex 1) for the complete gear box including the details for the raw materials, technical details of components required for manufacturing the subject matter of the licensee including the drawings for the gear sets.  Drawings which are not available yet will be designed and sent on licensees request. 

The licensee shall treat such drawings and documents as secret during and after the duration of the agreement.  The technical information prepared in the form of computer software/CAD would be preferable to the licensee.

CLAUSE 6

Improvements and Modifications in Articles under Licence

The licensor is obliged to disclose or make available to the licensee any modification or improvement of the articles under licence made during the validity of the existing contract without increasing the royalties and down payment.

CLAUSE 7

Technical Assistance

 

The licensor shall furnish to the licensee in good faith and without reservation all the technical assistance and advice necessary for the use and utilisation of the licence.  Apart from the technical documents listed in the technical field of application, the licensor, if need be, shall at the expense of the licensee also furnish one set of special tools and information/documents regarding assembly and testing equipments required for the production of the articles, which may not be available in the commercial market.

By agreement the licensor shall, at the expense of the licensee, provide the licensee with the services of skilled personnel for maximum 2 person for two weeks.  The travelling expenses, board and lodging and redemption of the despatched personnel shall be undertaken by the licensee.  Costs shall be reimbursed immediately on receipt of the bill.

CLAUSE 8

Training of the Licensee’s Employees

The licensor undertakes to instruct maximum 2 employees of the licensee for maximum 2 weeks every alternate year during the tenure of the agreement in his own works and train them in the manufacture of the articles under licence.  The extent of the instruction by the licensor will be defined beforehand.  All expenses incurred for travelling board and lodging, insurance and other costs, shall be borne by the licensee.

53                        Apart from the reference in the recitals to manufacturing secrets, and the obligation on Elecon Engineering under cl 3 to keep drawings and documents secret, both during and after the contract, cl 14 also imposed an obligation to maintain secrecy with respect to documents and information supplied during the contract period:

CLAUSE 14

Secrecy

 

The documents and information (know-how) supplied by the licensor shall be treated as secret by the licensee, even after the duration of the agreement.  The licensee shall take all proper steps to keep them secret.  In particular, he shall impose this obligation on his employees and subcontractors and forbid any unauthorised use.

54                        Despite the license granted by the know-how contract, PIV Antrieb retained overall control of the manufacturing process and the design of the gearboxes.  Clause 9 provided:

CLAUSE 9

 

Modifications and Improvements in the Articles by the Licencee

 

The authorization of the licensor is required for making improvements and modifications in the articles under licence.

The licensor shall be entitled to make use free of charge of modifications and improvements suggested by the licensee.

If the improvements are patentable, the licensor shall be entitled to patent them in all territories without being required to make any payment to the licensee.

55                        PIV Antrieb also had the benefit of a contractual condition guaranteeing that Elecon Engineering would manufacture to a satisfactory standard, upon pain of termination with full payment due.  Clause 5 provided:

CLAUSE 5

 

5.1       Quality of the Subject Matter

 

The licensee shall manufacture the subject matter to the same quality as the licensor.  The licensor has the right to check.  The licensor shall provide all necessary advice and information concerning his own experience in accordance with the provisions of clause 7 and 8.

5.2       Consequences of Poor Quality Articles made under Licence

If the licensee fails to attain the required quality within a period of 24 months from the transfer of drawings and documents the licensor shall be entitled, on giving 6 months notice, to terminate the contract.  In this case the licensor’s claim for payment according to clause 10 shall be preserved.

56                        Elecon Engineering was under an obligation to actually apply the information, documents and knowledge provided to the task of manufacturing products within a defined period and not to compete with PIV Antrieb.  Clauses 4.2 and 13 provided:

CLAUSE 4

4.2       Responsibility for Realisation

 

The licensor undertakes no responsibility for the risks of industrial realisation, which are assumed solely by the licensee.  The licensee declares that he knows the subject matter of the licence and he shall undertake its industrial realisation.  If he fails to do so within a period of 18 months after the transfer of drawings and documents, the licensor shall be entitled to terminate the contract.  In case of termination in consequence of aforementioned reason the entire lumpsum is to be paid.

CLAUSE 13

Obligation to Exploit the Licence – Manufacture of Competing Articles

The licensee undertakes to exploit the licence and not to manufacture or sell articles to compete with articles under licence, except spare part and replacement units of TGW and Elecon design manufactured by the licensee.

57                        Manufactured articles were to reveal their origins.  Clause 12 provided:

CLAUSE 12

Marking

The licensee shall mark all articles made by him under licence and supplied to his customers with serial numbers and shall affix to such articles a plaque inscribed ‘Licence P.I.V. – Reimers’.

58                        Clause 10 required payment of three instalments totalling DM 1,000,000, earlier referred to, and cl 11 required payment of royalties.

59                        Some reference was made to rights of termination of the contract by PIV Antrieb for particular kinds of default by Elecon Engineering in clauses already extracted – cl 4.2 and cl 5.2.  Those provisions, which were capable of activation in the event that Elecon Engineering failed to commence manufacturing in a timely way or to the required standard, involved forfeiture of the whole of the licence fee.

60                        Apart from those special provisions, cl 16 made further general provisions for termination.  Clause 16 deserves attention in its own right and will be addressed in due course. 

61                        It is clear from the provisions I have set out that there was to be a fulsome transfer of information, documents and technical know-how from PIV Antrieb to Elecon Engineering, although a comprehensive set of plans and drawings to manufacture the whole POSIRED 2 range had not by then been prepared.  The products which were the subject of the contract were in part identified by reference to particular catalogues – 264/. and 265/..

62                        In my view it is clear that the intellectual property in the material provided by PIV Antrieb to Elecon Engineering remained with PIV Antrieb, subject to one contention arising from the operation of cl 16.  Subject to later consideration of that issue, there can be no real argument that Elecon Engineering’s entitlement to use the intellectual property and confidential information provided to it depended upon rights which it was given by the provisions to which I have referred and was subject to the limitations already identified.

The territorial reach of the contract

63                        The Brevini interests’ first line of defence to the initial proceedings and first line of attack in the main proceedings was to argue that neither Elecon Engineering, nor any subsidiary, had ever been given a contractual right or permission to sell gearboxes in Australia.  I do not accept this contention.

64                        Clause 2 of the contract provided as follows:

CLAUSE 2

 

Territory

The licence is granted for making in the national territory of the Republic of India only.  The licensee shall not manufacture in any other territories.

The licensee is authorised to vend the license articles in India on an exclusive basis.

Direct sales of products covered under this agreement shall be made in India through licensee only.

The licensee is not authorised to export the license articles to Europe, South- and North America.

65                        The Brevini interests argued that, despite the absence of the limitation for which they contended in the terms of cl 2 itself, nevertheless cl 2 should be construed as excluding any right of sale to Australia and, necessarily in point of logic, to any place outside India. 

66                        The evidence relied upon fell into three broad categories.  First, they pointed to material exchanged between the parties by way of proposals and drafts before the contract was signed.  I have already indicated that I do not propose to have regard to subjective understandings of the parties at the time the know-how contract was made.  The same principle, as further discussed hereunder, precludes reliance on pre-contractual negotiations.

67                        Secondly, they referred to the terms of an application to the Indian Government, after the contract was signed, which made no reference to the possibility of royalties being earned on exports.  However, disclosure to the Indian Government in April 1998 that Elecon Engineering would pay royalties on domestic sales under the contract was not inconsistent with the possibility that, some years later, Elecon Engineering might turn its attention to export markets.

68                        Thirdly, they drew attention to an agency agreement made between PIV Antrieb and Renold Australia Pty Ltd (“Renold”), shortly after the contract was signed, giving Renold an exclusive agency to use technical information to sell some of the POSIRED 2 range (according to catalogue 264) in Australia.  The agency agreement with Renold was admitted into evidence upon the basis that it could not be used to advance a construction of the know-how agreement (see s 136 of the Evidence Act 1995 (Cth)).  The use sought to be made of it infringed that ruling.

69                        The Brevini interests argued that the two latter pieces of post-contractual conduct, one of which was under the exclusive and unilateral control of Elecon Engineering and the other of PIV Antrieb, had contractual significance.  The most that can be said, even if the evidence was otherwise admissible or could be relied upon, is that it was consistent with the suggested construction. However, it was not probative of the conclusion advanced.  There was no evidence that either form of post-contractual conduct came to the attention of the other party at the relevant time or gave effect to any mutual understanding. 

70                        Mulla deals with evidence of the kind relied on by the Brevini interests in the following ways (at page 277):

In construing written contracts, the courts ought not to resort to evidence of prior negotiations except to the extent necessary for clarifying what is ambiguous in the contract; then the court would place itself in the position of the parties to ascertain their intention.

(Footnotes omitted.)

and:

‘One may not look at what the parties did under the contract for the purpose of construing the terms’.  The true construction of an agreement must depend upon the import of the words used and not upon what the parties choose to say afterwards.  Nor does subsequent conduct of the parties in the performance of the contract affect the true effect of the clear and unambiguous words used in the contract.

(Footnotes omitted.)

71                        Under the express terms of cl 2, Elecon Engineering had a right to manufacture only in India.  In India it was required to sell directly and not through an agent.  Subject to those requirements, it had an exclusive right to manufacture (cl 1.2) and sell (cl 2) in India.  Elecon Engineering was prohibited from exporting any gearboxes which it manufactured to Europe, South America and North America, whether directly or through an agent.  They were the only restrictions imposed by the contract itself.  The argument by the Brevini interests rendered the express prohibition on export to Europe and South and North America otiose and devoid of content, meaning and operation.

72                        Those were the only territorial rights and, more importantly, limitations agreed between the parties and imposed by the contract.  There was no contractual limitation (apart from the seven year term of the contract) on Elecon Engineering selling in Australia gearboxes which it had manufactured in India or selling them through an agent as it subsequently did.  There was no ambiguity in these provisions.  Under Indian (and Australian) law it is not permissible to conjecture about the subjective intentions of the parties to construe cl 2 much less to pay regard to post contractual conduct.  Such matters are irrelevant.  Evidence about them is inadmissible.

73                        It follows that so much of the case of the Brevini interests, in either proceedings, as depends on the contention that Elecon Engineering had no right, during the currency of the know-how contract, to sell gearboxes in Australia, including through an agent, must be rejected. 

Termination of the contract

The operation of clause 16

74                        Under cl 15 of the contract it was to continue for a term of seven years with the possibility of an extension for a further three years. Apart from the specific provisions already referred to in cll 4.2 and 5.2, termination of the contract was generally governed by cl 16 which provided:

CLAUSE 16

 

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.)

75                        The Elecon interests argued that PIV Antrieb was in major default under the contract.  Accordingly, it was argued, Elecon Engineering had a right to terminate the contract and continue to apply all the technical information and know-how it had received from PIV Antrieb indefinitely for its own benefit with no further payment of royalties, the contract being, apart from the reservation of this indefinite right, at an end.

76                        It was further argued that Elecon Engineering’s letter of 25 March 2002, to which I referred earlier in this judgment, should be seen as having engaged that asserted right to continue to manufacture and sell indefinitely, using the know-how transferred under the contract.  That right was said to have either been engaged directly under the terms of the letter of 25 March 2002 or by reason of the fact that a right to terminate for major default existed as at 1 November 200, even if Elecon Engineering had not known to take advantage of it.  The latter part of the argument requires more detailed attention shortly.  However, the basic premise on which it depends, namely that this part of cl 16 operated for the benefit of Elecon Engineering, is not in my view well founded.

77                        Although cl 16 generated a major part of the debate in the proceedings, in my view its terms and structure are clear.  It may be seen as directed to a series of possibilities.  First, the parties each had, subject to the later provisions of cl 16, a right to terminate the contract for cause.  Next, if PIV Antrieb wished to terminate the contract it was required to give Elecon Engineering 90 days in which to remedy any deficiency being relied upon as a reason for termination.  Failure to rectify the deficiency confirmed the right to terminate for the cause notified.  Then, if the contract was terminated by PIV Antrieb by reason of major default by Elecon Engineering, Elecon Engineering would nevertheless retain the right (but not exclusively) to manufacture and (by inference) to sell gearboxes in India (and elsewhere) for the duration of the contract.  Then, two specific provisions were made to accommodate circumstances in which either company went into liquidation or either company changed hands with the result that there was a major change in management.  In either case the other party could declare the contract at an end and all rights and obligations on both sides were thereby terminated.

78                        The reason for the conclusion that the major default provision operated for the benefit of PIV Antrieb, but not for the benefit of Elecon Engineering, requires further elaboration.  The meaning of the major default provision must be determined, in accordance with Mr Vahanvati’s evidence, by reference to “the primary and natural meaning of the language chosen by the parties, and grammatical or natural or usual meaning given to the words in the contract”.  There are a number of matters, positive and negative, which point to the construction I favour.

79                        First, accepting that the concept of default, which is “well known in India”, is synonymous with failure, there is nothing about that concept which, without more, makes it more likely to have been used in connection with a major failure by one party than the other.  However, structurally, the provision follows immediately (and in my view logically) upon provisions referring to failure to rectify a notified defect.  Those provisions, in turn, operated as a fetter upon PIV Antrieb’s right to terminate for cause.  Notwithstanding Mr Vahanvati’s concentration upon breach of an essential or fundamental term of the contract, the Indian law he referred to equally accommodates a circumstance where Elecon Engineering failed to rectify a deficiency notified to it in accordance with the preceding provisions of cl 16. 

80                        Mr Vahanvati himself equated default with failure under Indian law.  He made it clear that the term major default is not one which has a special significance under Indian law.  Insofar as his evidence sought to apply the content of Indian law identified by him to the particular terms of the know-how contract and to provide an opinion about the construction of that contract, his evidence was inadmissible under the principles I identified earlier.  I am satisfied that the appropriate construction of the contract is that the term major default, read in context, and in accordance with the natural meaning of the words used, refers to a default notified under cl 16 which remained unrectified, thereby justifying termination by PIV Antrieb.  Read that way, the protections afforded to Elecon Engineering in the event of termination for major default would accompany any termination for cause by PIV Antrieb under cl 16.  For reasons explained below, that does not appear to me inconsistent with a sensible commercial operation of the know-how contract.

81                        Secondly, the phrase, in the major default provision, “terminated on the part of licensor” must be read consistently with the phrase, in the previous paragraph, “failure on the part of the licensee”.  There “on the part of” clearly meant “by”.  Similarly, a reference to termination “on the part of licensor” should, in my view, be construed as meaning termination by the licensor.

82                        Thirdly, the meaning suggested by the respondents may only be achieved by a complete rearrangement of the provision so that it reads:

If this agreement is terminated due to major default on the part of licensor, …

The transposition of terms which this suggestion involves is a piece of major surgery.  Such a provision could easily have been included, if it was intended.  By contrast, the words may readily remain in their present order with the addition of only some punctuation (two commas) as follows:

If this agreement, due to major default, is terminated on the part of licensor, …

 

A construction which preserves the order of words chosen by the parties is, in my view, greatly to be preferred to one which changes the order of words and ideas and which, as I read the competing possibilities, not only changes the meaning of the provision but reverses the rights and obligations it contains.

83                        I was concerned at one stage about the commercial rationale for a provision which would operate in this way to preserve the rights of a party (the licensee) which was in major default and allow it “to continue manufacturing of the articles without reservations”, even if not exclusively.  I was also concerned whether such rights would be rights in perpetuity or rights for the balance of the contract period.  I have come to the view that, subject to consideration of the period for which it would endure, there is nothing commercially unrealistic about a term which would preserve a non-exclusive right to manufacture and sell for some period at least.  For reasons which I have explained below, any right to continue to manufacture under the major default provision of cl 16 would, whatever the proper construction of that provision, have endured only for the balance of the original contract period of seven years. 

84                        The major default provision, as I have construed it, might have been invoked after, and even though, the whole of the license fee had been paid.  The overriding requirement to pay the licence fee was emphasised by cll 4.2 and 5.2.  The engagement of those provisions would have rendered Elecon Engineering liable to pay the whole of the sum of DM 1,000,000 due under cl 10 even though it had not (under cl 4.2) succeeded within 18 months in undertaking the “industrial realisation” of the subject matter of the licence or (under cl 5.2) manufactured to the requisite quality.  Elecon Engineering might also have expended a great deal of further money, in addition to payment of the whole of the licence fee, in preparing to manufacture.  One can readily see that it would be reasonable for Elecon Engineering to have an opportunity to secure a return on the large investment it may have made before defaulting.  The relevant part of cl 16, as I have construed it, would provide it with an opportunity to manufacture and sell the product for the balance of the contract period, although it would lose its exclusive right in India to do so.  

85                        However, there is no basis to conclude that a defaulting party would retain any such rights beyond the stipulated period of the original contract.  It is inconceivable that such a party would have been placed in a better position than if the contract had been fully performed by it in accordance with its terms, without default.

86                        Although I have found that the major default provision operated for the benefit of PIV Antrieb, a contrary conclusion would not have greatly assisted the Elecon interests.  Even if I had accepted the argument that the major default provision allowed Elecon Engineering to terminate the contract, and that it was entitled to do so on the facts of the present case, I would not have found that any rights given to Elecon Engineering by cl 16, had it been engaged, to continue manufacturing “without reservations” would properly be seen as giving an indefinite right to do so.  I would have regarded such a right as confined to the original term of the contract.    

87                        The know-how contract only provided for the possibility of an extension of three years, but that possibility was subject to the agreement of both parties, apart from the necessity of approval by the Indian government.  The only guarantee that Elecon Engineering had, in return for the payment of the contract price and whatever other investment it was required to make, was that it would enjoy a right of manufacture and sale for a period of seven years.  The construction for which the Elecon interests contended was, in effect, that Elecon Engineering would gain a perpetual right to use the intellectual property of PIV Antrieb without paying a further fee and without paying any royalties.

88                        Where the contract intended ongoing rights or obligations beyond the contract period it said so expressly – e.g. in cll 3 and 14 in relation to secrecy.  To construe cl 16 as giving rights in perpetuity, which did not protect some pre-existing entitlement but created a new perpetual right, would in my view have yielded a result which was commercially unrealistic and not to be implied.  The opposite implication would have been required.

89                        Mr Vahanvati did not deal, in his expert evidence, with the tests under Indian law for the implication of terms into a contract.  Using his guidance to the effect that Mulla is a highly regarded and authoritative text on Indian contract law, the following statements in Mulla are worth noting (from page 253):

The necessity for implying a term into the contract may arise because the parties have not expressly stated them, out of forgetfulness, or because of bad drafting, or because they may have thought the obligation so ‘obvious’ that it ‘went without saying’. …  Courts are required to imply a term to give efficacy to the contract, to prevent ‘the enjoyment of the rights conferred by the contract (being) rendered nugatory, worthless, or, perhaps,…seriously undermined’.

…

Whether a term will be implied is a question of law for the court.  It will not be implied so as to contradict any express term.  It ought not to be implied unless on considering the whole matter in a reasonable manner, it is clear that the parties have intended that there should be the suggested term.

(Footnotes omitted.)

90                        The following should also be noted (from page 260):

A term ought not to be implied simply because it is reasonable to make a particular implication or that it would make the performance of the contract more convenient, or it would improve the contract, or that it is consistent with the express terms agreed between the parties. …A term will not be implied if the contract is effective without it.  The test is of necessity and not merely reasonableness.

(Footnotes omitted.)

91                        Those tests are consistent with the ones applied in Australia (see B.P. Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 283, Secured Income Real Estate (Australia) Ltd v St Martin’s Investments Pty Ltd (1979) 144 CLR 596 at 608, Codelfa at 347, 404).  In my view, in the context of the know-how contract, it is so obvious that it goes without saying that any rights given to Elecon Engineering in the event that the contract was terminated for major default, even major default by PIV Antrieb, would not have been intended to endure beyond the term of the contract itself.

92                        The consequence of this subsidiary conclusion is that, even if cl 16 had borne the construction for which the Elecon interests contended, and all other conditions for the application of the clause had been met, any rights to continue using the subject matter of the licence granted by the know-how agreement would have expired on 26 March 2005.

93                        On the construction which I favour, Elecon Engineering did not obtain any rights at all as a result of the operation of this part of cl 16 because there is no suggestion of any kind that the contract was terminated by reason of major default by Elecon Engineering.

94                        I have not overlooked an argument to the effect that it would make more sense if Elecon Engineering had been given rights in response to a major default on the part of PIV Antrieb, rather than the reverse.  However, the test is not whether the contract would operate more conveniently or more reasonably in that fashion but rather, doing the best possible with the actual language of the contract, what did the parties themselves put in their bargain.  The question is not whether they could have provided for something else but whether they did so.  In my view, cl 16 should be construed as I have explained.

95                        My conclusions about those matters are destructive, in various ways, of the major line of defence mounted in the main proceedings and of the foundation of the initial proceedings.  It follows that Elecon Engineering, in 2002, lost its right to continue to use the subject matter of the licence granted by the know-how agreement.

96                        I shall, however, in deference to the possibility of some future challenge to my conclusions, go on to examine the various strands in the proposition that PIV Antrieb was in major default under the contract.  As will be seen, in my view this contention, on whatever foundation it was put, does not survive analysis.

Each party purports to terminate

97                        In light of the conclusions I have already expressed, the resolution of the question of when the contract was terminated, and by whom, takes on less significance but it is necessary at least for the purpose of identifying when Elecon Engineering’s rights under the contract ceased on the view which I have already expressed. 

98                        There were various exchanges of correspondence between the parties about the issue of termination.  Each party purported to terminate the contract during 2002.  In order to put the matter into a satisfactory context it is necessary to trace the history of events in a little more detail than I referred to earlier.

99                        On 11 January 2001, PIV Antrieb filed for insolvency.  The steps which were taken occurred under German law.  There was no expert evidence given about the operation of German law but the position appears sufficiently straightforward that some conclusions may confidently be stated.  The relevant court order was made on 28 February 2001.  The formal period of liquidation commenced on 1 March 2001.  It was advised to Elecon Engineering by the insolvency administrator, Dr Wellensiek, in a letter dated 12 March 2001 which said, relevantly:

Insolvency proceedings for the assets of

PIV Antrieb Werner Reimers GmbH & Co. KG,

Industriestraße 3, 61352 Bad Homburg

 

Re:  Lodgement of claim

 

To Whom It May Concern:

In accordance with the decree of the Bad Homburg v.d. Höhe local court dated 28/02/2001 (photocopy enclosed), insolvency proceedings for the assets of PIV Antrieb Werner Reimers GmbH & Co. KG – filed for on 11/01/2001 – have been instituted effective 01/03/2001 and the undersigned has been appointed insolvency administrator.

Claims may be lodged with me until 30/04/2001 using the enclosed forms for lodgements of claims (and guide to lodging a claim).

Any claims lodged prior to the institution of proceedings (01/03/2001) are void and will have to be resubmitted with reference to any documentation previously lodged, in order to be validated for the purpose of these proceedings.  It will not be necessary to resubmit the documentation in itself.  I draw your attention to the fact that notice of claims assessment and determination results will only be given to those creditors whose claims were wholly or partially objected to.

 

100                      The Court order attached to the letter included the following passage:

The disposal over any assets currently held by the Petitioner or obtained by the Petitioner in the future is withheld from the Petitioner for the duration of the insolvency proceedings and any such powers shall be transferred to the insolvency administrator.  Payments for the purpose of reducing the Petitioner’s liabilities shall not be made after the date at which proceedings are instituted.  Any payments made notwithstanding this order and not contributing towards the pool of insolvency assets may be subject to further obligations as ordered by the insolvency administrator.

(The Petitioner was PIV Antrieb.)

 

101                      Elecon Engineering had evidently become aware of the situation before the formal advice to it.  On 30 January 2001 Mr Patel’s father, as chairman and managing director of Elecon Engineering, wrote two letters to Dr Wellensiek.  One letter contained an offer to purchase assets of PIV Antrieb.  The other letter complained about the non-provision of know-how concerning crane drives and mixer drives, and other matters, and claimed a refund of one-third of the licence fee of DM 1,000,000.  It also said the following in conclusion:

Furthermore, as per clause No.16 governing ‘termination’, as stated in last paragraph on page No.12 of the above clause, we hereby advise you regarding termination of the Know-how Agreement between our two companies, on account of M/s. P.I.V. going into bankruptcy/liquidation/court receivership as well as on account of change of ownership or management which may arise by virtue of liquidation of assets by M/s. P.I.V.

102                      The Brevini interests did not initially plead that this letter was effective to terminate the know-how contract although it appeared, on one reading of it, to invoke the provisions of cl 16 which addressed issues of bankruptcy.  Indeed, the Brevini interests did not initially rely expressly on termination of the know-how contract at all and did not, therefore, plead the date of its termination.  In an amended statement of claim, filed shortly before the proceedings were heard, an allegation of breach of confidence was added.  On this occasion it was pleaded that the know-how agreement was terminated by a letter from Dr Wellensiek dated 22 May 2002, to which I referred earlier in the judgment.

103                      On 11 December 2008 I gave leave to further amend the statement of claim.  The further amended statement of claim pleaded that the know-how agreement was terminated by Elecon Engineering’s letter of 25 March 2002 to Dr Wellensiek or, alternatively, by Dr Wellensiek’s letter of 22 May 2002.  However, I refused leave to plead, also in the alternative, that the know-how contract was terminated by the letter from Mr Patel’s father dated 30 January 2001.  I did so because the proceedings were in the last of eight days of evidence and because I could not be sure that evidence might not have been available to the effect that the letter would be ineffective under German insolvency law to operate in advance of the formal insolvency proceedings.

104                      The last in a series of defences filed by the Elecon interests admitted that the know-how agreement was terminated on 25 March 2002.  I have come to the same view, but it is important to explain why, as the parties were not agreed on the factual or legal foundation for their individual conclusions.  Some further factual detail is also necessary to explain the context in which the letters of 25 March 2002 and 22 May 2002 were written.

105                      PIV Antrieb was not formally in insolvency proceedings at the date of the letter of 30 January 2001.  Elecon Engineering did not, when advised by Dr Wellensiek’s letter of 12 March 2001 that insolvency proceedings had been commenced, give any notice of termination but, rather, treated the know-how agreement as remaining on foot.  That is how matters remained for many months.

106                      As earlier described in an introductory way, by a contract dated 25 October 2001, which took effect on 1 November 2001, Dr Wellensiek sold the assets of PIV Antrieb, not including the benefits or obligations of existing contracts, to the company which later became known as PIV Drives.  On the same day, 1 November 2001, the purchasing company was itself acquired by Brevini Italy.  At the same time, PIV Antrieb ceased, on 31 October 2001, to employ any staff and their contracts of employment with it came to an end.  A substantial number commenced employment with the purchasing company on 1 November 2001.

107                      Apart from assets and stock physically on the premises of PIV Antrieb at the date of transfer there were transferred also:

c)         all the documents available on the due date that have a necessary relationship with the business enterprise of the debtor, in particular documents in connection with the production program, the manufacturing process, drawings, receipts, working instructions, regulations related to operations, lists of clients and suppliers, brochures, personnel data and personnel documentation in relation to the employees.  Not counted under company documentation are papers related to company law or documentation that relates to previous owners of the company or to the insolvency procedure.

 

108                      The relevant parts of the asset sale agreement which related to intellectual property in the design and manufacturing process for the gearboxes were contained in the following two provisions:

e)         all rights to inventions and technical experience (technical know-how), industrial secrets, processes, formulas and other intangible assets that do not fall under protective commercial property rights as well as all embodiments of such assets, such as for instance written descriptions, sample drawings, plans and so on, and in addition to these, all usufructuary rights and similar rights allied to them.

f)         all rights to commercial experience (commercial know-how), business secrets and administrative and marketing processes, as well as all embodiments of such assets, such as for instance documentation about the administrative and marketing organization, documentation about clients and suppliers, as well as correspondence and other commercial documentation.

109                      These, and other, provisions for transfer of property of various kinds were introduced by the following words:

The vendor herewith sells to the purchaser, who agrees to the sale

110                      The Elecon interests raised a particular argument, in connection with the allegation of breach of confidentiality, about whether the asset sale agreement could be effective to transfer legal, as opposed to equitable, interests in intellectual property.  No party called evidence about the content of German law on this issue and I was left to deal with it as best I could having regard to Australian law.  I will deal with it when I discuss particular causes of action.

111                      It is clear that the transfer of the intellectual property, and any rights and interests in it, was subject to the rights which Elecon Engineering had under the know-how contract.  Elsewhere in the asset sale agreement it was noted:

The purchaser will in particular not take over any existing licensing, commercial agency, and sales contracts.

112                      On 28 November 2001, Elecon Engineering wrote to PIV Antrieb.  The letter said:

            Subject:  Takeover of P.I.V. Antrieb Werner Reimers GmbH & Co. KG

With reference to the above we have to state as under:

We, i.e. Elecon Engineering Co. Ltd., India have entered into a Know how Contract with you on 26^th March, 1998 for transfer of technology for the licensed product concerning design, manufacturing and sales of helical gear units and bevel helical gear unit system POSIRED 2 according to Catalogue Nos. 264 as well as POSIRED 2 related single screw extruder drives 265/ crane drives and mixer drives.  As per the agreed terms, we have fully paid the technical know how fees of DM 1.00 Million.

We have now come to know that P.I.V. Antrieb Werner Reimers GmbH & Co. KG has now been taken over by an Italian Company.  In terms of Clause 16 of the Contract, we would like to know the present position of the Company, as also whether the Company has been taken over by any other company or persons and if yes, complete details of the acquirer so as to enable us to take necessary steps, in terms of the Knowhow Contract.

 

113                      On 14 January 2002, Mr Kissel wrote to Elecon Engineering on behalf of PIV Drives.  The letter is confusing for more than one reason.  It read:

Insolvency procedure concerning the fortune of the company

PIV Antrieb Werner Reimers GmbH & Co. KG, Bad Homburg v.d.H.

Know-How Contract

Dear Ladies and Gentlemen,

We would like to inform you hereby, that the business activity of the company PIV Antrieb Werner Reimers GmbH & Co. KG, was transferred with effect of 01.11.2001 to a new society.  The new society’s name is PIV Drives GmbH.

The Know-How Contract of 28.10.1998, concluded between you and the PIV Antrieb Werner Reimers, is taken over on same conditions by the PIV Drives GmbH with effect of 01.11.2001, however with a one-sided term of notice by PIV Drives GmbH of three months to the end of the month.

Please be so kind to countersign legally binding this writing and return it as soon as possible to our hands.

 

114                      Not the least of the confusion arises from the fact that although this letter clearly referred, in more than one place, to the know-how contract it assigned an incorrect date to it.  In his oral evidence Mr Kissel said the letter did not refer to the know-how contract but to an agency agreement of 28 October 1998.  The agency agreement to which he said the letter referred is not in evidence.  The confusion is ultimately not important.  The letter was not countersigned by Elecon Engineering.  The offer it contained, whatever it was, was not accepted.  The letter of 14 January 2002 only has any significance now as an element in the chain of events.  It provoked a response dated 25 March 2002 which the parties are prima facie agreed had the effect of terminating the know-how contract.

115                      The letter is a critical one so I shall reproduce it in full:

            Subject:  Transfer of Business Activity of P.I.V. Antrieb Werner Reimers

                          GmbH & Co. KG. with effect from 01.11.2001.

With reference to the above we have to state as under:

We are in receipt of a Letter from PIV Drives GmbH, Bad Homburg dates January 14, 2002 informing us that the business activity of P.I.V. Antrieb Werner Reimers GmbH & Co. KG. was transferred with effect from 01.11.2001 to a new society namely PIV Drives GmbH.

As per the terms of the Know How Contract entered into between P.I.V. Antrieb Werner Reimers GmbH & Co. KG, Germany (herein after referred to as PIV) and Elecon Engineering Co. Ltd., India (herein after referred to as Elecon) dated March 26, 1998, Clause 16 which refers to the circumstances leading to Termination of the Contract, states that the agreement can be terminated by the 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.  The Licensor or Licensee shall have a right of termination of agreement without any liability, on account of change of ownership with a major change in management.

The letter referred to herein above received from PIV Drives does not provide complete information on the above aspects as to whether PIV has gone into bankruptcy or liquidation or court receivership or there is a major change in management on account of transfer of business.

We have been informed in the past that Mr. Peter Jansen and his colleague from M/S Brevini would visit Elecon for discussion in the matter of the Knowhow Contract.  We would like to know when they would like to visit us in India.  While we are still open to have further discussion as to the continuation of business, we hereby would like to convey that in view of the information we have on the status of P.I.V. Antrieb Werner Reimers GmbH & Co. KG, Germany, this may be treated as a Notice of Termination of the said Know How Contract and that Elecon Engineering Co. Ltd., Gujarat, India be considered as absolved from any obligations under the said Contract with effect from the date of transfer of business and/or change of ownership with a major change in management.

We would also like to inform you that although we have made full payment of 1.00 Million DM towards transfer of technical knowhow fees, some of the technical designs, drawings and specifications as agreed upon and as listed in the Annexure enclosed here with, has not been supplied by PIV for which we call upon you to either arrange to supply all the technical knowhow that has not been delivered to us as per agreement or refund an amount equivalent to 250,000 DM for non supply of the said drawings and designs/specifications.

(Emphasis added.)

116                      A distinction must be made between what the letter purported to effect and what the Elecon interests may now be entitled to argue about the legal consequence to be imputed to it.

117                      In my view this letter did not, in terms, invoke a right of termination on account of bankruptcy, liquidation or court receivership, although there is no doubt that the objective facts would have justified such a course.  It appeared to purport to terminate the know-how contract for the reason that PIV Antrieb’s business had been transferred to PIV Drives or that there had been a change of ownership.  Transfer of business was not a ground of termination under cl 16 of the know-how contract.  Although PIV Antrieb had been subject to a major change in management upon the appointment of Dr Wellensiek as insolvency administrator it had not been affected by a change of ownership.

118                      Had the question, therefore, been simply whether this letter of 25 March 2002 was effective by reference to its own terms to terminate the know-how contract I would have concluded that it was not.  I would have concluded that the know-how contract was terminated shortly thereafter by the letter dated 22 May 2002 from Dr Wellensiek to Elecon Engineering which was in the following terms:

Insolvency Proceedings regarding the Assets of the Company PIV Antrieb Werner Reimers GmbH & Co. KG, Industriestraße 3, D - 61352 Bad Homburg

 

Re:  Know-how Contract of 26.03.1998

 

Dear Sirs,

In respect of the above matter I inform you that with a decision of the district court of Bad Homburg vor der Höhe from the 28.02.2001 with effect from 01.03.2001 insolvency proceedings were opened regarding the assets of PIV Antrieb Werner Reimers GmbH & Co. KG and the undersigned was appointed insolvency administrator.

Since 26.03.1998 there has been a know-how contract in existence which was concluded at that time between PIV Antrieb Werner Reimers GmbH & Co. KG and your Company.  Article 16 of the contract provides for the fact that if one of the two contractual partners becomes insolvent each contractual partner has the right to terminate the contract.

In my capacity as insolvency administrator I avail myself of this right to terminate herewith and terminate the contract with immediate effect.  In accordance with this, the know-how made available to you under the contract may no longer be used by you.

I beg you or confirmation of termination having taken place and assurance that the know-how will no longer be used by you.

119                      However, there are other reasons to conclude that the letter of 25 March 2002 should be treated as effective to terminate the know-how contract, although not for reason of major default as the Elecon interests contended.

120                      It is worth mentioning some later correspondence before returning to give further consideration to the legal effect of the letter of 25 March 2002.  On 14 May 2004 an attorney purporting to represent PIV Antrieb, Mr Joshi, wrote to Elecon Engineering demanding cessation of the use by Elecon Engineering of intellectual property now belonging to PIV Drives and the know-how transmitted in accordance with the know-how contract.  Two responses were made.  In the first response dated 6 July 2004 Mr Shah, an attorney representing Elecon Engineering, asserted in a number of places in a lengthy letter that the contract had been terminated on account of the liquidation of PIV Antrieb.  The letter also asserted, however, that Elecon Engineering had the benefit of the major default provisions.  No reference was made to the letter dated 25 March 2002.

121                      Mr Shah wrote another letter on 22 February 2005.  This letter appeared to rely, as notice of termination of the know-how contract, on the earlier letter from Mr Patel’s father dated 30 January 2001.  Mr Shah sought compensation to remedy a series of alleged defaults under the contract.

122                      None of the three letters dated 14 May 2004, 6 July 2004 or 22 February 2005 can have any bearing on the matters which require decision in the present proceedings except as an indication that a demand was made in 2004, as it was by Dr Wellensiek in his letter of 22 May 2002, that Elecon Engineering cease using the technical information and know-how, and that Elecon Engineering asserted a right to continue to do so. 

The effect of valid non-stated grounds for termination

123                      Now I may return to further consideration of the legal consequence of the letter of 25 March 2002.  The Elecon interests claimed that the letter was legally effective to terminate the know-how contract by reason of Dr Wellensiek’s conduct in “disabling” PIV Antrieb from further performance of its obligations under the contract.  The submission was bound up with the contention that Dr Wellensiek’s actions, taken with other matters, represented a major default to which Elecon Engineering had the right to respond under cl 16 of the contract.  I have already indicated that in my view Elecon Engineering did not have such a right.  However, it clearly had a right to terminate for cause under the opening paragraph of cl 16.  It also had a right to terminate on account of the insolvency of PIV Antrieb.  It will be necessary to examine, therefore, whether the letter of 25 March 2002 was effective to do so for either reason even though it did not assert a right of that kind.  It will be necessary, in that connection, to give some attention to whether Dr Wellensiek’s actions may be fairly described as anticipatory breach of the know-how contract, even if the time for performance had not arisen and to also consider whether the letter of 25 March 2002, which clearly intended to terminate the contract, was effective to do so on the ground of insolvency proceedings although it did not, in its terms, rely upon that ground.

124                      In Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245 (“Sunbird”) Mason CJ (with whom Deane, Dawson and Toohey JJ agreed) identified the common law principle (as applied in Australia) which requires attention at the moment as follows (at 262):

Shepherd v Felt & Textiles of Australia Ltd stands as authority for the general proposition that a termination of a contract may be justified by reference to any ground that was valid at the time of termination, even though it was not relied on at the time and even though the ground actually relied on is found to be without substance.

(References omitted.)

and (at 263-4)

Anticipatory breach may occur by reason of repudiation or renunciation of contractual obligations or by reason of inability to perform them.

and said also (at 264):

… the party asserting termination must show that the other party was ‘wholly and finally disabled’ from performance on the date ‘at which the inability must exist’.

125                      As to this latter aspect, Gaudron J said (at 280):

To justify termination by a party of his contractual obligations by reference to an anticipatory breach constituted by an inability to perform if not known or relied upon at the time, it is necessary to establish, not only that up until the point of termination the terminating party was ready, willing and able to perform the contract on his part, but also that at that time the other party was wholly and finally disabled from performing its contractual obligations when the time for performance, so far as it is of the essence, should arrive.  That total disability must be proved ‘in fact and not in supposition’ – per Devlin J in Citati [1957] 2 QB at p 450.

126                      The principle was applied in Carr v J A Berriman Pty Ltd (1953) 89 CLR 327.  A builder terminated a building contract relying erroneously on a provision in the contract conditions (cl 20) which had no application to the circumstances.  Fullagar J (with whom all other members of the Court agreed) said (at 343):

It is to be noted that cl. 20 of the conditions, to which the letter refers, contains nothing which could justify the cancellation of the contract.  It has not been suggested in argument that any of the events mentioned in cl. 20 actually occurred.  If, however, a right to rescind at common law had accrued to the builder on 31^st July, the letter of that date will operate as an effective rescission, leaving the builder with a right to recover damages for loss of the contract.

(See also Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 per Mason J (with whom Barwick CJ, Gibbs, Stephen and Aickin JJ agreed) at 611; Foran v Wight (1989) 168 CLR 385 at 406, 424.)

127                      Mr Vahanvati’s evidence referred to s 39 of the Indian Contract Act which provides (as set out earlier):

39.  Effect of refusal of party to perform promise wholly. – When a party to a contract has refused to perform, or disabled himself from performing, his promise in its entirety, the promisee may put an end to the contract, unless he has signified, by words or conduct, his acquiescence in its continuance.”

128                      There are also passages in Mulla which seem relevant, namely (at page 1017):

The parties to a contract, which is wholly executory, have a right to something more than the performance when the time arrives.  This is the right to the maintenance of the contractual relation right up to that time, as well as to the performance of the contract when due.  A contract is a contract from the time it is made, and not from the time performance is due.  The repudiation of the obligations under the contract before the time for performance is due, therefore entitles the other party to treat the contract at an end.  If, before the time for performance arrives, a party refuses to perform it in its entirety or disables himself from performing it in its entirety, this constitutes ‘anticipatory breach’ of the contract.  Though the term ‘anticipatory breach’ has been used, it is in fact a breach in the present repudiation.

(Footnotes omitted.)

and (at page 1018):

If one party to a contract repudiates the contract, the other party, ie, the innocent party, has an option.  He may accept that repudiation and sue for damages for breach of contract, whether or not the time for performance has come; or he may, if he chooses, disregard or refuse to accept it and then the contract remains in full effect.  Anticipatory breach was not devised as a whip to be used for the chastisement of deliberate lawbreakers, but from which the shiftless, the dilatory or the unfortunate are to be spared.  Anticipatory breach means simply that a party is in breach from the moment his actual breach becomes inevitable.  It is not confined to any particular class of breach, deliberate or blameworthy or otherwise.

(Footnotes omitted.)

and (at pages 1024-5):

The innocent party wishing to treat himself as discharged, where there is repudiatory breach of a contract, must make his decision known to the party in default, otherwise the contract continues, for ‘an unaccepted repudiation is a thing writ in water’.  A contract is not necessarily broken by the mere notice of intention to break the contract, or by repudiation.  There must be two parties to end the contract.  The words ‘may put an end to the contract’ have been held to make the contract ‘voidable’ at the option of the promisee.

(Footnotes omitted.)

 

and (at pages 1025-6):

Acceptance of repudiation by the promisee … must be communicated to the party in breach.  Since the repudiatory breach makes the contract voidable, the innocent party can rescind the contract, and the rescission must, under s 66 of the [Indian Contract Act], be communicated in the same manner and be subject to the same rules as communication of proposal.

(Footnotes omitted.)

 

129                      The last passage concludes with a footnote reference to s 3 of the Indian Contract Act.  Section 3 provides:

3.  Communication, acceptance and revocation of proposals. – The communication of proposals, the acceptance of proposals, and the revocation of proposals and acceptances, respectively, are deemed to be made by any act or omission of the party proposing, accepting or revoking, by which he intends to communicate such proposal, acceptance or revocation, or which has the effect of communicating it.

(Emphasis added.)

 

130                      Mulla says, of the word I have emphasised (at page 150):

It is submitted that the use of the word ‘or’ in the section indicates that a communication of a proposal, etc, is made by an act which: (i) is intended to communicate it; or (ii) has the effect of communicating it.

131                      Section 66 of the Indian Contract Act provides:

66.  Mode of communicating or revoking rescission of voidable contract. – The rescission of a voidable contract may be communicated or revoked in the same manner, and subject to the same rules, as apply to the communication or revocation of a proposal.

132                      Mulla observes (at page 1341):

The rescission of a voidable contract must be communicated ‘by any act or omission…by which he intends to communicate it’ or ‘which has the effect of communicating it’, as mentioned by s 3 above.

133                      Mulla makes the following observations about the use of the common law, although emphasising that it cannot be used to qualify the language of Indian statutes (at page 15):

In regard to the law of contract, the courts in India have taken guidance from the common law of England where no statutory provision to the contrary is in existence.

(Footnote omitted.)

 

and (at page 16):

The English decisions referred to in the Indian courts are decisions of courts of a country from where the Indian legal system has derived its jurisprudence and a large part of its laws.  They are judgments delivered by judges held in high repute.  Although none of these decisions are binding upon the courts in India, they are authorities of high persuasive value to which the Indian courts may legitimately turn for assistance.  Whether the rules laid down in any of these cases can be applied by the courts, must however, be judged in the context of the Indian laws and legal procedure and the practical realities of litigation in India.  The decisions of Australian, Canadian and other Commonwealth courts and of the Courts of the United States of America, when relevant, will have persuasive authority and will be listened to in courts in India with attention and respect, as judgments of eminent men accustomed to expound the principles of jurisprudence similar to our own.

(Footnotes omitted, emphasis added.)

134                      None of the discussion in Mulla, or the provisions of the Indian Contract Act to which that discussion refers, appears to have the effect that the common law principle, distilled in Sunbird and other cases, would not apply under Indian law in the circumstances of the present case.  Although there was an issue at one point in the proceedings about whether Elecon Engineering had paid all the instalments due under the know-how contract, I have not been asked to decide that question.  In addition, it was not submitted by the Brevini interests that Elecon Engineering would be disentitled, by reason of any breach of its own, from relying upon the principle stated in Sunbird if it was otherwise applicable.

135                      I can proceed, therefore, on the legal premise that the letter of 25 March 2002 was effective to terminate the know-how contract if there were, in fact, circumstances at that date which justified termination, whether they were referred to or expressly engaged by the letter or not.  It would make little difference if I was wrong in that conclusion because, in that event, Dr Wellensiek’s letter of 22 May 2002 was certainly effective.  The only consequence would be that the know-how contract came to an end about three months later.

136                      However, accepting that Elecon Engineering had a right to terminate the know-how contract as at 25 March 2002 and its letter of that date was effective to do so even if it misstated the ground upon which termination was available, or which was being relied upon, that does not mean that the contract would be cancelled with effect from 1 November 2001 or any other date prior to 25 March 2002.  Under the common law, termination for breach, even if justified later as acceptance of repudiation or anticipatory breach, is not effective until notified (see also Mulla at page 1027).

Was PIV Antrieb in breach?

137                      The Elecon interests argued that PIV Antrieb had, in two respects, provided grounds for Elecon Engineering to terminate the contract as at 25 March 2002.  First, PIV Antrieb had failed to comply with its obligations to provide information and plans.  Secondly, the conduct of Dr Wellensiek, in transferring the assets of PIV Antrieb to PIV Drives, coupled with the movement of staff out of the employ of PIV Antrieb, had the effect of disabling or incapacitating PIV Antrieb from the ability to perform the contract as and when required.  Neither contention should be accepted.  As a result, even if the contractual terms bore the meaning attributed to them by the Elecon interests I would not have found that the rights of Elecon Engineering under the know-how contract remained alive after it was terminated.

Non-provision of information generally

138                      As I said earlier in this judgment, disagreements arose between PIV Antrieb and Elecon Engineering about whether PIV Antrieb had fully complied with its obligations under cl 3 of the know-how contract.  As has been seen, cl 3 recorded that a full range of plans for the POSIRED 2 series was not available at the date of execution.  Supply in the future of drawings not available at that date appeared to be conditional on a request from Elecon Engineering, presumably in response to an order for a gearbox within the range.  Annexure 1 to the know-how contract (which was referred to in cl 3) was a list of matters to be supplied as part of the technology transfer.

139                      Vilas Balkrishna Kalyankar is the Chief Executive Officer of the Gear Division of Elecon Engineering.  He was intimately involved in the administration of the know-how contract.  He said in affidavit evidence that he visited the PIV Antrieb plant between 16 and 20 November 1998.  While he was there he collected material identified in Annexure 1.  He marked his copy of Annexure 1 to indicate the documents provided and the medium in which they were provided (usually electronic).

140                      Further documents were dispatched on a compact disk in about July 1999.  Apparently the disk was damaged.  Mr Kalyankar’s oral evidence was that a new compact disk was sent on request.  Evidently, however, disagreements continued and led to a meeting in Bad Homburg on 13 April 2000.  That meeting, at which both Mr Patel and his father were present, resulted in an important agreement (“the April 2000 Agreement”) which was signed by the managing director of PIV Antrieb and by Mr Patel’s father, as chairman and managing director of Elecon Engineering.

141                      The April 2000 Agreement modified the effect of cl 3 of the know-how contract.  It was made in a context where Elecon Engineering had withheld payment of some of the lump sum licence fee.  I shall set it out in full:

CONFIDENTIAL AGREEMENT

between

ELECON ENGINEERING CO. LTD (ELECON)

and

PIV ANTRIEB WERNER REIMERS GMBH & CO KG (PIV)

WITH REFERENCE TO THE POSIRED 2 KNOW-HOW CONTRACT BETWEEN BOTH PARTIES signed on March 26^th, 1998

Following the meeting at April 13^th, 2000 in Bad Homburg of

            ELECON         Mr. B.I. Patel   Chairman & Managing Director

                                    Mr. P B. Patel  Managing Director

            and

            PIV                  Dr. Recktenwald           Managing Director

                                    Mr. Janßen                   Business Unit Manager

                                    Mr. Pfaff                      Business Unit Manager

The following has been discussed and agreed:

In order to release the remaining payments to PIV as per the POSIRED 2 KNOW-HOW CONTRACT ELECON has to certify to their government that all the drawings as per the contract have been transferred from PIV to Elecon.

The mutual understanding between both parties at the beginning has been that PIV provides all drawings available.  The remaining drawings will be produced as soon as they become necessary for a project occurring at either ELECON or PIV.

Although ELECON has not received all the drawings as per the contract they will certify this to the government in order to get the release for the remaining payment to PIV as soon as possible.

PIV herewith confirms that even the official contract is finished all the necessary support will be given to ELECON to produce the remaining detailed drawings which have not yet been sent.

ELECON confirms that they will do the necessary detailed drawings with their own staff under the technical guidance of PIV.  ELECON will not charge PIV for this design work.  PIV then will carefully check the drawings and point out any corrections to ELECON.  If the drawings are approved by the PIV design dpt., PIV will produce the drawing on their own papers/dxf file with the PIV stamp on and make it available to ELECON.  This procedure applies only for projects coming up in India.  PIV will produce all drawings necessary for their own projects and provide them to ELECON as and when they are ready according to the original agreement.

PIV has generated some general project drawings with main dimensions for the gear types

                        PC       71, 75, 80, 85

                        PD       71, 75, 80, 85

                        PE        71, 75, 80, 85

                        PLC     71, 75, 80, 85

                        PLD     71, 75, 80, 85

                        PLB     50

These a.m. gear types become part of the initially mentioned KNOW-HOW CONTRACT.

Bigger PLB sizes do not fit into the modular system of the POSIRED range.  Therefore project drawings for any bigger PLB units above size 50 do not exist and are not available.

PIV will provide the available project drawings of the above types to ELECON in order to enable them to produce the detailed drawings as soon as there is any project coming up.  PIV then will check their drawings.  PIV will not charge ELECON for the project drawings.

ELECON will allow PIV to use all their detailed drawings in order to complete their POSIRED range.  ELECON does not charge PIV herefore.

ELECON shall now arrange remittance of balance amount payable to PIV, with an understanding by both parties that obligations for providing drawings and design as per agreements shall be fulfilled by PIV.

142                      Important elements should be noted.  The understanding of the parties “at the beginning” was that “available documents” were to be provided at the outset.  Remaining drawings were to be provided in the event of a “project”.  Consequent upon the April 2000 Agreement, Elecon Engineering would henceforth produce necessary drawings for projects in India and send them to PIV Antrieb for checking and reproduction, stamped as verified.  PIV Antrieb would produce necessary drawings for its own projects and supply them also to Elecon Engineering.  As to larger sizes, some “project drawings” had been made.  Others did not exist and were not available.  Available project drawings would be made available so that Elecon Engineering could produce detailed drawings for any project coming up.  They would be checked by PIV Antrieb.  No charge was to be made by either party pursuant to these arrangements.

143                      The April 2000 Agreement was clearly intended to operate as a variation of the know-how contract.  That is clear from its title and from the substance of its terms.  That is the effect it would have under Indian law (Mulla at page 1242) as well as Australian law.

144                      In my view it was clear from the date of the April 2000 Agreement that Elecon Engineering had no further right, if indeed it had such a right earlier, to demand production by PIV Antrieb of new drawings for projects of Elecon Engineering.  Rather, it had an obligation to produce them for itself and provide them to PIV Antrieb for checking.  There was no evidence that any such request was ever made.

145                      Notwithstanding the April 2000 Agreement, it appears that Elecon Engineering continued to withhold payment and disagreements continued.  There was a further meeting, over a period of four days, in Bad Homburg from 7 to 10 August 2000.  It resulted in a further agreement (“the August 2000 Agreement”).  The meeting was attended by Mr Patel and Mr Kalyankar for Elecon Engineering.  In preparation for the meeting Mr Kalyankar compiled a document listing drawings and parts, to the supply of which Elecon Engineering claimed to be entitled.  That document, it appears, was an important element in detailed discussions which took place over a number of days.

146                      The August 2000 Agreement was in the following form:

CONFIDENTIAL AGREEMENT

Between

ELECON ENGINEERING CO. LTD (ELECON)

AND

PIV ANTRIEB WERNER REIMERS GMBH & CO KG (PIV)

WITH REFERENCE TO THE POSIRED 2 LICENCE AGREEMENT CONTRACT BETWEEN BOTH PARTIES signed on March 26^th, 1998

Following the meeting on 7^th, 8^th, 9^th and 10^th of August in Bad Homburg of

            ELECON         Mr. P.B. Patel, Managing Director

                                    Mr. V.B. Kaljankar [sic], Asst. General Manager

            and

            PIV                  Mr. Kissel         Managing Director

                                    Mr. Janssen      Business Unit Manager

                                    Mr. Karimi        Business Unit Manager

The following has been discussed and agreed:

Further to the Confidential Agreement between ELECON ENGINEERING CO. LTD. (ELECON) and PIV ANTRIEB WERNER REIMERS GmbH & Co KG (PIV) dated April 13^th, 2000 PIV has transferred all drawings existing at this date related to the Posired 2 programme as per catalogues:

                                    Posired 2          264/…

                                    Posirex             265/…

                                    Posired R          272/…

                                    Posired N         364/…

ELECON confirms that they have received all drawings available at this date in form of DXF-files on CD-ROM as per attached document ‘Transfer of Technical Documents’, dated August 9^th, 2000, signed by Mr. V.B. Kalyankar of ELECON and Mr. M. Karimi of PIV.

ELECON shall now immediately arrange remittance of balance amount of DM 166,666.67 payable to PIV, with an understanding by both parties that obligations for providing drawings and technical documents as per agreement shall be fulfilled by PIV.

147                      The attachment recorded the detailed resolution of outstanding matters.  It was signed by Mr Karimi for PIV Antrieb and Mr Kalyankar for Elecon Engineering, who were the two persons with primary responsibility for resolving matters at this level of detail.

148                      The August 2000 Agreement explicitly recorded that all drawings to which the know-how contract referred “existing at this date” or “available at this date” had been transferred and received.  I am satisfied that the August 2000 Agreement should be regarded, by reference to its title, its terms and its substance, as a variation of the April 2000 Agreement and as a further variation of the know-how contract under Indian law. The April 2000 Agreement continued to operate, in accordance with its own terms, to regulate the rights and duties of the parties concerning future projects.  Any issue concerning drawings in existence as at August 2000 had been resolved.  There was oral evidence that after the August 2000 Agreement Elecon Engineering paid the amounts it had withheld against non-provision of drawings and technical documents.

149                      Notwithstanding the terms of the April 2000 and August 2000 Agreements the Elecon interests argued in the proceedings that PIV Antrieb had failed, as required, to supply a large number of drawings.  It relied upon a list compiled by Mr Kalyankar as at 1 November 2001.  I am satisfied that the claim has no substance for a number of reasons.

150                      First, it disregards the clear terms and effect of the April 2000 and August 2000 Agreements by which Elecon Engineering was bound.  Secondly, it was established in cross-examination that the list was compiled by reference to a complete list of every part of every potential gearbox which was the subject of the licensing arrangement in the know-how contract, whether or not detailed drawings for such gearboxes had ever been produced or they had been ordered, manufactured or supplied.  Thirdly, it was established in cross-examination that the list contained a good deal of duplication for the reason that many parts, identified by different numbers in the parts list as parts in different gearboxes, were nevertheless identical.

151                      In my view the list was misleading and reliance upon it was misconceived.  No case has been made out of a generalised failure by PIV Antrieb to meet its obligations under the know-how contract.

Non-provision of particular information

152                      Apart from the general allegation of default, which I reject, there were complaints of specific failures to supply particular drawings.  There were three such suggested failures.

153                      On 17 September 1999 Elecon Engineering sent a facsimile message to Mr Peter Janssen of PIV Antrieb who had been involved in the negotiation of the know-how contract and was closely connected with its implementation for PIV Antrieb.  He gave evidence in the proceedings at the request of the Elecon interests.  The facsimile requested drawings for five specified gearboxes.  It was endorsed with a hand written note and apparently returned by facsimile in that form.  The handwritten note said that the nominated gearboxes were not standard and not part of the know-how contract as standard items.  It said, however, that the drawings would be prepared “especially for you” and the sales would be subject to royalty payments.  Further detail had to be supplied by Elecon Engineering by way of “drawings of motors and couplings you are going to fit”.  The evidence is inconclusive about what, if anything, happened thereafter.  It does not matter.  This exchange could not have any further significance after the April 2000 and August 2000 Agreements and needs no further attention.

154                      The second alleged failure arose in September 2001.  Mr Kalyankar sent an email to Mr Karimi saying Elecon Engineering had received orders for four sugar mill gearboxes and one cement mill gearbox.  He identified suitable models and asked for drawings.  This was clearly a matter where the April 2000 Agreement imposed the responsibility on Elecon Engineering to produce its own drawings and send them to PIV Antrieb for checking.  There is no evidence that was ever done, in this or any other case.  It appears, moreover, that contrary to the representations in the email to Mr Karimi, there were no actual orders at this time.  In Mr Kalyankar’s evidence in chief the following exchange occurred:

MR WHEELHOUSE:  Can you recall any particular orders, Mr Kalyanka?---Can you please repeat as there is an interruption?  Can you just repeat your question?

Certainly.  Mr Kalyanka, the question I asked you was whether you have any recollection, sitting in the witness box now, of any orders that Elecon Engineering Co may have received for EP series gearboxes which Elecon Engineering could not satisfy, that is to say, prior to September 2001?---We were – if you – if I’m – I’m trying to give a very brief answer.  There was a possibility of the order.  This is an inquiry for the cement - - -

So is the answer to my question yes?  Is that the position, there were orders that you say you couldn’t meet?  Is that what you’re saying?---No.

HIS HONOUR:  No, he said there was a possibility of an order.

…

MR WHEELHOUSE:  Mr Kalyanka, as I understand your evidence, it is not that Elecon Engineering had particular orders which it failed to meet, but the position it found itself in was that it couldn’t take advantage of opportunities that existed in the marketplace?  Is that what your position is?---Yes.

Have I got that correct?---Yes.

Can you explain to his Honour what your recollection is of the opportunities that were available in 2000 and 2001 that Elecon was unable to take advantage of?---Yes.  During that time there was a need of a 900kW gearbox for the cement mill and that gearbox was fitting in the size 71 and if I had to supply this gearbox in time – because in time is very important because client cannot wait eternally so I should have all the drawings for this available with me.  There were two ways, either I make the drawings and get it checked from  PIV or I request PIV to make the drawings and give it to me.  Both the things were not possible because I requested PIV that they should give me the drawing.  They were not in a position to give me the drawing in time, and that was the reason I am saying the opportunity I could not utilise by going – by using this EP series gearbox.

HIS HONOUR:  Now, is this the example that you’ve referred to in your affidavit in September 2001?---Yes.

155                      This example, like the earlier one, provides no basis for a conclusion that PIV Antrieb failed to perform its obligations under the know-how contract.

156                      The third contention relied upon alleged a general failure to supply various drawings between 2000 and 2001.  The evidence relied upon to support the contention that the drawings in question had been brought into existence was given by Mr Janssen who disagreed with affidavit evidence given by Mr Karimi. 

157                      Mr Karimi was intimately involved with the POSIRED 2 project.  He identified a specific request for particular drawings on 7 November 2000 which he said were supplied on 9 November 2000.  Otherwise, he said that most of the drawings produced by PIV Antrieb were for standard gearboxes of sizes 10 to 47.  He said there were some drawings produced for gearbox sizes bigger than 47 but they were for customised gearboxes and not standard gearboxes.  I understood from his oral evidence that customised gears were a departure from those identified in the catalogues, which in turn identified the gears which were the subject of the licence in the know-how contract.

158                      Mr Janssen’s oral evidence was that there were standard drawings for sizes up to 67 and that some of them were given to Elecon Engineering.  However, as to larger sizes, he first said there were none in the period before November 2001, then suggested that PIV Antrieb had actually produced some and finally agreed that development work had been commenced by PIV Antrieb in mid to late 2001 but not completed by the time he left the company.

159                      In my view this evidence, so far as it was relied upon by the Elecon interests, was too general and inconclusive to be useful.  It certainly did not establish that there had been a breach of contract.  Mr Karimi was directly involved in the technical detail and the production of plans.  Mr Janssen was not in the technical department but in the sales department.  It was not established that his knowledge of the existence of technical plans and drawings was more reliable than Mr Karimi’s, much less that Mr Karimi’s sworn evidence should be rejected.  The third matter, therefore, relied upon to suggest breach of contract by PIV Antrieb before 1 November 2001, does not provide support for the proposition.

160                      Before I leave this general topic it should also be noted that Mr Karimi said, in both his affidavit and oral evidence, that there was no occasion upon which Elecon Engineering asked PIV Antrieb to check plans or drawings which it had made itself.  No occasion, upon which any such request might have been made, was put to him in cross-examination.

The conduct of the insolvency administrator

161                      The next question for attention is whether Dr Wellensiek’s actions in transferring the assets of PIV Antrieb to PIV Drives, in combination with the transfer of staff and equipment, represented an anticipatory breach of contract.  Mulla says (at pages 1013-4):

A bare notice of insolvency does not necessarily amount to a declaration of intention not to fulfill [sic] the obligation under the contract.  It is a question of facts in each case.  This is not of itself equivalent to a total refusal or disability to perform the contract, though it may be accompanied by conduct which amounts to a notice of the insolvent debtor’s or his representative’s intention not to pay his debts or perform his contracts.  Insolvency does not determine a contract nor does it operate as rescission of a contract.  A contract after initiation of insolvency proceedings and before adjudication is not per se void.

But conduct on the part of the insolvent or the official receiver that he does not mean to perform the contract, may amount to refusal to perform, entitling the other party to rescind.

162                      Mr Vahanvati confirmed that the insolvency proceedings did not justify a conclusion that the contract could, under the Indian Contract Act or at common law, be terminated for that reason alone.  I shall give separate attention to the express right of termination in cl 16 of the know-how contract.

163                      The question of whether the transfer of assets from PIV Antrieb frustrated future performance of the contract on the part of PIV Antrieb cannot be assessed in the abstract.  It can only be resolved by reference to such contractual obligations as remained to be fulfilled.  They were few.  PIV Antrieb was obliged to provide drawings prepared by it to fill its own orders.  It was not, however, under any contractual obligation to seek or accept such orders, whether or not in insolvency.  It was obliged to check drawings provided by Elecon Engineering in connection with its own projects and, under the April 2000 Agreement, to provide “all the necessary support” to enable Elecon Engineering to produce drawings.  Mr Karimi’s evidence, to which I referred earlier, was that PIV Antrieb had never been asked to check any drawings.  There was no evidence that any other form of support was withheld.  These were matters for the Elecon interests to prove, both before and after 1 November 2001.  There was no evidence that any relevant request was made between 1 November 2001 and 25 March 2002 when Elecon Engineering gave notice of termination.  There was therefore no evidence of actual breach of contract in that respect. 

164                      Neither may it be said that the evidence showed that PIV Antrieb, under the administration of Dr Wellensiek, would have been incapable of undertaking such a task or fulfilling such an obligation.  Mr Kissel was the managing director of both PIV Antrieb and PIV Drives.  He gave evidence that about 340 staff (out of 560) moved from PIV Antrieb to PIV Drives (including the design and development department), as did all the real estate and all the know-how and technology.  He said also that Elecon Engineering did not make any request for drawings or technical support from time of commencement of the insolvency proceedings to 25 March 2002.  Had it done so, he said, then in accordance with other arrangements for dealing with ongoing warranty obligations it would have been possible for Dr Wellensiek to ask for support and, after consideration of the matter on a case by case basis, for PIV Drives to provide it.  Despite the contingent bases of this evidence it does not support the contention that Dr Wellensiek would have been unable to respond to a request from PIV Antrieb.  There was no other evidence which supports the proposition.  The argument really depends on conjecture in a context where the possibility did not ever arise.  In Australia, Sunbird is authority for the proposition that an assertion of incapacity depends on showing that a party was “wholly and finally disabled” from performing when required to do so (see at 264 and 280 quoted earlier).  Under Indian law it is necessary to show that “actual breach becomes inevitable” (see Mulla at page 1018 quoted earlier).  The test is not met in the present case.  There is an insufficient basis to conclude that Dr Wellensiek’s actions disabled PIV Antrieb from continuing to perform the know-how contract to the extent necessary.

The insolvency proceedings

165                      That leaves for attention the question whether the existence of the insolvency proceedings provided a foundation for termination of the know-how contract as at 25 March 2002 even though, as I read that letter, there was no express reliance placed on that circumstance.  Under cl 16 there was clearly a right to terminate for that reason.  The right had existed since the commencement of the insolvency proceedings on 1 March 2001.  The intention in the letter of 25 March 2002, to terminate the contract, seemed clear.  In my view the existence of the insolvency proceedings provided a sufficient foundation for it.  Accordingly, I am satisfied that the know-how contract was terminated by Elecon Engineering’s letter of 25 March 2002.  Termination in those circumstances brought the contract to a complete end. 

166                      As I said earlier, if I am wrong in that conclusion the result is only that the know-how contract was terminated three months later, on 22 May 2002 by Dr Wellensiek.

Conclusions about the contract

167                      My conclusions to this point, on the question of termination of the know-how contract, may be summarised as follows:

-           cl 16 of the know-how contract did not give Elecon Engineering a right to terminate for major default by PIV Antrieb;

-           in any event, there was no major default by PIV Antrieb;

-           there was no breach of contract, or anticipatory breach, by PIV Antrieb prior to 25 March 2002 justifying termination of the know-how contract for cause under the first paragraph of cl 16;

-           there was no change of ownership prior to 25 March 2002 which justified either party terminating the know-how contract;

-           from the commencement of insolvency proceedings on 1 March 2001 it was open to either party to terminate the contract for that reason;

-           the contract was terminated by Elecon Engineering on 25 March 2002;

-           upon termination of the know-how contract Elecon Engineering lost the right to the benefit of the licence given by the know-how contract.

168                      There is no cause of action in the present proceedings concerning breach of contract to which the foregoing conclusions need to be applied.  They are, however, relevant to the causes of action which now require discussion.

169                      It should be noted that it is primarily questions of liability which need to be addressed at the moment because, on 27 April 2007, Branson J ordered that all issues of the quantum of pecuniary relief, if any, be determined separately from, and after, all other issues.

170                      In accordance with the conclusions already expressed the causes of action in the main proceedings and the initial proceedings must be examined on the basis that Elecon Engineering lost the benefit of the know-how contract, and any licence to use any confidential information provided to it, on 25 March 2002.  Correspondingly, its use of such information prior to that date was as the licensee of PIV Antrieb.

NSD 1955 OF 2004 

Copyright

171                      Using material supplied to it by PIV Antrieb, Elecon Engineering compiled its own catalogue.  It did so on two occasions, in 1999 and in 2004.  The Brevini interests pleaded that distribution of the 2004 catalogue in Australia, and the communication of it to the public in Australia by making it available online, constituted an infringement of s 36 of the Copyright Act 1968 (Cth) (“the Copyright Act”) which, amongst other things, protects copyright in artistic works and literary works. 

172                      Artistic works, as defined by s 10 of the Copyright Act, include drawings and photographs.  Literary works, as defined by s 10, include tables and compilations expressed in words, figures or symbols, and computer programs. 

173                      The Elecon interests admitted that a catalogue first published by PIV Antrieb in 1995 in Australia contained numerous original works in which copyright subsisted pursuant to s 31(1) of the Copyright Act and that the 2004 Elecon catalogue reproduced the whole or a substantial part of the PIV catalogue.  They also admitted that the 2004 catalogue was imported into Australia for the purpose of trade in Australia and was distributed in Australia for the purpose of trade and communicated to the public in Australia.

174                      Subject to consideration of particular defences, the admissions made are sufficient to establish in favour of the Brevini interests that the 2004 catalogue contained copyright material in which PIV Drives had exclusive rights as the assignee of the intellectual property of PIV Antrieb. 

175                      Section 36(1) of the Copyright Actprovides:

(1)        Subject to this Act, the copyright in a literary, dramatic, musical or artistic work is infringed by a person who, not being the owner of the copyright, and without the licence of the owner of the copyright, does in Australia, or authorizes the doing in Australia of, any act comprised in the copyright.

176                      In accordance with Avel Pty Ltd v Multicoin Amusements Pty Ltd (1990) 171 CLR 88 it was necessary for the Brevini interests to establish that there was no subsisting licence permitting publication and distribution of the 2004 Elecon catalogue.  They relied upon termination of the know-how contract as extinguishing any relevant licence.  In answer, the Elecon interests advanced four lines of argument to suggest the existence of some form of licence. 

177                      First, it was contended that the licence granted by the know-how contract continued after the termination of the know-how contract by operation of cl 16.  I have already rejected this contention. 

178                      In the alternative three further contentions were advanced.  The Elecon interests sought to support the proposition that PIV Antrieb granted to Elecon Engineering “an express or implied licence to use the copyright and intellectual property in the PIV catalogues and trademarks ‘Posired’, ‘PIV’ and ‘Posirex’ in any of three separate ways”.  The first alternative was that there had been a licence to facilitate the use of the know-how transferred under the know-how contract.  Any such licence could not survive the termination of the know-how contract and the general licence under it.  The second alternative was that there had been a separate agreement made in October 1998 when diskettes containing the 264 and 265 catalogues were provided to Mr Kalyankar.  It was suggested this represented either an equitable assignment or an express or implied licence to use the catalogues in connection with the manufacture and sale of gearboxes.  The third alternative was that there was an express or implied licence arising from the obligation on PIV Antrieb to provide assistance.

179                      The three variants of the alternative contention all relied upon a suggested right and obligation of Elecon Engineering to carry out the manufacturing and marketing processes contemplated by the know-how contract.  There was no basis advanced in the submissions for acceptance of the argument that, regardless of termination of the know-how contract, there was any form of continuing licence after termination of the contract.  Reliance by the Elecon interests upon a continuing licence arising from the know-how contract must be rejected. 

180                      In oral submissions, it was asserted that there had been an unqualified assignment of copyright from PIV Antrieb to Elecon Engineering in 1998.  Under s 196(3) of the Copyright Act an assignment of copyright, whether it is total or partial, has no effect unless it is in writing.  The asserted written assignment relied upon was a one page handwritten list of computer disks provided by Mr Janssen to Elecon Engineering.  The provenance of this handwritten list requires examination in accordance with the evidence given in the case.

181                      In an affidavit sworn on 16 October 2006 Mr Kissel identified correspondence and other documents concerning the provision of computer disks containing materials for the POSIRED 2 catalogue, including some discussion of what was necessary to open, read and print material contained therein.  A handwritten page was included which was undated but described by Mr Kissel as: “manuscript notes detailing what was sent to Elecon Engineering”.  The handwritten note appears to identify 12 items.

182                      Mr Patel, in an affidavit affirmed on 30 August 2007, responded by admitting that catalogues were physically received and the authenticity of the correspondence.  He made clear that he did not admit the authenticity of the undated handwritten document.  This is the document which was said, in oral submissions, to constitute the written assignment of copyright.

183                      In a further affidavit sworn by Mr Kissel on 30 August 2007 he identified the undated document as one written by Mr Janssen on 26 November 1998 as “a list of catalogues delivered to Elecon as signed by Mr Peter Janssen (in his capacity as head of the licensing department)”.  The document dated and initialled by Mr Janssen had 13 items listed.  The document earlier attached to Mr Kissel’s first affidavit appeared to contain some handwritten amendments.  Their significance was never explained and the discrepancy may be ignored. 

184                      Mr Janssen both affirmed an affidavit on 19 June 2007 and gave oral evidence in the proceedings.  As mentioned earlier, he was called by the Elecon interests.  In his affidavit evidence he made no reference to the handwritten list.  In a written statement filed in court when his evidence commenced Mr Janssen referred to a visit in late October 1998 by Mr Kalyankar to the factory and offices of PIV Antrieb in Germany.  Mr Janssen said that, at that time, Mr Kalyankar was given some computer disks, at which time he said words to Mr Kalyankar to the effect that Elecon could use them to produce its own catalogue.  He said that in December 1998 and January 1999 he assisted Mr Kalyankar to access the information on the computer disks so that Elecon could use the information on the disks to produce its own catalogue.  He made no reference to the handwritten note which was relied upon in oral submissions as a written assignment of copyright.

185                      In his oral evidence, which was given on 5 December 2008, Mr Janssen was asked no question concerning the handwritten list which Mr Kissel had identified as being made by him and initialled and dated 26 November 1998.

186                      In the circumstances, there was no foundation in the evidence for the submission that the handwritten list was a written assignment of copyright within the meaning of s 196 of the Copyright Act.  It clearly was not.

187                      In addition to the arguments with which I have dealt already, the Elecon interests denied that there was any ground upon which damages might be awarded under s 115 of the Copyright Act or orders made for damages or delivery up of the 2004 catalogues pursuant to s 116 of the Copyright Act.  The pleaded resistance to orders under s 115 and s 116 of the Copyright Act was that the Elecon interests were not aware, and had no reasonable grounds for suspecting, that they were infringing copyright or that copyright subsisted in any of the works.  In my view, those assertions are without any substance. 

188                      It is clear from the evidence given by Mr Patel that the Elecon interests were quite aware of the circumstances in which they were conducting themselves.  Mr Patel accepted in his evidence that, apart from some photos on the front and back pages, which he identified as photos of gears manufactured by Elecon Engineering, the 2004 Elecon catalogue was almost identical in content to the 1999 catalogue and contained material which had been provided by PIV Antrieb and had also been reproduced in various PIV catalogues from 1995.  The Elecon interests also accepted in their submissions that the source of the tables and text in the 2004 catalogue was the same as for the 1999 catalogue.  The 2004 catalogue was made available on the Elecon website for download anywhere in the world.  It was exported to Australia in physical form with the intention that it be supplied to customers of Elecon Australia.  As at the date that Mr Patel commenced his oral evidence (8 December 2008) the 2004 catalogue was intended still to be used in Australia. 

189                      Earlier in this judgment I set out the text of a letter written by Dr Wellensiek to Elecon Engineering on 22 May 2002.  In his evidence Mr Patel accepted that the letter had been received.  The letter gave clear notice that Elecon Engineering had no ongoing rights under the licence granted by the know-how contract or otherwise.  The letter written by Elecon Engineering three months earlier on 25 March 2002 did not, in fact, purport to terminate the know-how contract for reasons which would activate any ongoing right under cl 16 of the know-how contract, even if the construction advanced by the Elecon interests in the present proceedings about major default was correct.  The first time, at least so far as the evidence discloses it, that a suggestion was made that any such ongoing right existed was in the letter from Mr Shah dated 6 July 2004 when he replied to Mr Joshi’s letter of 14 May 2004 which had reminded Elecon Engineering of Dr Wellensiek’s notification that the licence had come to an end. 

190                      Mr Patel’s evidence, both by affidavit and orally, was that it was he who gave instructions to Mr Shah.  Mr Patel contended that the issue of major default had been raised before Mr Shah’s letter of 6 July 2004.  When cross-examination had concluded I invited him to identify the earlier occasion on which the matter had been raised.  He responded by referring to the letter of 25 March 2002.  That letter made no reference of any kind to the concept of major default.  No other occasion was identified.  So far as the evidence discloses, therefore, the first occasion on which any such reference was made was in Mr Shah’s letter of 6 July 2004.

191                      The inference is inescapable that Elecon Engineering, by its conduct and by the representations made on its behalf, chose a course of continuing to manufacture and sell products which had been the subject of a licence granted under the know-how contract knowing that its right to do so was in issue.  It did so using the 2004 catalogue.  There can be no doubt that its actions were deliberate and considered.  They were accompanied by an assertion of rights represented by the commencement of the initial proceedings.  Mr Patel was clear in his evidence that the Elecon interests would continue upon the course they had chosen unless restrained from doing so.  In all the circumstances I do not accept the suggestion that the Elecon interests had no reasonable grounds for suspecting that they might have been infringing copyright or suspecting that copyright subsisted in the PIV catalogues.

192                      The contentions advanced by the Elecon interests that damages ought not be awarded and/or relief not granted under s 115 or s 116 of the Copyright Act are, accordingly, rejected. 

193                      Although the assessment of relief is not a matter for present attention I should record also that it appears to me that the conduct of the Elecon interests was flagrant within the meaning of s 115(4) of the Copyright Act.  Explanation of that conclusion requires attention to issues concerning use of trade marks, as well as publication of the 2004 catalogue, but it is convenient to deal with it at this point.

194                      In cross examination Mr Patel was asked whether, after January 2004, products were advertised by Elecon Australia as POSIRED.  He said he was not aware of it.  Shortly thereafter he said that the name POSIRED was used until production of the 2004 catalogue in April that year.  The following day he said that Elecon Engineering ceased using the trademarks PIV and POSIRED and POSIREX in 2002: “because we got an objection from PIV.  That is [why] we stopped it.”  Then the following exchange occurred:

MS GODDARD: When did you cease using the trademark, Mr Patel?---I don’t know the exactly date but the catalogue was printed in 2002.

I’m sorry, Mr Patel?---I do not know the exact date when we stopped using it but the catalogue was printed in 2002.

HIS HONOUR:  I thought the catalogue was printed in 2004?---I’m sorry, your Honour, you’re right, 2004.  My mistake.

Well, when did you stop using the trademarks?---As far as I know, as soon as we got any objection from PIV we stopped using them.

You told me yesterday that you continued to use the catalogue until April 2004?---Yes, but as soon as we got the objection, we have whatever catalogues that we had, we have withdrawn those and we put the new catalogues in.

I don’t think that’s what you said yesterday, Mr Patel, so what is the position?---The position is that as soon as we got the information, we moved into the matter, yes, there might be a lag of a couple of months because new catalogues take time to get printed, but as soon as we got this information we stopped using them; as soon as the new catalogues came into existence.

Well, that was in April 2004 you told me yesterday?---Yes.

195                      Clearly enough this evidence was equivocal.  In re-examination the issue was revisited.  The following evidence was given:

MR WHEELHOUSE: You may recall that his Honour asked some questions of you concerning the 1999 Elecon catalogue and its withdrawal from circulation; do you recall that?---Yes, it has been withdrawn from circulation.

The question I ask you is this.  Did you, at any time, give any instructions to any employees of Elecon India at some point in time after 25 March 2002, in relation to the 1999 Elecon catalogue?---Yes.  I gave instructions that these should be withdrawn.  Not only that, every document as well as soft copies, which means the website also, should be corrected, eliminating the PIV logo and the name POSIRED II, as well as PIV.

Now, sitting in the witness box today, do you have any recollection of the date upon which you gave those instructions?---It would be difficult to say but all I can say is this happened after the incidents in Australia.

196                      Mr Patel then identified the incidents in Australia as a complaint connected with “the case that was filed”.  I take that to be a reference to the commencement of the initial proceedings in response to the protestation that Elecon Australia had no right to sell gearboxes to the Barclay Mowlem joint venture.  Mr Patel was shown Dr Wellensiek’s letter of 22 May 2002 and Mr Joshi’s letter of 14 May 2004.  The following evidence was then given:

MR WHEELHOUSE: Mr Patel, apart from the two letters that I have now just shown you and the complaint made in Australia about which you’ve given evidence a moment ago, which you described as the commencement of these proceedings, did Elecon India – Elecon Engineering Co Limited, so far as you are aware, receive any other notice or complaint regarding the use of the mark PIV or POSIRED or POSIREX or the associated marks?---No.

Apart from the two letters I’ve shown you and the complaint about which you refer in relation to the commencement of proceedings, did you receive any notice or correspondence from Brevini in relation to the use of the marks to which I’ve just referred?---No.

…

Did you receive any notice or complaint or any correspondence from Brevini Australia?---No.

HIS HONOUR:  Mr Patel, was the complaint in Australia made as a result of the fact that you tendered to the Barclay Mowlem and others joint venture?---Yes, your Honour.

That would put it some time between 10 August 2004 and 15 September 2004?---Yes, your Honour.

197                      In the result, even though the evidence was vague, inconclusive and not very satisfactory, Mr Patel appeared to be saying that there were only ever three protestations to the Elecon interests: one on 22 May 2002, another on 14 May 2004 and a third between 10 August 2004 and 15 September 2004.  He also appeared to say, in one fashion or another, that in response Elecon Engineering ceased to use the trade marks PIV, POSIRED and POSIREX and withdrew all copies and versions of the 1999 catalogue in which those terms were used.  He then seemed to say that occurred after the incidents in Australia which led to the commencement of the initial proceedings. 

198                      However, Mr Patel also said that, after the 2004 catalogue was published in April 2004, the process of changing from the 1999 catalogue to the 2004 catalogue and retrieving the 1999 catalogue took between three to six months.  That evidence cannot be related to any of the matters identified by Mr Patel as having prompted the steps that were supposedly taken.  The publication of the 2004 catalogue in April 2004 was clearly not responsive to the notice given by Dr Wellensiek.  It predated the protest by Mr Joshi.  It predated the incidents in Australia.  I conclude that Elecon Engineering did not respond, as Mr Patel asserted, to any of the protestations or complaints which he identified.  On the contrary, the Elecon interests pursued their own commercial agenda without regard for the notification issued by Dr Wellensiek on 22 May 2002.  The decision to publish a 2004 catalogue which reproduced, almost in its entirety, the 1999 catalogue was unconnected with any recognition and respect for the rights in the material which had been possessed by PIV Antrieb and which were now possessed by PIV Drives.  The complaint made in Australia was met with the commencement of the initial proceedings seeking interlocutory restraint from giving further expression to the complaint.  In my view, on the evidence, Elecon Engineering and Elecon Australia acted in flagrant disregard for the interests of the copyright owner of the material which was reproduced in the 2004 Elecon catalogue.

199                      Finally, the Elecon interests also argued that the Brevini interests are estopped from denying a licence to use the copyright material as a result of a failure to take steps to protect the asserted rights until the commencement of the main proceedings in December 2004.  This contention cannot succeed.  It is clear from the evidence of Mr Patel to which I have already referred that clear notice was given to Elecon Engineering, the significance of which it understood, commencing on 22 May 2002.  There is no foundation for any assertion of unreasonable delay or acquiescence.

200                      Accordingly each of the lines of defence to the allegation that PIV Drives’ copyright was infringed fails.  PIV Drives is entitled to relief for infringement of copyright, including consideration of the grant of relief under s 115 and s 116 of the Copyright Act.  According to the arrangements made for hearing the matter the quantum of relief is not to be addressed at this stage.

Trademarks

201                      PIV Drives registered the trademarks “POSIRED”, “PIV” and “POSIREX” in Australia on 15 January 2003, 8 May 2003 and 15 June 2004 respectively.  The Brevini interests claimed that the PIV and POSIRED trademarks were infringed.  In written submissions a pleaded claim of trademark infringement of the POSIREX trademark was withdrawn. 

202                      Section 124 of the Trade Marks Act 1995 (Cth) (“the Trade Marks Act”) makes it clear that an infringement of a registered trade mark does not occur if a person has continuously used an unregistered trade mark in the course of trade from a time before the date of registration of the registered trade mark, or before the first use of the trade mark by the registered owner or a predecessor in title, whichever is earlier.  The Elecon interests claimed that they had used the marks “PIV” and “POSIRED” before the date of registration.  Mr Patel’s evidence for example, to which I referred when dealing with the claim of breach of copyright, made it clear that Elecon Australia used the three trademarks in Elecon’s 1999 catalogue until it was phased out in the months following the publication of the 2004 Elecon catalogue in April 2004.

203                      The Brevini interests, however, claimed that the marks had been used by a predecessor in title to PIV Drives from even earlier, although it took some time for that contention to come properly into focus.  I have concluded that this contention is sound and that use of the trademarks by PIV Antrieb or by persons under its control, which may each be relied upon by PIV Drives, predated use by the Elecon interests in their own right and that the Elecon interests accordingly have no defence to the claim under s 124. 

204                      Under s 6 of the Trade Marks Act a predecessor in title is a person, or persons, from whom the trademark was assigned or transmitted.  Assignment, under s 6, requires an act.  Transmission includes transmission by operation of law, devolution on a personal representative or any other kind of transfer except assignment. 

205                      Section 8 of the Trade Marks Act defines the terms “authorised user” and “authorised use” by reference to a use of a trade mark by a person under the control of the owner of the trade mark.  Section 7(3) stipulates that an authorised use of a trade mark is taken to be a use of the trade mark by the owner of the trade mark.  As a consequence of the conclusions I reached and earlier expressed about the operation of the know-how contract, any use of the trade marks in Australia by the Elecon interests must be taken to be an authorised use up until, but only until, 25 March 2002.  Before 1 November 2001 it is taken to be a use by PIV Antrieb and therefore, for the purpose of this case, by PIV Drives to whom PIV Antrieb assigned its intellectual property effective on 1 November 2001. 

206                      The period between 1 November 2001 and 25 March 2002 must be differently assessed.  During that period PIV Drives was the owner of the unregistered trade mark.  PIV Antrieb was no longer the owner of the trade mark but the owner of the trade mark, PIV Drives, did not take the benefit or obligations under the know-how contract and did not, therefore, exercise control in relation to goods or services within the meaning of s 8 of the Trade Marks Act.  PIV Antrieb did not do so on its behalf.  It seems to me, therefore, that PIV Drives can claim the benefit of trade mark use in Australia by the Elecon interests until 1 November 2001, but not between 1 November 2001 and 25 March 2002.  As will be seen, nothing turns on that difference.

207                      The alleged infringements were said to be evidenced by five matters:

·    A catalogue made available to a potential customer on or about 18 October 2004 in which PIV and POSIRED trade marks were used;

·    A facsimile dated 25 March 2003 from Elecon Australia to an unidentified customer in which the PIV trade mark was used;

·    A facsimile dated 26 March 2003 from Elecon Australia to an unidentified customer in which the PIV and POSIRED trade marks were used;

·    Use, in the 1999 catalogue which was distributed until April 2004, of the PIV and POSIRED trade marks;

·    Making available in 2007 on the Elecon website an installation operation and maintenance manual in which the PIV trade mark was used.

208                      The first three pieces of evidence were attached to an affidavit of Christopher John Warner Bayliss sworn 18 October 2006.  Mr Bayliss did no more than identify the documents as ones provided to potential customers of Elecon Australia by it.  However, no objection was taken to this evidence or to the documents referred to and annexed to his affidavit.  Their authenticity was not put in issue.  They may therefore be regarded as satisfactory evidence of the representations they contain.

209                      Amongst the catalogue material which Mr Bayliss said was supplied on or about 18 October 2004 was a catalogue dated 2000 entitled “Elecon range of transmission products” in which was contained depiction and description of “Elecon – PIV POSIRED 2 solid and Hollow shaft Modular gear units”.  On its face that was an infringement of both the POSIRED and PIV trade marks.

210                      The document dated 25 March 2003 was a letter from Mr Terry Hall, a director of Elecon Australia, to an unidentified recipient containing a quote for a gearbox citing alternatives which included an “Elecon PIV helical speed reducer”.  The letter of 26 March 2003 was to an unidentified recipient, signed by Mr Hall, which contained the following two sentences:

You mentioned that Brevini submitted an offer for a PIV gearbox model PLC50.  As you are aware, Elecon also manufactures the PIV Posired range and we can offer the same size unit.

211                      It is clear from these representations that Elecon Australia, through Mr Hall, made use of the terms “PIV” and “POSIRED” in direct competition with use of the term “PIV” by Brevini Australia.  The letter had attached to it a summary sheet for an “Elecon PIV Speed Reducer”.  As pointed out earlier, however, the PIV mark was not registered until 8 May 2003.  Neither the quote of 25 March 2003 nor the letter of 26 March 2003 provide evidence, therefore, of infringement of the PIV trade mark.  The letter of 26 March 2003 was, however, on its face, an infringement of the POSIRED trade mark.

212                      The fourth piece of evidence relied on as breach of trademark was the 1999 catalogue.  On Mr Patel’s evidence, to which I earlier referred, it appears that the 1999 Elecon catalogue, which used all three trade marks, was in circulation in Australia until some months after the publication of the 2004 catalogue in April 2004.  It was in circulation, therefore, after registration of the “PIV” and “POSIRED” trademarks.

213                      The fifth piece of evidence was a 2007 installation operation and maintenance manual.  Reliance on the 2007 installation operation and maintenance manual was supported by a lengthy footnote in the written submissions which asserted that the words “LICENSE PIV-REIMERS” were depicted on page 1 and “PIV” appeared in schematic form products depicted on page 2.  Those assertions did not correspond with the contents of the document on which reliance was placed.  I could not see either term used elsewhere in the document either.  Accordingly I am not satisfied that this piece of evidence supports the trade mark cause of action.

214                      There are therefore three matters which, subject to consideration of competing contentions about prior use, support the claim of breach of trade mark – provision of the 2000 “Elecon range of transmission products” catalogue on or about 18 October 2004, the letter of 26 March 2003, signed by Mr Hall (but only as to the POSIRED trade mark) and the circulation of the 1999 catalogue until it was phased out sometime in 2004.

215                      Elecon may certainly claim to have distributed the catalogues in its own right during the period when it was not under any control by PIV Antrieb in relation to the use of the marks PIV and POSIRED and before registration of those marks on 8 May 2003 and 15 January 2003 respectively.  That represents use prior to registration.  There are other probable specific instances of such prior use.  On 15 May 2002 Mr Hall wrote to Simon Engineering (Australia) Pty Ltd.  The letter referred to some data sheets and a catalogue which were not attached as part of the evidence.  One could readily infer that the catalogue was the 1999 catalogue but in view of matters to be discussed shortly it is not necessary to actually make that finding.  I will assume it was.  On 28 June 2002 a Mr Howard Esler from (apparently) a New Zealand company called Eric Paton sent an email to Mr Hall acknowledging receipt of some catalogues.  Again, probably an inference is available that the catalogues were the 1999 catalogue but it is not necessary to actually make that finding.  I will assume they were.  Both those communications pre-date registration of either the POSIRED or PIV trade marks.

216                      However, PIV Drives may rely, as evidence of prior use by PIV Antrieb before 1 November 2001, on the conduct of Elecon Engineering and Elecon Australia with respect to the distribution of the 1999 catalogue at all times prior to 1 November 2001.  Under s 124 of the Trade Marks Act it was for the Elecon interests to establish that their use of the unregistered trade marks predated the earliest of the date of registration and first use of the trade mark by PIV Drives or its predecessor in title, including, for that purpose, any person using the trade mark under the control of the predecessor in title.  Having regard to Mr Patel’s evidence it would have been necessary for the Elecon interests to show that there had, in fact, been no distribution in Australia of the 1999 catalogue prior to 1 November 2001.  No such attempt was made.  Moreover, there are other specific examples of prior use that must be attributed to PIV Antrieb and, therefore, to PIV Drives.

217                      On 21 September 2001 Mr Hall had written earlier to Simon Engineering (Australia) Pty Ltd providing some catalogues and information about the PIV POSIRED range.  The letter was written within the period of operation of the know-how contract and before any transfer of intellectual property to PIV Drives.  PIV Drives is therefore entitled to rely upon it as its own use through the control, at that time, of PIV Antrieb.  Mr Hall’s actions did not represent prior independent use by the Elecon interests.

218                      Renold made an agreement dated 1 April 1998 with PIV Antrieb to assemble and distribute “helical gear reducers and bevel helical gear reducers, model POSIRED II according catalogue 264/..”.  Those products were to be assembled from “PIV components”.  Renold was given permission to use the logo PIV and the name “POSIRED” for marketing purposes for the duration of the agreement which was ongoing and, apart from termination for cause or other specified reason, was terminable on 12 months notice after an initial period of five years.  This represents a clear use by PIV Antrieb of the marks PIV and POSIRED in Australia before any use by the Elecon interests.

219                      There were some additional matters relied on by the Brevini interests as evidence of prior use upon which PIV Drives might rely which I do not accept.  The Brevini interests relied on invoices and an order exchanged between PIV Antrieb and Renold.  The invoices (from PIV Antrieb) appear to be dated 24 July 1997 and 23 October 1997.  They do not use the term POSIRED.  One invoice uses the term “PIV” but not in a way which satisfies me that it was used in relation to goods as required by s 7(4) of the Trade Marks Act.  The invoices were also in German and no translation was made available.  The order (by Renold) was for PIV bevel helical products intended for dispatch on 1 October 1997 and arrival on 12 November 1997.  The use by Renold in this order predated its appointment under the agreement which took effect on 1 April 1998.  There is no other evidence that Renold was, at the time the orders were sent, under the control of PIV Antrieb within the meaning of s 8 of the Trade Marks Act.  In my view, in the circumstances, neither the invoices nor the order are shown to be evidence of use upon which PIV Drives may rely prior to 1 November 2001. 

220                      The result of these various factual conclusions is that use of the trade marks upon which the Brevini interests may rely predates any use upon which the Elecon interests may rely.  The two specific instances of infringement which I earlier identified therefore stand unprotected by any defence of prior use.

221                      The Elecon interests pleaded, in their latest defence, that they were protected from a finding of infringement by s 122(1)(f) of the Trade Marks Act by reason that registration of the trade mark in the name of one of them would be granted if it were applied for.  That pleading was abandoned on the last day of the hearing.  It was also pleaded that s 123 of the Trade Marks Act applied because the trade mark was used with the consent of the registered owner.  The pleading was supported only by a submission to the effect that there was express or implied consent since 1998.  The submission is misconceived.  Section 6 defines a registered owner as the person in whose name the trade mark is registered.  The registered owner is PIV Drives.  In any event it is quite clear that neither PIV Drives, nor, if it matters, PIV Antrieb, gave consent to use of the trade mark outside the bounds of the licence granted by the know-how contract. 

222                      In written submissions reliance was also placed on s 120(2) (using a sign as a trademark which is not likely to deceive or cause confusion), s 122(1)(c) (using a trademark in good faith to indicate the intended purpose of goods, e.g. as accessories or spare parts) and s 122(1)(e) (exercise of a right to use a trademark given under the Trade Marks Act).  None of these defences were pleaded and I will not permit the Elecon interests to rely upon them.  Its last (replacement second further amended) defence was filed on 2 March 2009, after the filing of the submissions in question on 10 February 2009.  In any event, none of these lines of defence, if permissible, are established.  The complaint made by the Brevini interests did not relate to a sign, the trade mark was not used to indicate the intended purpose of goods and the suggested line of defence under s 122(1)(e) was related, in the written submission, to the defence I have already discussed under s 124 of the Trade Marks Act.  It could not survive the rejection of that defence.

223                      In all the circumstances the allegation of infringement of trade mark is made out.

Trade Practices

224                      The applicants pleaded a number of specific misrepresentations which, it was argued, contravened ss 52(1), 53(A), 53(C) and 53(D) of the Trade Practices Act 1974 (Cth) (“the TP Act”).  The representations, which were all said to be misleading and deceptive, were conveyed in part directly to unidentified customers, in part in promotional materials made available to customers and in part by statements on the Elecon Engineering website.  In final submissions four specific representations were relied upon.  The final written submission put the matter as follows:

267       The Applicants rely on the following evidence in support of the passing off and TPA claims:

267.1    The publication on or about 5 October 2004 on Elecon’s website www.elecon.com of a statement to consumers that Elecon’s helical gears (known as the ‘EP-Series’) were produced:

            ‘In technical collaboration with PIV Antrieb Werner Reimers GmbH & Co, Bad Hamburg [sic], Germany.’

267.2    Facsimile dated 25 March 2003 from Elecon Australia to an unidentified customer which offered to sell an ‘Elecon PIV helical speed reducer’.

267.3    Facsimile dated 25 March 2003 from Elecon Australia to an unidentified customer which offered to sell a ‘PIV gearbox model PLC50’ and contained the statement:

            ‘As you are aware, Elecon also manufactures the PIV Posired range …’

267.4    Promotional materials which were made available to a customer on or about 18 October 2004, which included a brochure titled ‘Elecon Range of Transmission Products’ which contained the following statements:

267.4.1‘Elecon has recently introduced monoblock catalogue industrial gear box in the country in Technical Collaboration with PIV Antrieb Werner Reimers GmbH & Co, Germany’.

267.4.2‘Elecon – PIV POSIRED 2 solid & Hollow shaft Modular gear units with high degree of flexibility as regards to Mountings positions.’

267.4.3            ‘Elecon-PIV Posirex single draft extruder gear units.’

(Footnotes omitted.)

 

225                      The second to fourth documents and material relied upon correspond to the first three instances of alleged infringement of trade mark with which I dealt a little earlier.  However, the legal and factual issues which now arise, in connection with the allegation that they constituted misleading and deceptive conduct, raise different matters for examination.  I shall deal with them shortly.

226                      The first allegation was supported by a printout from the Elecon Engineering website dated 5 October 2004.  That printout did not, in terms, say that helical gears in the EP-series “were produced” in technical collaboration with PIV Antrieb.  Rather, it said the following:

◘          In technical collaboration with P.I.V. Antrieb Werner Relimers [sic] GmbH & Co., Bad Hamburg [sic], Germany

◘          EP Series design based on Modular gear concept.

◘          Monoblock housing for sizes up to 31 and split housing for sized 35 to 67.

◘          Mounting position – Horizontal, Verticle [sic] or Inverted.

◘          Common housing for Helical as well as Spiral cum Helical Gear units.

◘          Case hardened and ground gears with profile correction for optimum load carrying capacity.

◘          Splash lubricated gear and bearings are standard.  Forced lubrication by built-on or motor driven pump is optional.

◘          Additional cooling devices like fan cooling, cooling coil, external oil cooler etc., depending upon service conditions.

◘          Output shaft execution with the following options:

                        •           Solid shaft

                        •           Hollow shaft with key

                        •           Hollow shaft with shrink disc

                        •           Output torque capacity : 4,80,000 [sic] Nm maximum

                        •           Ratio range : 1.25 – 710

                        •           Input speed : 1,500 RPM (max.)

227                      I would not be prepared to conclude that the statement relied upon was necessarily a statement referring to production.  It might equally be a statement referring to design.  There is no doubt that during the period of the licence under the know-how contract Elecon Engineering was producing helical gears which had been designed by or in collaboration with PIV Antrieb.  After 25 March 2002 the gears were no longer produced under licence but it remained true to say that they were the product of technical collaboration with PIV Antrieb. 

228                      There was a further difficulty with the evidence upon which this allegation was based.  The downloaded page was attached to an affidavit of Mr Bayliss.  He said no more in his affidavit than that the page was printed from the website of Elecon Engineering and was “dated on or about 5 October 2004”.  His affidavit evidence, therefore, did not purport to verify that the date which appeared at the bottom of the page (05.10.2004) was the date upon which the representation appeared on the website or was downloaded from it.  In his oral evidence Mr Bayliss was unable to say whether he had downloaded the material himself.  He was asked what was the significance of the date 5 October 2004.  He was unable to say.  The exchange led to the following evidence:

MR WHEELHOUSE: So you don’t know yourself what happened or why it happened on 5 October 2004?---It’s not significant to me, no.

229                      In the circumstances the Brevini interests have not established when the publication of which they complain occurred.

230                      The second allegation was based upon a “facsimile dated 25 March 2003 from Elecon Australia to an unidentified customer”.  Mr Bayliss identified this simply as “a true copy of a Quote for PD40 and PD42 gearboxes issued by Elecon Australia”.  The first page of the three page annexure to his affidavit was a facsimile stating that it consisted of one page whose subject was “Quote for gearbox”.  That quote, which was signed by Mr Hall, did refer to PD40 and PD42 gearboxes.  That was not the subject of the allegation made.  Two pages appeared in the annexure to the affidavit behind the one page quote.  They appeared to be the final two pages of a document signed by Mr Hall.  It is not clear how many pages preceded these two pages on the original document.  It is not clear on what date the document was brought into existence.  It is clear, however, that the two pages should not be regarded as a part of the one page facsimile transmission.  They were not the subject of any evidence by Mr Bayliss.  Mr Hall was not asked any questions about the matter.  In the circumstances the applicants have not established that the representations contained in the second and third pages of the annexure were made on 25 March 2003.

231                      The third representation relied upon was contained in a letter by Mr Hall on behalf of Elecon Australia to an unidentified customer dated 26 March 2003 (not 25 March 2003) to which was attached a data sheet.  The data sheet was headed “Elecon PIV Speed Reducer Ratings Summary”.  The letter said, in part:

You mentioned that Brevini submitted an offer for a PIV gearbox model PLC50.  As you are aware, Elecon also manufactures the PIV Posired range and we can offer the same size unit.

232                      Mr Bayliss, who was the managing director of Brevini Australia, was taken to this letter in cross examination.  He gave the following evidence:

MR WHEELHOUSE: --- … what we knew in the marketplace was that Elecon were saying that they had a gearbox the same as ours.

HIS HONOUR:  And that they were calling it a PIV gearbox?---They weren’t necessarily calling it a – my knowledge was not necessarily calling it a PIV gearbox; they said it was the same as a PIV gearbox, which – you know, there is a subtle difference.  I see this written here, and they are referring to it as PIV gearbox, but I’m telling you that we knew they were selling a gearbox – trying to sell a gearbox into the market that was the same as ours.

233                      It seems clear that Mr Bayliss, who was in charge of Elecon Australia’s direct competitor, did not regard Mr Hall’s letter as, in substance, a representation of the kind which is relied upon in the present proceedings.  I can see no reason to conjecture that other members of the small and necessarily knowledgeable class to whom these matters would be of significance would understand the position differently.  Although Mr Bayliss had attached this letter from Mr Hall to his affidavit he was not able to say when he saw it.  He gave the following evidence:

… obviously I would have read it, but in the marketplace, it wasn’t – they weren’t running around talking PIV and POSIRED openly, to my knowledge.  All I knew was that - - -

MR WHEELHOUSE: Well, they certainly were in this letter?---They were.  You’re quite right.  I mean, I’m reading it.  I can see it.

And they were doing it in a way that offered to displace your offer?---Yes.

Was that commercially significant?---I don’t remember when I saw this, though.  That’s the problem.

Well, it appears to have arrived in Brevini Australia on 3 April 2003 at 11.05am?---Yes, I can see that, but I honestly do not remember when I saw it, sir.

and:

MR WHEELHOUSE: Mr Bayliss, if the activity of Elecon Australia selling gearboxes from the POSIRED range was of no interest to you in 2003, how do you explain that one of your sales officers handed to you these three letters?---I don’t remember when he handed them to me for starters, but it’s certainly been a concern that Elecon is selling in the market, but we don’t really come across them.  The only time we’ve come across them in a significant way was when we lost an order to them at Blackwater and these letters here, I mean, it’s evidence they were using PIV but the time frame just doesn’t fall into my lap.

234                      The name of the customer had been removed from the document attached to Mr Bayliss’s affidavit.  He did not know who had done that.  He did not know who the customer was.  The consequence was that the respondents had no opportunity to seek evidence from the recipient of the letter concerning their understanding of the statements which were made in it.  Although in many cases misunderstanding by a consumer will be insufficient to establish misleading or deceptive conduct in the present case it would have been of significance if the recipient of the letter had proceeded upon the same understanding as Mr Bayliss.

235                      In the circumstances I do not regard the third representation which was relied upon as sufficient to make out any case of breach of the TP Act.

236                      The fourth matter relied upon was three statements contained in a catalogue which was amongst a bundle of catalogues and promotional material said by Mr Bayliss to have been “provided by Elecon Australia Pty Ltd to a potential customer of Elecon Australia Pty Ltd on or about 18 October 2004”.  The catalogue was entitled “Elecon range of transmission products”.  It was a 2000 catalogue.  It was therefore a catalogue produced during the currency of the licence under the know-how agreement.  There was no other information provided by Mr Bayliss or anybody else about the customer or the circumstances in which the range of catalogues and promotional material was provided.  Mr Gary David Harradine, who gave evidence for the Elecon interests, gave evidence that catalogues and brochures of this kind played virtually no part in the selection of industrial gearboxes of the kinds sold by the applicants, Elecon Engineering or Elecon Australia.  He said:

MR WHEELHOUSE: And in relation to the process of purchasing the products, how important are catalogue depictions of those products?---In my experience the relevance of catalogues is also negligible.  In any informed tender or procurement process there are several criteria used to evaluate tenders, and to make a recommendation to the owner to purchase any particular type of gear box, or numbers of gear boxes, which all get to the question of the size and nature and performance of those gear boxes, and to get to that point the person doing that work on behalf of the owner needs to have sufficient experience in the industry to understand the merits of various gear boxes, and the specific applications for those gear boxes for the project in question.  Again, in my experience, the brochures don’t come into play in that analysis for a number of reasons.  One, they are usually out of date.  Two, any graphic or representation of a gear box, or drive, has no relevance, compared to the certified engineering design data normally sought by the owner’s engineer to make sure that that particular drive is well and truly defined.  And three, it’s not possible to design and select a gear box from a brochure alone.

237                      He also said, in the course of cross examination:

MR FOX: Now, you indicated in the course of, again, answers to questions that Mr Wheelhouse put to you earlier, that you do not use catalogues as part of your assessment in the tender process.  Would you agree with that as a faithful recollection of what you said?---Yes, I do.

But would you agree that other consumers, that is, the types of consumers that I described to you before in terms of the way in which these products may be sold, just to generally repeat that one may wish to buy products in a reconditioned format, buy products directly from sales representatives or buy products through trade fairs, that in those contexts catalogues are relevant to the purchasers?---Look, in my experience the answer is still no.  There are other factors that are more relevant.  Catalogues invariably are part of the definitional process and in my experience they’re very rarely used to make an informed purchasing decision.

238                      Mr Harradine was the principal of Joharko International.  He had 25 years experience in Australia and internationally.  He had project development and management experience in the mining, quarrying, bulk materials handling, mineral processing, infrastructure and food industries.  In an expert report provided to solicitors for the Elecon interests he outlined the role of Joharko in acting for and providing advice to the mining and mineral companies in the development, design and construction of mining operations in Australia and overseas.  He said that Joharko, on behalf of its clients, did not rely on catalogues or brochures for the purposes of technical specification or procurement of drives. 

239                      There was no evidence to the effect that representations of the kinds made in the catalogue relied upon would have any significance for the selection of gears or gearboxes in the relevant industries in Australia.

240                      In the circumstances I am not satisfied that any of the allegations upon which the suggested breach of the TP Act depends has been established.

241                      This part of the case faced further, related, difficulties.  In Interlego AG v Croner Trading Pty Ltd (1992) 39 FCR 348 Gummow J at 387-8 distilled the principles of evidence which apply in cases alleging contravention of s 52 of the TP Act and passing-off.  One of those principles was:

[E]vidence of consumers and retailers as to the likelihood of deception will be critical if a special market is involved. 

242                      The observation was supported by a reference to comments by Lord Diplock in General Electric Co (of USA) v General Electric Co Limited [1972] 1 WLR 729 at 737-738:

[W]here goods are of a kind which are not normally sold to the general public for consumption or domestic use but are sold in specialised markets consisting of persons engaged in a particular trade, evidence of persons accustomed to dealing in that market as to the likelihood of deception or confusion is essential.  A judge, though he must use his common sense in assessing credibility and probative value of that evidence is not entitled to supplement any deficiency in evidence of this kind by giving effect to his own subjective view as to whether or not he himself would be likely to be deceived or confused.

243                      In addition, Branson J referred in EOS Australia Pty Ltd v Expo Tomei Pty Ltd (1998) 42 IPR 277 to the necessity for sufficient evidence to support a finding that marks or terms are “recognised by the public as distinctive specifically of” the goods in question and the necessity to establish that recognition “in the minds of substantial numbers of the purchasing Australian public specifically and exclusively with” the goods in question.  That requirement has not been met in the present case.

244                      The trade practices claim must be rejected.

Passing off

245                      For the reasons given in relation to the claims under the TP Act, the passing off claim must fail. 

246                      There is a further difficulty which is fatal to the passing off claim.  Damage is an essential ingredient of a passing off claim.  Although I am not, at present, dealing with any question of pecuniary relief it was necessary at least to plead that the Brevini interests had suffered some damage.  They accepted that this was so.  Damage was not pleaded in the further amended statement of claim in support of the passing off case.  What was pleaded in relation to passing off was a series of allegations (which did not include paragraphs pleading loss or damage) pleaded for the purpose of the TP Actcase. 

247                      In written submissions in reply the Brevini interests sought to rely upon the facts and circumstances which were pleaded to support the allegation of damage in the trade practices case.  The two elements of damage were alleged to be the possibility of a financial benefit if Brevini Australia had been awarded the Blackwater project instead of Elecon Australia and loss of sales in Australia as a result of sales by Elecon Australia.  Each represents no more than a speculative possibility.  There was no evidence that Brevini Australia would have won the Blackwater contract if Elecon Australia had not.  There was no evidence of any loss of sales to Brevini Australia and consequent loss of royalties to PIV Drives as a result of sales by Elecon Australia.  This attempt to overcome the defect in the pleadings was therefore ineffective as, in the end, there was no evidence to fill the gap.

248                      In my view the defect in the pleadings is fatal to the passing off case and for that additional reason the passing off claim would fail in any event.

Breach of Confidence

249                      Earlier in this judgment I set out the clauses in the asset sale agreement whereby Dr Wellensiek sold PIV Antrieb’s interest in and title to all technical documents and intellectual property, including trade and commercial secrets, to PIV Drives.  No evidence was given by any party of the consequences which German law would attach to the transfers of intellectual property and confidential information.  I am left with no alternative but to examine these matters by reference to Australian law.

250                      The evidence established that Elecon Engineering was put in possession of what was necessary to manufacture the POSIRED 2 series of gears and that it would not have been possible for it to have done so without that confidential information being supplied to it.  Assuming this cause of action is made out, any responsibility of Elecon Australia is derivative in the sense that it was merely acting in consequence of the manufacture of articles by Elecon Engineering.  However, and again assuming that the cause of action is made out, there does not appear to be any reason why Elecon Engineering and Elecon Australia might not be restrained from any conduct in this country which gave effect to, or exploited, a breach of confidence.

251                      By their latest pleadings, the Brevini interests alleged, and the Elecon interests admitted, that PIV Antrieb was to provide confidential information to Elecon Engineering.  It was pleaded and admitted that information concerning the know-how and technical knowledge for the manufacturing of POSIRED 2 gear units was confidential.  It was admitted that information contained in approximately 12,500 technical drawings provided by PIV Antrieb to Elecon Engineering was confidential.  The Brevini interests claimed that the Elecon interests had breached an obligation of confidence owed to PIV Drives by continuing to use the confidential information after the know-how contract came to an end.  Although this cause of action originally included a claim for relief with respect to catalogues which were provided to Elecon Engineering, that claim was abandoned in final submissions.

252                      Under Australian law any transfer of intellectual property, including confidential information, to PIV Drives was subject to the licence granted to Elecon Engineering for as long at that licence should endure.  German law has not been shown to be different.  On the findings I have made the licence came to an end on 25 March 2002.

253                      The principal line of defence to this cause of action was that Elecon Engineering retained a right, pursuant to cl 16 of the know-how contract, to use the confidential information “without reservation”.  I have already rejected that contention.  A number of other defences were also raised. 

254                      It was submitted that there had been no effective assignment of PIV Antrieb’s interest in the confidential information to PIV Drives at the time that other assets were sold because of the existence, at that time, of the licence to Elecon Engineering to use the confidential information.  Based on this circumstance it was contended that any assignment was partial only.  A consequence was said to be that it was necessary to join PIV Antrieb to the proceedings.  I will return to this issue.

255                      An alternative line of defence was that PIV Drives took insufficient steps to protect the interest it now claims, allowing the Elecon interests to adopt an assumption, to their detriment, that they were permitted to use the confidential information and that the Brevini interests are now estopped from asserting their rights or should be denied relief due to their acquiescence or delay.  I reject this contention for the same reasons I rejected a similar suggestion in relation to the copyright claim.

256                      It was argued that PIV Drives had acted unconscionably in acquiring any equity upon which it now relies.  This submission was related to a contention that PIV Antrieb had been disabled from fulfilling its obligations under the know-how contract and that PIV Drives was complicit in that action.  I have already rejected the premise upon which this contention depends and I need say no more about it.

257                      Another submission which was advanced orally was that the confidential information had been insufficiently identified to found the cause of action.  In light of the admissions made in the pleadings, to which I have already referred, this submission must also be rejected. 

258                      That leaves for consideration an examination of the character of the interest upon which the breach of confidence claimed is based and the suggestion that the proceedings are defective because PIV Antrieb was not made a party to them.

259                      Under cl 3 of the know-how contract Elecon Engineering was bound in contract to PIV Antrieb (although not at any time to PIV Drives) to keep all reproducible drawings, plans and other technical documents of the kind referred to in Annexure 1 of the know-how contract secret both during and after the duration of the know-how contract.  Similar provision was made by cl 14 of the know-how contract.

260                      The rights and obligations under the know-how contract were not assigned.  However, the action to restrain breach of confidence is not based in contract.  Rather, it appeals to a general equitable jurisdiction to grant relief against an actual or threatened abuse of confidential information.

261                      In Moorgate Tobacco Co Ltd v Philip Morris Ltd (1984) 156 CLR 414 Deane J (with whom the other four members of the Court agreed) said (at 437-438):

It is unnecessary, for the purposes of the present appeal, to attempt to define the precise scope of the equitable jurisdiction to grant relief against an actual or threatened abuse of confidential information not involving any tort or any breach of some express or implied contractual provision, some wider fiduciary duty or some copyright or trade mark right. A general equitable jurisdiction to grant such relief has long been asserted and should, in my view, now be accepted: see The Commonwealth v. John Fairfax & Sons Ltd.  Like most heads of exclusive equitable jurisdiction, its rational basis does not lie in proprietary right.  It lies in the notion of an obligation of conscience arising from the circumstances in or through which the information was communicated or obtained.  Relief under the jurisdiction is not available, however, unless it appears that the information in question has ‘the necessary quality of confidence about it’ (per Lord Greene M.R., Saltman) and that it is significant, not necessarily in the sense of commercially valuable (see Argyll v. Argyll) but in the sense that the preservation of its confidentiality or secrecy is of substantial concern to the plaintiff.  That being so, the starting point of the alternative argument must be the identification of the relevant confidential information.  Again, the argument breaks down at the threshold.

(Footnotes omitted.)

 

262                      It may be noted that his Honour identified the basis of the cause of action as lying in an obligation of conscience rather than in proprietary right.  There is no doubt, in the present case, that the information was communicated and obtained in circumstances that rendered it confidential and which obliged Elecon Engineering to keep it secret even after the contract was at an end.  It makes little difference, in my view, that the obligation was owed, as a matter of contract at least, only to PIV Antrieb.  At the time the information was communicated the right to its use lay exclusively with PIV Antrieb.  It now lies exclusively with PIV Drives.  I am satisfied that the preservation of its confidentiality or secrecy is of substantial concern to PIV Drives, that the information has the necessary quality of confidence about it and is also significant.

263                      In Smith Kline & French Laboratories (Aust) Ltd v Department of Community Services and Health (1990) 22 FCR 73 Gummow J said (at 87):

A general formulation apt for the present case of an equitable obligation of confidence has four elements: (i) the plaintiff must be able to identify with specificity, and not merely in global terms, that which is said to be the information in question, and must be able to show that; (ii) the information has the necessary quality of confidentiality (and is not, for example, common or public knowledge); (iii) the information was received by the defendant in such circumstances as to import an obligation of confidence, and (iv) there is actual or threatened misuse of that information, without the consent of the plaintiff.

264                      I am satisfied that these elements are established in the present case.

265                      In Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 (“Farah Constructions”), the High Court said at [118]:

118       …  The protection given by equitable doctrines and remedies causes confidential information sometimes to be described as having a proprietary character, ‘not because property is the basis upon which that protection is given, but because of the effect of that protection’.  Certain types of confidential information share characteristics with standard instances of property.  Thus trade secrets may be transferred, held in trust and charged.

266                      There is no doubt, therefore, that PIV Drives’ interest in the intellectual property which was assigned to it by Dr Wellensiek effective on 1 November 2001, and particularly the confidential information which was provided to Elecon Engineering, may, even if not property in the usual sense, be protected. 

267                      In TS & B Retail Systems Pty Ltd v 3Fold Resources Pty Ltd (No 3) (2007) 158 FCR 444, Finkelstein J decided that although confidential information was not property in the usual sense it may be passed by one person to another and the person to whom it had been imparted can take action to protect the information.  His Honour concluded that this Court may grant both injunctions and equitable compensation in a cause of action for breach of confidence (see at [72]-[77]).

268                      In the present case the benefit of the know-how contract was not assigned from PIV Antrieb to PIV Drives.  The cause of action for breach of confidence is not, therefore, based upon a contractual covenant.  It does not depend upon the assignment of a chose in action (cf Mid-City Skin Cancer & Laser Centre Pty Ltd v Zahedi-Anarak (2006) 67 NSWLR 569 at [162]-[175]).  However, I see no reason to doubt that the interest in the confidential information was, in accordance with the observations in Farah Constructions, directly assignable, at least so far as Australian law is concerned.  In those circumstances PIV Drives’ title to sue does not depend upon the assignment of any covenant under the know-how contract.  It was not necessary that PIV Antrieb be joined as a party.

269                      In my view a case has been made out to the effect that Elecon Engineering is in breach of the obligation of confidence which it owes to PIV Drives and that both it and Elecon Australia may be restrained, in this country at least, from further breach and/or ordered to pay compensation.

Mr Patel

270                      The further amended statement of claim pleaded at paragraph 75:

75        Mr Patel has aided, abetted, counselled, procured and/or authorised the conduct of Elecon Australia and/or Elecon India by reason of:

75.1      executing the Know How Agreement on behalf of Elecon India;

75.2      being the Managing Director of Elecon India; and

75.3      being a director of Elecon Australia.

271                      By reason of those matters it was then pleaded that Mr Patel was knowingly involved in conduct which was in contravention of the TP Act or constituted passing off.  Those claims do not succeed and as a result no liability attaches to Mr Patel arising from those allegations.  Moreover there is a further fatal difficulty disclosed by the pleadings.  The bare facts pleaded in paragraph 75 are insufficient to fix Mr Patel with liability under s 75B of the TP Act even if the causes of action had been made out against Elecon Engineering and/or Elecon Australia.  The three facts pleaded do not establish that Mr Patel aided, abetted, counselled, procured and/or authorised the conduct complained of.  The first alleged fact is incorrect in any event.

272                      Intentional participation is an element of this form of accessorial liability (see Yorke v Lucas (1985) 158 CLR 661 at 666-669, Houghton v Arms (2006) 225 CLR 553 at [17]).  In my view the failure to plead the necessary mental elements was fatal to any action against Mr Patel.

NSD 1423 OF 2004

273                      This cause of action relied on representations made by letter and orally on 17 September 2004, statements made orally on 22 September 2004 and representations in an email dated 24 September 2004.  In each case the representations were made to a representative of the Barclay Mowlem joint venture.  No evidence was called from any representative of the Barclay Mowlem joint venture which would establish that the representations were received but it was admitted that a letter was sent on 17 September 2004 to Mr Mapleson, the project manager of the Barclay Mowlem joint venture, and that on 24 September 2004 an email was sent to Mr John Hannah of the Barclay Mowlem joint venture.  Neither Mr Mapleson nor Mr Hannah were called to give evidence. 

274                      Mr Bayliss, in his cross examination, agreed that he had instructed Mr Lowe to write the letter of 17 September 2004.  The letter contained the following statements:

We are very surprised to hearsay [sic] that the JV has decided to award the above Tender to Elecon Australia Pty Ld.  This is because of the size of the contract and the relatively small size of that organisation!  They are in stark contrast to all the other serious gearbox companies in Australia who have substantial and long established presence with the depth and ability to service and support their products throughout Australia.

…

For your record please note that PIV Drives GmbH is a Brevini Group company and that Elecon was licensed to manufacture and market PIV’s Posired range of Gear units in India alone.

275                      As to the first statement in the letter the submission was:

6.2       There is no evidence that the First and/or Second Respondents were not suitable companies to be awarded the Blackwater CHPP Project and that they did not have the depth and ability to service and support the gear units throughout Australia.

276                      The Elecon interests have the task of demonstrating that the statement was misleading and/or deceptive or likely to mislead and/or deceive.  That burden is not satisfied by suggesting that there was no evidence to the contrary.  I find that the first allegation is not made out.

277                      As to the second statement, on the findings which I have earlier made it was incorrect to represent that the licence to Elecon Engineering was restricted to manufacturing and marketing in India alone.  However I have also found that from 25 March 2002 Elecon Engineering had no licence of any kind.  It was therefore not incorrect to make a representation to the effect that it had no licence to market in Australia which, in my view, is the substance of the representation which was made.  That representation was neither misleading nor deceptive.

278                      No submissions were addressed to the statements alleged to have been made on 22 September 2004 or to the email dated 24 September 2004.  I infer that those matters are not pressed.

279                      It follows that, to the extent that it was pressed, the claim made in NSD 1423 of 2004 must be dismissed.

SUMMARY

NSD 1955 of 2004

280                      The Brevini interests have made out a case for relief for breach of copyright with respect to the importation into and distribution in Australia of the 2004 Elecon catalogue. 

281                      The Brevini interests have made out a case for infringement of the registered trade marks PIV and POSIRED.  The infringement of the PIV and POSIRED trade marks is constituted by the provision of the 2000 “Elecon range of transmission products” catalogue on or about 18 October 2004 and by the distribution of the 1999 Elecon catalogue after the date of registration of the trade marks.  Infringement of the POSIRED trademark is also established by the contents of a letter written by Mr Hall to an unidentified recipient on 26 March 2003.

282                      The Brevini interests have not made out a case for relief under the TP Act or in passing off.

283                      The Brevini interests have made out a case that the Elecon interests have breached an obligation of confidence owed to PIV Drives.  The parties should be heard on an appropriate form of relief.

284                      No cause of action has been made out against Mr Patel.  The proceedings against Mr Patel will be dismissed.

NSD 1423 of 2004

285                      The Elecon interests have not made out a case for relief.  Matter NSD 1423 of 2004 will be dismissed.  Brevini Australia will be released from the undertaking which it gave on 6 October 2004.

Costs

286                      All parties sought an opportunity to be heard on costs.

Future Proceedings

287                      Matter NSD 1955 of 2004 will be listed for directions on a date to be arranged with my Associate to fix a timetable to deal with:

(a)        remedies in relation to copyright, infringement of trademarks and breach of confidence; and

(b)        costs of the proceedings in both matters to date.

 

I certify that the preceding two hundred and eighty-seven (287) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Buchanan.

Associate:

Dated:         17 November 2009

Counsel for the Applicants in NSD 1955/2004 and the Respondent in NSD 1423/2004:	SJ Goddard SC with ADB Fox
Solicitor for the Applicants in NSD 1955/2004 and the Respondent in NSD 1423/2004:	DLA Phillips Fox
Counsel for the Respondents in NSD 1955/2004 and the Applicant in NSD 1423/2004:	JS Wheelhouse SC with P Thew
Solicitor for the Respondents in NSD 1955/2004 and the Applicant in NSD 1423/2004:	MCW Lawyers

Date of Hearing:	2, 3, 4, 5, 8, 9, 10, 11 December 2008; 24, 25 February and 19 March 2009
Date of Judgment:	17 November 2009