Maggbury Pty Ltd
vHafele Australia Pty Ltd

Judges: Gleeson CJ
Gummow J
Kirby J
Hayne J

Callinan J

Subject References:
Contract
Confidential information
Contractual restraint upon use of 'Information'
Restraint expressed to be perpetual
Information disclosed in patent application
Proper construction of contract
Whether restraint to apply once information disclosed to public
Whether contract in restraint of trade
Restraint of trade
Contractual restraint upon use of information concerning invention
Whether confidentiality agreement constitutes an unenforceable contractual restriction on trade
Whether the restraint imposed is more than that required to protect the interests of the parties
Injunction
Confidentiality agreement between inventor and potential marketer
Substantial copying of invention found contrary to agreement
Whether injunction granted unacceptably wide
Whether injunction would involve excessive supervision by court
Permissible scope and duration of injunctive relief
'quality of confidence'

Judgment by:
Callinan J

87 The facts, the material terms of the contracts, and the relevant parts of the reasons for judgment of the Court of Appeal of Queensland are stated in the judgment of Gleeson CJ, Gummow and Hayne JJ and need not be repeated.

88 For the appellants to succeed, they must establish three propositions: first, that the contractual restraints in the agreements applied even though the information had become publicly available as a result of their activities; secondly, that the doctrine of restraint of trade did not render those contractual restraints unenforceable; and, thirdly, that an injunction to prevent further use of the information was an appropriate remedy.

89 I respectfully agree with Gleeson CJ, Gummow and Hayne JJ that, on the proper construction of the contracts, the respondents were under an obligation not to use information provided to them by the appellants. There was nothing in terms, in the contracts, which excepted from that obligation information that may have passed into the public domain. And indeed, as Gleeson CJ, Gummow and Hayne JJ point out ^[65] , the appellants did not covenant that the information had a confidential character. The question, as posed by their Honours, is, therefore, whether the restraint of trade doctrine operates so as to free the respondents from the obligation of confidence which they covenanted to fulfil and for which consideration was given.

Restraint of trade doctrine

90 The doctrine of restraint of trade gives effect to the policy that "every man shall be at liberty to work for himself, and shall not be at liberty to deprive himself or the State of his labour, skill, or talent, by any contract that he enters into" ^[66] . The doctrine derives from a reaction to the guilds and royal monopolies of Tudor and Stuart England. The common law set its face against these from at least the beginning of the 17th century, treating them as nefarious ^[67] ; and the doctrine came to extend to other fetters upon an Englishman's liberty to trade ^[68] . However, in response to commercial realities, the law was forced to relax some of its opposition ^[69] . It exempted certain classes of restraints from the reach of the doctrine ^[70] ; and it abandoned the prohibition on voluntary, general restraints (which operated throughout the whole of the United Kingdom or beyond) ^[71] . But although the guilds and royal monopolies of England have long since been consigned to the history books, along with trial by ordeal and the Divine Right of Kings, the ancient distrust persists. It lies at the heart of the presumption that restraints are bad unless proved otherwise ^[72] . It also underpins the rule that any restraint that goes beyond what the courts consider to be reasonable in the interests of both parties must be struck down, even if there is no evidence of harm to the public ^[73] .

91 The doctrine continues to operate notwithstanding that after all these years no universal test as to the situations to which it will apply has emerged. In my opinion, the time is ripe for considering whether the doctrine should have any application, or a much more limited application, in modern times. For more than 25 years, businesses in this country to which federal legislative power can extend have been governed by the Trade Practices Act 1974 (Cth), which establishes a legislative regime to foster and protect competition. That regime is policed by the Australian Competition and Consumer Commission, a statutory body with very considerable powers, some of which reach well beyond those of the courts exercising their common law jurisdiction in applying the doctrine ^[74] . Parliament regularly adjusts the legislation in the light of community and business needs, and the importance of competition for the economy ^[75] . That this is so should be taken into account in formulating and applying any contemporary doctrine of restraint of trade ^[76] .

92 It is also important to remember that the restraint of trade doctrine may inhibit, indeed even strangle, free trade rather than facilitate it. Lord Pearce made the point eloquently in Esso Petroleum Co Ltd v Harper's Garage (Stourport) Ltd ^[77] :

"Undue interference [with contracts], though imposed on the ground of promoting freedom of trade, may in the result hamper and restrict the honest trader and, on a wider view, injure trade more than it helps it. If a man wishes to tie himself for his own good commercial reasons to a particular supplier or customer it may be no kindness to him to subject his contract to the arbitrary rule that the courts will always reserve to him a right to go back on his bargain if the court thinks fit. For such a reservation prevents the honest man from getting full value for the tie which he intends, in spite of any reservation imposed by the courts, to honour. And it may enable a less honest man to keep the fruits of a bargain from which he afterwards resiles."

These words were spoken in relation to the question of the reasonableness of restraints. In my opinion, however, they can equally be applied to the entire basis of the doctrine.

93 The law should seek to uphold bargains and enforce restraints other than those which are clearly and demonstrably against the public interest. In other words, a person who wants to break a restrictive covenant should be obliged to show that enforcement of it would substantially reduce competition within a marketplace, result in price fixing, or otherwise cause the public some real and discernible economic detriment of an anti-competitive nature. No less should be required to justify a unique interference with freedom of contract or the giving of a judicial imprimatur to what would otherwise be a flagrant breach of contract when one party decides that he or she has had enough of it. Both this case and the case of Peters (WA) Ltd v Petersville Ltd ^[78] are recent examples of a belated invocation of the doctrine to contracts which are freely negotiated by substantial arms' length parties fully advised by their own lawyers and which are largely performed by the time of that invocation ^[79] .

94 There is also an inherent contradiction in the idea of a notional reliance on the doctrine by a party seeking relief. People who enter into agreements intended to be legally binding cannot credibly be heard to say that they did so relying on, or conscious of, the existence of the doctrine of restraint of trade in its current form to relieve them of their obligations of performance.

95 There is a further difficulty. The doctrine of restraint of trade, as I earlier suggested, has not been clear in its application. A doctrine that provides no clear criteria for the ascertainment of the situations to which it applies can only be regarded with deep concern. The House of Lords in Esso Petroleum Co Ltd v Harper's Garage (Stourport) Ltd suggested no fewer than three different tests for the identification of contracts or situations to which the doctrine might be applicable: the sterilisation of capacity test ^[80] ; the pre-existing freedom test ^[81] ; and the trading society test ^[82] . Other courts have preferred to exempt restraints from the doctrine on the basis of the "public interest" ^[83] . And although this Court has recently cast doubt on the sterilisation of capacity test ^[84] , it is not entirely clear what is to be the test in Australia.

96 In this case, the approach that I would prefer if unconstrained by authority would lead to a clear result. The respondents voluntarily entered into contracts with the appellants; armed with legal advice, they agreed to accept limits on the use they might make of information that the appellants provided. They should be held to that bargain unless they can demonstrate that the restraints cause the public significant economic harm of an anti-competitive nature. I find it difficult to see how that could be, particularly as they can continue to trade without relying on the disclosures by the appellants and they can use publicly available information as well as their own skills and experience. Any economic harm to the public would appear to be trivial or non-existent. It would follow that the doctrine of restraint of trade would have no application to the restraint.

97 I am, however, constrained by authority to apply the doctrine. Nonetheless, I would reach a different conclusion from that of the Court of Appeal. It is often said that the doctrine requires a person relying on the restraint to show that it is reasonable in the interests of the parties, and that it requires a person who alleges that the restraint is contrary to public policy to demonstrate that it is so ^[85] . However, it needs to be borne in mind that the requirement of reasonableness is based on, and intertwined with, public policy. As Lord Pearce explained in Esso Petroleum Co Ltd v Harper's Garage (Stourport) Ltd ^[86] :

"Public policy, like other unruly horses, is apt to change its stance; and public policy is the ultimate basis of the courts' reluctance to enforce restraints. Although the decided cases are almost invariably based on unreasonableness between the parties, it is ultimately on the ground of public policy that the court will decline to enforce a restraint as being unreasonable between the parties. And a doctrine based on the general commercial good must always bear in mind the changing face of commerce. There is not, as some cases seem to suggest, a separation between what is reasonable on grounds of public policy and what is reasonable as between the parties. There is one broad question : is it in the interests of the community that this restraint should, as between the parties, be held to be reasonable and enforceable ?" (second emphasis added)

If the question is framed in these terms, I have no doubt that the restraint is enforceable. It is true that the restraint was unlimited in terms of time and place; but those considerations are not decisive. Courts do grant permanent injunctions from time to time ^[87] . And as to the absence of any geographical restraint, I point out that the market to which the parties were looking was an international one. A number of other factors, taken together, suggest that the restrictive covenant was reasonable. The parties were engaged in commercial dealings and the respondents were on an equal footing with the appellants, if not on a superior commercial footing to them ^[88] . They took their own legal advice. The covenant with the appellants that the respondents entered into simply forbade them from making use of information that was provided to them by the appellants: the restraint was designed to prevent the respondents from obtaining the benefit of the appellants' wall-mounted invention in ways that would harm the business of the appellants. The covenant left the respondents with their pre-existing freedom to trade, and did not otherwise interfere with their business ^[89] . It could not be said to injure the public by stifling competition. Indeed, as one court has suggested, striking down such restraints might have adverse consequences on trade ^[90] :

"The owners of new and unpatented products would hesitate before transmitting the information and making the disclosures essential to bring about meaningful negotiations."

All these considerations, in my view, lead to the conclusion that the restraint went no further than was necessary in the interests of both parties and offended no public interest. Even on the current law of restraint of trade, the covenant can and should be given effect.

Public disclosure

98 Something further need be said about the matter of public disclosure upon which the Court of Appeal relied as a factor telling against the utility, and therefore the availability, of an injunction. The appellants had, by the time of their first negotiations with the respondents, applied for both national and international patents. Priority dates of 14 July 1995 and 4 August 1995 applied to the former and were claimed in respect of the latter. Disclosure by any party after the priority date of the subject matter of the applications would not compromise the novelty, and the rights of the appellants to exploit the novelty, of the inventions, under the legislation. No patent has yet been granted. If it is granted, it is the appellants who would be entitled to bring proceedings with respect to infringements committed after the first publication (that is, on the opening of the application for public inspection as notified in the Australian Official Journal of Patents ^[91] ). It follows that nothing turns in this case upon the fact that, independently of the exposure of the applications to public inspection by operation of the Patents Act 1990 (Cth), a prototype and other matters may have been publicly disclosed. That disclosure would not have prejudiced the appellants' statutory rights of exploitation and protection on the grants of the applications. As to that, the respondents took their chances. They undertook, by covenant, irrespective of whether a patent might emerge or not, not to use or reveal what the appellants made available to them. Nothing, therefore, in my opinion, turns upon the public exhibition in which the appellants participated, of matter the subject of the agreements between the parties.

The injunction

99 There remains the question whether an injunction as granted at first instance could properly have been granted. The trial judge, Byrne J, granted an injunction restraining the respondents from manufacturing or distributing a particular wall-mounted ironing board. His Honour also restrained the respondents from manufacturing or distributing "any other wall mounted ironing board designed or manufactured using wholly or in part information derived directly or indirectly" from documents or prototypes supplied by the appellants to the respondents. The sources of information and the occasions on which information was provided to the respondents were listed in the order.

100 The Court of Appeal (de Jersey CJ, Pincus and Davies JJA) would have declined to issue an injunction preventing the respondents from using information derived from the appellants largely because the task of supervising it would have been "embarrassing". Their Honours explained:

"[I]f the evidence in an application for contempt shows that a particular feature in one of the [respondents'] models is identical with a feature in one of the various versions of [the appellants'] board referred to in the injunction, being a feature which has been publicly disclosed or is commonplace, the Court will have to delve into the process whereby that feature came to be in the [respondents'] board - from one of [the appellants'] versions, on the one hand, or from information published by [the appellants] or common knowledge, on the other.

There is much authority emphasising that an injunction restraining the use of confidential information should not be in such terms as to be likely to give rise to difficult or embarrassing questions when it is sought to prove breach ... Here the problem the Court would encounter would not be to discriminate between confidential and other information, that being the main difficulty in the sorts of cases to which we have referred. It would probably be to determine whether the presence of a feature which is in truth publicly known or commonplace is to be found in the [respondents'] board as a result of, for example, one of its employees having once looked at a drawing supplied by [the appellants]. It appears to us that that task could fairly be described as embarrassing, not least of all because it would seem to make little practical difference to [the appellants] whence the feature was derived."

101 I would make these observations about those passages.

102 This is a case in which the respondents, with their eyes open, agreed to abide by a restraint that prevented them from using information even though the appellants might disclose that information to the public. The restraint is in substance and in form a negative covenant. It is established that, in such cases, the correct approach is to grant the injunction unless there are good reasons to the contrary. Yeldham J in Broken Hill Proprietary Co Ltd v Hapag-Lloyd Aktiengesellschaft expressed the matter in terms with which I would agree ^[92] :

"[I]t is plain, in my opinion, from a long series of cases of authority, that the breach of a negative covenant, especially where private rights only are concerned, 'constitutes a strong foundation for relief by way of injunction' ^[93] . In J C Williamson Ltd v Lukey and Mulholland ^[94] Dixon J said: 'If ... a clear legal duty is imposed by contract to refrain from some act, then, prima facie, an injunction should go to restrain the doing of that act.'"

103 The Court of Appeal did not start from the view that, prima facie, an injunction should be granted. Instead, it stated that the injunction preventing the respondents from using information derived from the appellants should be refused because it would be embarrassing. That was not, with respect, an appropriate starting point.

104 In any event, in my opinion, the difficulties identified by the Court of Appeal are overstated. It is true that such lack of certainty as exists for the respondents is an important consideration that may warrant a refusal of an injunction ^[95] . However, much will depend on the actual situation. Excessively narrow formalism in framing the injunction may wreak its own injustice. As Meagher, Gummow and Lehane say ^[96] :

"In some cases, the practicalities of the facts may make it impossible to frame an injunction in anything but the most general terms; and, in any event, the danger of an order couched in overly particular terms is that it may leave the defendant at liberty to indulge in reprehensible conduct which is almost but not quite enjoined, without committing any contempt."

A more precise injunction than the trial judge granted in this case might have readily enabled the respondents to use information obtained from the appellants in violation of their agreement.

105 In Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia ^[97] , the majority (Brennan CJ, Gaudron, McHugh, Gummow, Kirby and Hayne JJ; Callinan J dissenting) rejected a challenge to interim orders made by the Federal Court on the basis that the Court would be involved in "constant supervision" of conduct. From that case there can, I think, be discerned a judicial tendency to look to, and give effect to, the substantive merits of a party's case when injunctive relief is sought, even though to grant that relief may require further intervention by the court to refine the relief as the situation develops. In rejecting the challenge in Patrick Stevedores , their Honours pointed out that courts were "well accustomed to the exercise of supervisory jurisdiction upon applications by trustees, receivers, provisional liquidators and others with the responsibility for the conduct of administrations" ^[98] . They added that that case was not, as I do not think this one to be, a case in which a court "could never be sure that it was in a position to enforce its order without injustice" ^[99] .

106 Furthermore, I do not think that any potential for embarrassment for want of certainty here is any greater than in cases in which, for example, courts have restrained defendants from using confidential information or know-how. Courts have long recognised that the boundary between know-how and personal skills or experience can be hard to draw ^[100] . But that has not prevented them from holding, repeatedly, that covenants not to disclose confidential information or know-how will be enforced if they are reasonable ^[101] . It seems to me that the enforcement of the injunction granted by the trial judge here would impose no greater demands than the enforcement of injunctions in such cases.

107 The trial judge therefore had a proper basis for a grant of the injunction in the form that his Honour did. He found clear breaches of the agreements. He found that damages would be difficult to quantify. He also found that the distribution of the respondents' completed product was "likely to have a special impact". These were ample grounds for Byrne J to exercise his discretion to grant an injunction.

108 I would therefore allow the appeal, restore the judgment and orders of the trial judge, and order that the respondents pay the appellants' costs in this Court and the costs of the appeal to the Court of Appeal.