Maggbury Pty Ltd v Hafele Australia Pty Ltd

[2001] HCA 70

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(Judgment by: Kirby J)

Maggbury Pty Ltd
vHafele Australia Pty Ltd

Court:

Judges: Gleeson CJ
Gummow J

Kirby JHayne 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'

Hearing date:
Judgment date: 13 December 2001

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Judgment by:
Kirby J

60 The facts in this appeal ^[35] are stated in the reasons of the other members of the Court. I will avoid unnecessary repetition. The issues

61 The appeal presents three issues. By reason of a notice of contention filed by the respondents, a fourth issue is added, although in a sense it is an aspect of the third. The issues are:

(1)

Within the "confidentiality agreements" executed by Hafele ^[36] , was it shown that Hafele was in breach of the agreements when account is taken of the public availability of the information said to have been confidential? In other words did the initiatives of the first appellant, Maggbury Pty Ltd ("Maggbury"), in disclosing that information publicly, by making Australian and international applications for patents in 1995 and 1996, deprive it of any basis for complaint about anything that Hafele did?

(2)

If Hafele was in breach of the confidentiality agreements, does the common law doctrine of restraint of trade apply to relieve Hafele of its obligations otherwise under the agreements by rendering such agreements, or the offending restraints on trade contained within them, unenforceable in law?

(3)

If not, was it open to the primary judge to conclude that an injunction was a necessary and appropriate remedy in the circumstances to restrain Hafele from breaching the covenants contained in the confidentiality agreements?

(4)

Was the injunction framed by the primary judge so wide in its terms and extended in its duration and application as to indicate a miscarriage of discretion so as to sustain the decision of the Court of Appeal on additional grounds?

The confidentiality agreements were breached

62 So far as the first issue is concerned, I agree with the joint reasons ^[37] and with Callinan J ^[38] that, in their terms, the confidentiality agreements restrained Hafele from dealing with the information when supplied or disclosed during negotiations on the basis that such information was confidential. As the joint reasons point out, the meaning of cl 11 - that Hafele would forever observe obligations of confidence - is quite clear ^[39] . These express terms make it impossible for Hafele to contend successfully that the information was not in truth "private and confidential". The mainstay of Hafele's arguments before this Court therefore founders on the explicit language of the agreements that were executed by the parties.

63 Where there is a written contract, the first step in analysis is to construe its language. The language of cll 5.1, 5.2, 5.3 and 5.6 ^[40] cannot be reconciled with the primary proposition that Hafele advanced. The subject matter of Hafele's covenants was not "information" in a generic sense but "the Information", as defined. By cl 5.1 of the agreements, Hafele promised to treat "the Information" as "private and confidential". This meant to do so whether or not it was private and confidential in fact . The construction of the agreements therefore defeats Hafele's primary submission.

The restraint of trade doctrine is inapplicable

64 This conclusion makes it necessary to consider whether the restraint of trade doctrine of the common law comes to the rescue of Hafele so as to deprive the confidentiality agreements of enforceability at the suit of Maggbury.

65 As Callinan J points out ^[41] , on the face of things, such a conclusion would be a somewhat surprising one in the circumstances of this case. Normally, the common law upholds contractual promises. That is an important, even fundamental, aspect of economic freedom as it is exercised in an economy such as ours. Hafele freely negotiated the agreements with Maggbury. The contracting parties were at arm's length. This is not a case where advantage was taken of Hafele as a party in a vulnerable economic position. Indeed, Hafele was in a much stronger economic situation than Maggbury. Both parties to the confidentiality agreements were advised by lawyers and other experts. Hafele executed the agreements with its eyes wide open. It made highly specific promises of a particular character. By the execution of the confidentiality agreements, it agreed to be bound to those promises.

66 The sequence of events, as found by the primary judge, suggested nothing in the conduct of Hafele that demanded relief from its promises based on a doctrine of the common law designed to defend the public interest. Hafele knew that the combination of features in Maggbury's foldaway ironing board involved a claim to a trade secret which Maggbury was determined (and taking pains) to protect ^[42] . Hafele acknowledged that the advantages of Maggbury's invention included the utility of its design and its use in confined spaces as well as its cheaper price in comparison to other foldaway ironing boards then on the market ^[43] . Hafele's own internal correspondence so described the Maggbury product. Hafele knew that Maggbury was looking for a co-venturer to exploit its invention commercially. Hafele was aware that restrictions on access to the prototype, photographs, diagrams and specifications were imposed until after the confidentiality agreements were executed. Hafele Germany received the final production drawings of the new prototype "in accordance with our confidentiality agreement". At the very least, this gave Hafele a head start in development of its own products based upon those materials. In May 1997, at the Cologne Interzum trade fair, Hafele displayed a version of the wall-mounted ironing board which was admitted to be based on the Maggbury information, except that it utilised a smaller Hafele board to save production costs. Only weeks later, by letter of 10 June 1997, Hafele terminated its negotiations with Maggbury. Soon after, by October 1997, Hafele Australia began distributing a wall-mounted foldaway ironing board containing "minor" differences from the one displayed by Hafele in Cologne. Clearly, one of the reasons for the minor variations was the advice received by Hafele on 16 May 1997 (admitted into evidence) to the effect that adopting such variations would help circumvent any proceedings brought based on Maggbury's patent applications.

67 On the face of things, this was therefore a case where Hafele, having agreed to explicit, limited and particular restrictions on the use it could make of "the Information", proceeded, in clear breach of its covenants, to do exactly what it had promised not to do. Hafele was interested in Maggbury's idea. At all relevant times it was a participant in the affected market. It wanted to get "the Information". It was not itself content to rely on the public disclosure made in connection with the patent applications. It wanted access to the prototypes, photographs, designs and other related information. When this could not be secured without execution of the confidentiality agreements, it executed them. It thereby procured what it wanted. It promptly proceeded to manufacture and market a substantially identical product. Its appeal to public policy and the common law to protect it from its freely entered contractual obligations does not therefore have an immediate attractiveness.

68 However, the principle of freedom of contract is not of itself an answer ^[44] to the suggestion that a particular restraint upon freedom of trade is impermissible when measured against the common law doctrine against "unreasonable contractual restriction" ^[45] . It is necessary to consider the ambit and application of the doctrine now understood in the context of detailed legislation designed to maintain trading freedom and competitiveness in Australia ^[46] . In the present appeal it was not suggested that any provision of the Trade Practices Act 1974 (Cth) or any other statute was applicable to determine the rights and obligations of the parties.

69 The common law is vigilant against contractual promises that hamper freedom of labour, skill or talent contrary to the interests of the community ^[47] . This is especially so where the restraint imposed is "more than that which is required (in the judgment of the court) to protect the interests of the parties" ^[48] . However, there was nothing in the confidentiality agreements executed by it that hampered Hafele's economic freedom in such an impermissible or unreasonable way. This is because the definition of the prohibited acts, contained in the agreements, was quite narrow. Hafele could carry on its trade, including in the manufacture and marketing of foldaway ironing boards, so long as it did not use any of "the Information" disclosed to it by Maggbury. Hafele could proceed, independently of that "Information", to invent such boards and to market them without restriction, so long as it used its own internal ideas or information acquired without legal inhibition from third parties or from data in the public domain unaffected by the restriction to which it had agreed in the use of "the Information" acquired from Maggbury.

70 Hafele could also have used information conveyed orally on behalf of Maggbury without restriction. But in so far as it used "the Information" received from Maggbury it was bound by the covenants in the confidentiality agreements it had executed. In this respect, the promises in the present case differ substantially from covenants commonly examined in restraint of trade cases by which an employee promises not to use or disclose information acquired during the course of employment without the use of which the employee could not carry on his or her trade ^[49] . The restraints upon Hafele were much more limited and defined, only restricting the use of identified materials. Those materials were "the Information" provided by Maggbury, nothing more.

71 The restraint of trade doctrine, being an invention of the common law, must be applied to the facts "with a broad and flexible rule of reason" ^[50] . In the present case, the promises sought by Maggbury and given by Hafele tend, in my view, to advance the efficient operation of the market rather than to restrict it. Upholding the promises tends to encourage inventors to disclose to potential competitors and collaborators innovative ideas that may or may not ultimately secure patent protection. In circumstances such as those in this case, to find that the promises are unenforceable on the ground of the common law doctrine prohibiting restraint of trade is to discourage inventors of modest means from dealing with much larger manufacturers and marketing organisations upon terms that protect the interests of the inventor, whatever may be the ultimate outcome of its patent application. It is to discourage inventors from negotiating with those who can market their ideas, under conditions that protect the ideas from exploitation by others immediately after disclosure. I do not consider that this Court should support such a view of the scope of the law on restraint of trade. To do so would ^[51] :

"have a halting effect on commercial transactions. The owners of new and unpatented products would hesitate before transmitting the information and making the disclosures essential to bring about meaningful negotiations."

72 Of course, in every case, it would be a question for decision as to whether, properly construed, the party exploiting the idea has agreed with the inventor in such a way as to give rise to a breach of contract. In each case, there would be factual questions to be determined as to whether the exploiter's conduct did, as a matter of fact, involve use of the inventor's ideas, prototypes, photographs, models, designs and so forth. But if these premises are established, I see no reason of legal principle or legal policy why the law should not hold the exploiter to the confidentiality agreement that it executed. Least of all do I see a reason why the law should declare such agreements unenforceable for supposed public policy reasons where the position of the parties is that disclosed by the evidence in this case and the sequence of events is that which I have described.

73 It follows that the primary judge correctly found in the circumstances that Hafele should be held to its covenants and that it was not relieved from such obligations by the common law doctrine of restraint of trade.

The provision of injunctive relief was proper

74 In relation to the general question as to whether an injunction would be futile or should have been refused in this case on equitable grounds, I am in agreement with Callinan J that this argument also fails ^[52] .

75 It is worth noting that, in the Court of Appeal, Hafele did not, as such, challenge the grant of injunctive relief. Its attack there was rather on the terms of par 2(b) of the injunction actually granted at trial. That attack has been continued in this Court. Nevertheless, because Hafele has contended that an injunction could never be granted to restrain the use of information that is publicly available, it is necessary to address the third issue.

76 With respect to the Court of Appeal ^[53] , I regard the suggestion that injunctions may never be granted to restrain the use of publicly available information as too widely stated. The grant of a permanent injunction is a discretionary remedy ^[54] . The discretion is not infrequently exercised in favour of restraining a breach of express negative contractual stipulations, agreed to by a party. Callinan J has cited judicial and textual support for the availability of injunctive relief to restrain a breach of a negative covenant ^[55] . There are many other authorities that support the availability of such relief in such a case ^[56] . In the present matter, Hafele not only agreed, in terms, that it would not use "the Information" irrespective of whether it was, or became, publicly available. Hafele also expressly agreed, in cl 13.3, that Maggbury "shall be entitled to" an injunction in the event of a breach. Why should Hafele now be heard to resist the remedy to which it expressly agreed in respect of the precise circumstances that have occurred?

77 The extent of the damage that would be suffered by Maggbury, if Hafele were not restrained by injunction, is certainly a consideration that might be taken into account in deciding whether or not to grant that discretionary remedy. However, in the present case, the primary judge made explicit findings of fact as to the hardship to Maggbury if the injunction were not granted. He addressed explicitly the utility of the injunction in terms that the Court of Appeal appeared, elsewhere in its reasons, to accept ^[57] .

78 A number of considerations, taken into account by the primary judge, supported the injunctive relief which he granted. Hafele had expressly promised not to use "the Information". Yet the primary judge found that Hafele did so. The contract was fully executed. The judge found that clear breaches of the confidentiality agreements had been proved, concluding that outright copying was "compelled by the evidence, especially that of Hafele's witnesses". There was no doubt that, unless restrained, continuing breaches were threatened. Such breaches would arise with every sale of the Hafele copy product, including by Hafele Australia in Australia. It was therefore abundantly clear that Hafele intended to continue to act as it asserted it was entitled to do. Maggbury would then have been obliged to pursue successive actions at law to uphold the confidentiality agreements with Hafele. This would have imposed great hardship on Maggbury. Before granting an injunction in relation to information, a court will consider the extent of the dissemination of the information. If the information has become publicly available, a court may nevertheless order an injunction to prevent the defendant using the information. The court might elect to order a temporary "springboard" injunction to prevent the defendant gaining an unfair advantage ^[58] if a permanent injunction would be pointless ^[59] . Yet here, the primary judge found that dissemination of Hafele's wall-mounted foldaway ironing board was "small" and a comparable product had not previously been seen on the market. The primary judge also found that Hafele's conduct in breach of the agreements diminished Maggbury's capacity to exploit its designs ^[60] .

79 In circumstances where the copying was found to be "substantial" ^[61] and where the injunction granted was confined to preventing the use of "the Information" embodied in the materials provided by Maggbury on the strength of the agreements, the justification for injunctive relief is overwhelming.

80 I reach this conclusion without deciding whether an additional justification lies in the fact that the breaches of the confidentiality agreements proved against Hafele were deliberate and flagrant. The primary judge held back from making express findings on that claim by Maggbury. Yet, to say the least, the evidence suggests that that was the case. Otherwise, it is difficult to reconcile the primary judge's finding that there was "substantial" evidence of copying, on the one hand, and Hafele's explicit denial of use of "the Information" admittedly supplied under the conditions of confidentiality. Indeed, the fact that Hafele, in its internal communications, addressed the very question of whether Maggbury should be paid for using "the Information" seems to confirm that a real question arises as to the deliberate and flagrant character of Hafele's conduct in the circumstances.

The injunction granted was not impermissibly wide

81 The foregoing conclusions leave only the issue of whether the terms of the injunction, as granted by the primary judge, were unacceptably wide, warranting, on that ground, the orders made by the Court of Appeal. This is the primary point raised in Hafele's notice of contention in this Court.

82 Hafele argued that the injunction was so wide that it was "embarrassing". On this point, I agree with the reasoning of Callinan J ^[62] . It is impossible to reconcile this contention with the approach which this Court took in Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia ^[63] . There the circumstances were infinitely more complex. The prospect of difficulty in curial supervision of the conduct of the parties was much more real. In the present case, all that was ordered was that Hafele be restrained permanently from manufacturing or distributing the particular wall-mounted ironing board which was found to be the product of substantial copying and any other ironing board designed or manufactured by using "the Information". That expression was defined in cl 3.1 of the confidentiality agreements ^[64] in precise terms to include any "writing, sketches, diagrams, models, film, video tape, plans, designs, drawings, manufactured prototypes, layouts, schedules or photographs". The definition is wide but quite specific. The matters referred to in it are, on the face of the confidentiality agreements, the items Maggbury supplied to Hafele at its request and subject to the express promises that Hafele made.

83 Hafele cannot really complain about being restrained from using such "Information". The terms of the injunction would not restrain Hafele from manufacturing and distributing another wall-mounted ironing board designed differently without use of the novel ideas contained in Maggbury's design and demonstrated or illustrated in "the Information" supplied by Maggbury to Hafele. But it would be held to its promise - as in such circumstances would and should normally happen.

84 As with any injunctive relief, it would always be open to Hafele, if conditions changed, to seek the dissolution of the injunction or to demonstrate that some modification of its ambit or duration was warranted by new circumstances not fully appreciated at the time of trial. The injunction granted was, in my view, valid. It was within the proper exercise of the discretion of the primary judge.

85 Hafele's real undoing in this case was the critical sequence of events, objectively proved. Hafele wanted Maggbury's concept. It signed confidentiality agreements. It secured "the Information" on the faith of those agreements. And it then proceeded post-haste to manufacture and distribute a product which the primary judge found was a "substantial" copy from "the Information". In such circumstances, Hafele cannot complain about, and should not have been surprised by, the decision of the primary judge. The law and the justice of the case support the conclusion reached and the orders made at trial. This Court should restore those orders.

Orders

86 The appeal should be allowed with costs. The orders of the Court of Appeal of the Supreme Court of Queensland should be set aside. In place thereof, it should be ordered that the appeal to that Court be dismissed with costs.