Ipsofactoj.com: International Cases [2005] Part 6 Case 6 [NZCA]


COURT OF APPEAL, NEW ZEALAND

Coram

Norbrook Laboratories Ltd

- vs -

Bomac Laboratories Ltd

KEITH J

TIPPING J

McGRATH J

5 MAY 2004


Judgment[a]

McGrath J

INTRODUCTION

  1. This appeal raises a question concerning an alleged breach of an obligation of confidence. For a number of years Bomac Laboratories Limited, a New Zealand based company, imported from Norbrook Laboratories Limited, a United Kingdom manufacturer, raw material for dry cow remedies. The New Zealand company packaged and distributed the products in New Zealand under its own trade names. It was provided with information from the manufacturer, some of it confidential, to facilitate local distribution and the obtaining of permission from the statutory authority which regulates distribution in New Zealand of animal remedies. The New Zealand company entered into a confidentiality agreement with the manufacturer in which it undertook to protect the confidentiality of the information concerned.

  2. When the commercial arrangements between the two companies concluded in 2001 the New Zealand distributor sought and obtained an alternative source of supply for the products concerned. To meet the requirements of the regulator for a newly sourced product to be distributed under the original permission, it was necessary to satisfy it that the new product was the chemical equivalent of the original. In relation to the new product that it wished to market as Dryclox Xtra the distributor was able to persuade the regulator of the equivalence of the new product in time to distribute it under that trade name during the 2002 season. The United Kingdom manufacturer of the original product concluded that, in achieving this result, the New Zealand company must have misused confidential information belonging to the manufacturer. It issued proceedings in the High Court for breach of the contractual obligation of confidence. Although it achieved some success in the High Court’s judgment, it was unsuccessful in proving misuse in its cause of action for misuse of confidential information concerning the quantity of a coating of the active ingredient of its product previously sold in New Zealand as Dryclox Xtra. It appeals against the High Court’s judgment in that respect.

    BACKGROUND FACTS

  3. Norbrook Laboratories Limited is a major veterinary pharmaceutical company based in the United Kingdom. In the late 1970s it developed a dry cow remedy which it marketed in northern hemisphere countries as Bovaclox DC. The respondent, Bomac Laboratories Limited, is a New Zealand company which develops, manufactures, markets and distributes animal health and nutritional products in New Zealand. In 1984, following an approach by Bomac to Norbrook, proposing that Bomac distribute Bovaclox DC in New Zealand, Norbrook provided Bomac with a dossier containing extensive information about that product.

  4. At that time the sale of animal remedies in New Zealand was regulated by the Animal Remedies Board, a statutory body with specialist professional membership, which was established under the Animal Remedies Act 1967. (The current statute regulating substances used in management of animals is the Agricultural Compounds and Veterinary Medicines Act 1997.) In March 1986 the Animal Remedies Board licensed a subsidiary of Bomac to sell Norbrook’s Bovaclox DC product in New Zealand under the trade name "Dryclox DC". Bomac commenced selling the product in New Zealand soon thereafter.

  5. In April 1988 Norbrook and Bomac entered into a secrecy agreement under which Bomac assumed obligations in relation to confidential information that had already been provided to it by Norbrook and was to be provided in the future.

  6. Norbrook subsequently developed a variation of Bovaclox DC which it marketed as Bovaclox DC Xtra. In 1992 it sent Bomac a dossier relating to this product, which it described as a longer acting variation of Bovaclox DC. In January 1994 the Animal Remedies Board licensed Bomac to sell this product in New Zealand under the trade name "Dryclox DC Xtra". The trade name on the licence was later changed to Dryclox Xtra. Bomac commenced selling this product in New Zealand in 1993. Bomac continued to sell the two Norbrook products in New Zealand until June 2001, at which time all commercial arrangements between the two companies ended.

  7. Prior to the cessation of their dealings Bomac had contemplated that Norbrook might at some point cease to supply it with either or both of the products Bomac was selling under the Dryclox brand in order to sell them by other means in New Zealand. In the second half of 2000, Bomac began to develop a contingency plan in case negotiations with Norbrook to resolve emerging differences between them proved unsuccessful. The purpose of the plan, which was called Plan B, was to protect Bomac’s source of supply of Dryclox product, so that it could keep the brand on the New Zealand market if Norbrook terminated supply. Bomac decided to look overseas for an alternative supplier of product that was the chemical equivalent of those it was marketing under its Dryclox marks. The particular advantage of sourcing chemically equivalent product was that Bomac would be able to continue to sell the different supplier’s products, using its trade name, under its existing licence approvals, so long as it could obtain approval for the substitution of the name of the new manufacturer for Norbrook. Bomac eventually chose as its alternative supplier Instituto Rosenbusch SA (Rosenbusch) which is a company having its head office in Buenos Aries, Argentina, that specialises in the manufacture of animal health products.

  8. On 28 September 2001, Bomac applied to the Agricultural Compounds and Veterinary Medicines Group of the New Zealand Food Safety Authority (the ACVM), which is the successor of the Animal Remedies Board, to change the nominated manufacturer on its registrations of Dryclox DC and Dryclox Xtra products to Rosenbusch. Bomac said in its application that it believed that the new products to be the chemical equivalents of those already licensed. It drew attention to possible differences in the formulations, and left it to the ACVM to establish whether that was so, by a comparison of the composition of the product submitted with those of the former supplier Norbrook. The ACVM granted Bomac’s application on 17 December 2001.

  9. In New Zealand the market for dry cow products is seasonal. Products are manufactured for the New Zealand market between October and December each year and are promoted by suppliers from December on. Veterinarians generally commence placing orders for the product with distributors in January. Dairy farmers primarily use them between March and May. There are however almost no sales from June to October each year.

  10. As a result of obtaining permission to change its manufacturer on 17 December 2001, Bomac was able to put its newly sourced products on the market in time for the new season beginning in January 2002. It competed on the market, continuing to use its trade names Dryclox DC and Dryclox Xtra, against the products of Norbrook which were sold in New Zealand during the season under the names Cloxamp DC500 and Cloxamp DC600.

    THE CONFIDENTIALITY OBLIGATIONS

  11. As indicated, in April 1988 Norbrook and Bomac signed an agreement (the confidentiality agreement) providing for the secrecy of the confidential proprietary information that Norbrook might disclose or already had disclosed to Bomac. Protected information under the confidentiality agreement included "confidential proprietary information, data, know-how, materials, design formulations, patent applications, future plans, or the like". The obligation of confidentiality covered disclosures made to Bomac orally or in writing or acquired by observation during visits to premises. The obligations extended for a period of fifteen years from the date of receipt of particular information. They did not apply to information that became public, or available to the general public, otherwise than through Bomac’s default.

  12. It is convenient at this point to record a number of findings by the High Court in relation to confidentiality of information under the confidentiality agreement. Heath J held that it was implicit under the agreement that Bomac could disclose confidential information to regulatory authorities to serve Norbrook’s purpose in sending dossiers of its products to Bomac. The purpose was to secure regulatory approval for the marketing of Norbrook supplied products. The Judge concluded that the parties must also have contemplated that some information would become public as a consequence of marketing, such as the information concerning ingredients that had to be stated on the product’s packaging, container or labels. He held such disclosures were all implicitly authorised by the confidentiality agreement. Likewise, the disclosures that were made to veterinarians and wholesalers necessary for marketing the product were implicitly authorised. None of these findings by the Judge were challenged in this Court on appeal.

  13. Because the confidentiality agreement provided that the obligations applied for fifteen years from the receipt of information that was confidential, the information that Norbrook provided in 1992 to Bomac in the dossier on Dryclox Xtra was still covered by the confidentiality agreement when the commercial relationship between Norbrook and Bomac came to an end in June 2001. They were still in force in September of that year.

    THE HIGH COURT PROCEEDINGS

  14. At the end of the 2002 season Norbrook brought proceedings against Bomac, alleging that it had misused confidential information that Norbrook had given it, by supplying the information to Rosenbusch or, alternatively, in the course of making its application to the ACVM to change the designated manufacturer of Dryclox Xtra. Other causes of action alleged breach of fiduciary duty and misleading and deceptive conduct under s9 of the Fair Trading Act 1986. The latter claim concerned alleged misrepresentations to the ACVM in 2001, and in the marketing of the new formulation of Dryclox products during the 2002 season. One of Norbrook’s contentions was that Bomac had misused information obtained from Norbrook concerning the correct percentage of the lecithin coating of the cloxacillin ingredient in Norbrook’s product. Norbrook contended that Rosenbusch had been able to manufacture chemically equivalent products only because Bomac had given it this information.

  15. The proceeding was heard in the High Court by Heath J over fourteen days during November 2002. Because of the urgency of the matter he delivered a reserved judgment on 2 December 2002. He dismissed Norbrook’s claims for misuse of confidential information and breach of fiduciary duty. Norbrook was successful in part only of its Fair Trading Act claims. The present appeal is brought by Norbrook against the finding that there was no misuse of confidential information by Bomac. Its focus is on the question of whether information concerning the quantity of the lecithin coating of the cloxacillin ingredient was misused during the lead up to the formulation of the substitute product by Rosenbusch and the submission of Bomac’s application to the ACVM.

    HIGH COURT'S FINDINGS CONCERNING BREACH

  16. Norbrook’s case in this Court is that Bomac, subconsciously or otherwise, provided Rosenbusch with confidential information concerning the percentage of lecithin coating, thereby enabling it to replicate Norbrook’s Dryclox Xtra product and Bomac to submit the Rosenbusch formulation in support of its application to have Rosenbusch substituted for Norbrook as its manufacturer of the product. More extensive allegations which were made in the High Court have not been pursued on appeal.

  17. Heath J’s findings on this contention in his judgment were based on evidence given by Mr. Leech, the chief executive of Bomac, and Dr Iribarren, the technical director of Rosenbusch, together with facsimile correspondence passing between Mr. Leech and Dr Bisesti, who is a biochemist employed by Rosenbusch, at a time when Dr Iribarren had gone overseas. The Judge concluded:

    [173]

    On my reading of the correspondence, file notes and calculations involving Bomac and Rosenbusch from June 2001, I am satisfied that Bomac disclosed to Rosenbusch only that there was a [Element G] coating of one of the active ingredients. That information was conveyed to Rosenbusch by Bomac by facsimile dated 20 June 2001. The first mention in the correspondence of a percentage figure for [Element G] figure is in Dr Bisesti’s facsimile to Mr. Leech of 12 September 2001. Dr Iribarren’s evidence was that he had discussions by telephone with Mr. Leech in the period leading up to his departure from Argentina on 10 September 2001 for a business trip to Turkey. Dr Iribarren well recalls the discussions prior to that date as he recalls landing in Turkey on 11 September 2001. It is not hard to believe that he would remember landing in Turkey on that fateful day. I accept Dr Iribarren’s evidence that he advised Mr. Leech that the quantity of [Element G] coating later mentioned in Dr Bisesti’s letter was the only quantity which Rosenbusch could obtain from its suppliers.

    [174]

    In those circumstances I find that Bomac did not disclose the percentage of [Element G] to Rosenbusch. Although there might be greater debate on this issue, I am not satisfied on the balance of probabilities that Mr. Leech subconsciously made use of the percentage figure which he said "gelled" with him. Ultimately, the particular percentage mentioned in Rosenbusch’s correspondence was the only quantity available from its suppliers. It was coincidental that the quantity was the same as that employed in the Norbrook Dryclox Xtra formulation.

  18. Heath J also dismissed a number of other contentions of misuse by Bomac of confidential information. It is necessary to mention only one. Norbrook had contended that information concerning the base used by Norbrook in its product, which was the same as that used by Rosenbusch, had been misused. The Judge, however, accepted that when Bomac made its application to the ACVM in September 2001 it did not know what the base of the Rosenbusch product was. Mr. Leech’s explanation, which the Judge accepted, was that rather than do any testing of the Rosenbusch product Mr. Leech preferred to submit Bomac’s application to the ACVM and to deal with any of its queries concerning matters such as chemical equivalence of the base if they were raised. The Judge accepted that Bomac had submitted a "speculative" application which if successful would enable it to enter the New Zealand market in time for the 2002 season with its newly sourced product. It if were unsuccessful in getting approval Bomac would at least have obtained valuable data enabling it to put Dryclox products on the market in subsequent seasons.

    THE PARTIES' SUBMISSIONS

  19. The appeal centres on whether there was misuse of confidential information concerning the percentage of lecithin coating of the cloxacillin ingredient of Dryclox Xtra, knowledge of which was seen as essential to obtain the required chemical equivalence of the substitute product. Mr. Chapman for Norbrook first argues that Bomac misused confidential information by specifying [a particular percentage] of lecithin coated cloxacillin to Rosenbusch and in the formula submitted to the ACVM. Alternatively he argues that the knowledge of one or more employees of Bomac was applied, consciously or subconsciously, with the result that product was ordered from Rosenbusch incorporating that amount of the ingredient and that formulation was used in the subsequent application to ACVM. Mr. Chapman also argued that Bomac carries the evidential burden of proving that it did not misuse confidential information.

  20. In detailed argument Mr. Chapman challenged the correctness of certain key findings of fact by the Judge concerning inferences to be drawn from evidence of communications between Mr. Leech and Rosenbusch during the period leading up to 12 September 2001. Norbrooks’ submissions referred in this respect to the knowledge of two persons in Bomac involved in plan B, Dr Hashmi, its director of regulatory affairs and research and development, and Mr. Leech.

  21. For Bomac, Mr. Finch contends that the evidence shows that it was able to get Rosenbusch to develop the substitute equivalent product, with [the percentage] lecithin coated cloxacillin, without doing more than making an educated guess as to the percentage of lecithin coating. Bomac accepts that there was an error by the Judge as to the sequence of an exchange of facsimiles between Bomac and Rosenbusch on 12 September but disputes Norbrook’s contention that this undermines the Judge’s findings of fact.

    ONUS OF PROOF OF BREACH OF CONFIDENTIALITY

  22. In A B Consolidated Ltd v Europe Strength Food Co Pty Ltd [1978] 2 NZLR 515 at p520 this Court adopted a statement of the three elements of a proceeding for breach of confidence in Copinger & Skone James on Copyright (11ed 1971) para 90:

    In order to succeed in an action for breach of confidence, the plaintiff must establish, to the satisfaction of the court, three elements: firstly, that the information which he is seeking to protect is of a confidential nature; secondly, that the information in question was communicated in circumstances importing an obligation of confidence; and, thirdly, that the defendant is about to make, or has made, an unauthorised disclosure or use of that information.

  23. The above statement reflects the general rule that when misuse of confidential information is alleged it is the plaintiff who bears the onus of proving misuse. In this case counsel for Norbrook has invited us to adopt a different approach, involving a presumption against Bomac as a party in possession of confidential information, disclosure of which would serve its interests but be detrimental to Norbrook. Mr. Chapman referred to cases involving the misuse, or risk of misuse, of confidential information obtained by a person whilst in a lawyer-client fiduciary relationship, an area where a different approach has been followed. In Russell McVeagh McKenzie Bartleet & Co v Tower Corporation [1998] 3 NZLR 641 the issue was whether a firm of solicitors should be restrained from acting for a company in an attempt to take over another company for which it had previously acted, because of the risk of the misuse of confidential information obtained during the course of the firm’s relationship with the former client. The Court posed a test involving three questions.

    • First, was confidential information held by the firm which, if disclosed, would be likely to affect adversely the interests of the former client?

    • Secondly, was there a real risk of disclosure?

    • Thirdly, recognising the significance and importance of the special fiduciary relationship which gives rise to the duty of protection, should the Court exercise its discretionary power to disqualify the firm from acting for a party in circumstances which might adversely affect the former client?

  24. In relation to the second question the majority of this Court, in a judgment delivered by Henry J, said (p652):

    The circumstances will dictate whether there is an unacceptable risk of disclosure of information. Where there is possession of relevant information, in the absence of negating evidence of protection the Court will readily infer there is a risk of disclosure.

    Similarly, in a separate concurring judgment, Blanchard J said (p678):

    If the Court finds that the law firm is by reason of its retainer for the first client privy to confidential information the disclosure of which to the second client has the potential to be detrimental, it will infer that disclosure has actually occurred or is likely to occur unless on a balance of probabilities the law firm negatives that concern. This does not involve any presumption against the law firm; merely that if, in the Court’s judgment, the question is evenly balanced, the Court will err on the side of caution, conclude there is a real risk and disqualify the law firm from acting for the second client.

  25. Subsequently, in Prince Jefri Bolkiah v KPMG [1998] 2 AC 222 the House of Lords adopted a rule which is marginally stronger than that in Tower Corporation concerning the onus of proof. They decided that in such circumstances, if possession of confidential information by a firm were established, together with its relevance to a matter in which the firm was subsequently acting for another party with an adverse interest, then the firm carried the onus of showing there was or would be no misuse. Norbrook invited the Court to apply this two stage test to the circumstances of the present case.

  26. Heath J, however, held that the relationship between Norbrook and Bomac did not give rise to fiduciary obligations. That finding has not been challenged on appeal and is plainly correct. The circumstances of their dealings do not import into the commercial relationship of Norbrook and Bomac the degree of trust that exists in the relationship between lawyer and client. To treat their relationship as giving rise to such obligations would constrain competitive behaviour to a much greater extent than compliance by Bomac with the obligations under the confidentiality agreement requires.

  27. Nor do we accept that contractual obligations of confidentiality in a commercial context require that there should be a legal or evidential onus on a party in possession of confidential information to satisfy the Court that it has not misused it. Any other approach would unduly inhibit competition and would be contrary to the principles as stated in the citation from Copinger & Skone James in para [22] above. The onus of proving the breach accordingly remains with the plaintiff Norbrook. That onus required it to call evidence of misuse, that is evidence giving rise to an inference that there was misuse. Norbrook also had to negate any evidence put forward by Bomac to counter an inference that the confidential information was misused. Norbrook is not required to negate all possible benign sources of the information, but it must exclude those which are obvious in the circumstances or raised by the respondent. The standard of proof is the balance of probabilities.

    THE CORRECTNESS OF THE FACTUAL FINDINGS

  28. Two important factual findings underpinned the conclusion of Heath J that, prior to its application to the ACVM on 28 September 2001, Bomac had disclosed to Rosenbusch only that there was a lecithin coating to an active ingredient of Dryclox Xtra and not the confidential information concerning the quantity of that coating. The first finding was that during a telephone conversation prior to 12 September 2001, when he was still in Buenos Aires, Dr Iribarren told Mr. Leech that the quantity of the lecithin coating which Dr Bisesti later mentioned to Mr. Leech (being [a particular percentage]) was the only quantity which Rosenbusch could obtain from its suppliers. The other finding was that the first mention in the correspondence between the two companies of the quantity of lecithin coating was Dr Bisesti’s facsimile to Mr. Leech on 12 September 2001.

  29. There are however difficulties with each of these findings. First, the Judge’s statement that he accepted Dr Iribarren’s evidence that, during a telephone conversation prior to 12 September he had advised Mr. Leech that [the percentage] was the only quantity of lecithin coating of cloxacillin which Rosenbusch could obtain from his suppliers, goes further than what the witness actually said in his evidence. Dr Iribarren gave evidence of the telephone conversation in which while under cross-examination he said:

    Yesterday you said first recollection that you have of discussion with Leech about lecithin was during telephone conversation. That’s right. During that telephone conversation Leech tells you does he that he wants you to make masticlox vs forte with lecithin coated Cloxacillin .... what he requested if we can produce that product Cloxacillin coated, I told him it may be we have to phone our suppliers and look for their answers.

    Did he tell you in that discussion that he had a vague recollection that he had seen something about the % being [the percentage] .... no, he only requested coated Cloxacillin.

    Do you say in that telephone conversation you told him that the % coating of Cloxacillin would be [the percentage] .... I told him that I believe it should be [the percentage] because our penicillin coating is [the percentage], but it has to request this info to the supplier.

    All of that took place in course of one single telephone conversation .... That’s right.

    Do you accept now that in fact you can get coatings of Cloxacillin with lecithin at %s different to [the percentage] .... No, I cannot accept because people from Chemo only coat with [the percentage].

    But other manufacturers throughout world offer coatings at different % .... Not to my knowledge, we have only 2 suppliers, one of them cannot supply, and the one that can supply to us is with [the percentage], what other suppliers over the world do, I don’t know.

    And later:

    I told him [the percentage] but I had to ask our supplier. Did that conversation with Leech happen before you went to Turkey .... Yes it was.

    Dr Iribarren later said he spoke to his suppliers before going to Turkey but did not convey the response back to Mr. Leech until after 12 September.

  30. Heath J’s finding that Mr. Leech was told that [the percentage] was the only quantity of lecithin coating that Rosenbusch could obtain from its suppliers overstated what could be inferred from Dr Iribarren’s evidence. It went no further than to say that it was likely that only a [particular percentage] coating would be available, but that Dr Iribarren would have to check with his suppliers whether a lecithin coating was available at all and what percentage could be obtained. Dr Iribarren did, however, also say that it was he who had mentioned the [percentage] figure to Mr. Leech in the conversation rather than the other way around.

  31. Secondly, contrary to the Judge’s finding, it is clear and accepted by Bomac that Mr. Leech sent a letter by facsimile to Rosenbusch on 12 September 2001 to which Dr Bisesti’s facsimile of the same day was a reply. Mr. Leech, in his letter, referred to the absence in Europe at the time of Dr Iribarren, giving that as the reason for addressing his message to Dr Balestrini. (As indicated, Dr Iribarren, with whom Mr. Leech had conducted most of his dealings concerning a possible substitute product, said in evidence that he was in Turkey on 12 September). Mr. Leech then continued in his letter:

    Firstly, I had a very good meeting with the Ministry on Monday, but they insist that our product formulations are exactly the same as Norbrook, so I have sent by email the information that is available about the Norbrook formulations and compared them to the formulations you are presenting. You should note that both products are the same strength.

    The difference between Dryclox DC and Dryclox Xtra is the amount of volume in the syringe. Therefore, the formulation you currently call Dryclox Xtra is perfect. We need to put 4.5 grams of that formulation in the syringe to produce Dryclox DC and 5.4 grams in the syringe for Dryclox Xtra. The only difference with the Dryclox Xtra formulation is the inclusion of [the percentage] Lecithin (coating of the Cloxacillin).

    We are re-organising the dossiers to reflect this accordingly and will send you detailed information and manufacturing files within a couple of days.

  32. Dr Bisesti’s facsimile letter in reply so far as relevant said:

    12 September 2001

    Dear Wayne:

    In response to your Fax I am sending the following information and some questions.

    ....

    (4)

    I know that the difference between Dryclox DC and Dryclox Xtra is the weight filling. It is very important to confirm that in the formulation of Dryclox DC I must use Cloxacilin Benzathine without lecithin and only in the Dryclox Xtra formulation I must use Cloxacilin benzathine with [the percentage] of lecithin.

    ....

  33. Once the correct sequence of this exchange is appreciated, it is plain that the first mention in correspondence of a [percentage] figure for lecithin was in the facsimile sent by Bomac to Rosenbusch on 12 September 2001. By then Rosenbusch had not firmed up on the percentage figure in any communication with Bomac and, with Dr Iribarren overseas, the inference to be drawn is that Dr Bisesti only did so in his facsimile because of what was said in the message Rosenbusch received from Mr. Leech earlier on 12 September.

    WAS CONFIDENTIAL INFORMATION MISUSED?

  34. The issue whether there has been a breach of confidence turns simply on whether the protected confidential information was misused. Because we have differed from the Judge on certain findings of fact it is necessary for us to decide this question afresh. We are, however, satisfied that the unauthorised use pointed to by Mr. Chapman for Norbrook during the argument on appeal can in the circumstances only be a subconscious use rather than a deliberate one. The different findings of fact made in this judgment do not disturb the Judge’s rejection of the allegation of deliberate misuse by Mr. Leech. The crucial question is accordingly whether Bomac subconsciously misused of the confidential information.

  35. The misuse of confidential information will sometimes be relatively straightforward to prove. A chain of documentation may establish misuse, or there may be other clear independent evidence. Where, however, proof depends on the drawing of an inference from similarity between what it is that the defendant has disclosed or done and the confidential information, more difficult questions may arise. It is helpful to begin from some basic principles.

    • First, the possession of confidential information does not of itself preclude a person from developing a product equivalent to that which is protected, provided that the confidential information or element is not misused.

    • Secondly, the fact that a person is aware, when receiving information from an independent source, that it conforms with the confidential information, does not in itself give rise to misuse. Nor does the mere fact that the person takes comfort from that knowledge. It is only if the knowledge or comfort causes the person to do, or to omit to do, something that there is conduct amounting to misuse. Normally this will take the form of a person avoiding having to undertake some part of the process required to develop the product. Were the rule to be otherwise, it would be virtually impossible for those possessing confidential information ever to be involved in developing equivalent competing products. It must be borne in mind that the purpose of the protection of confidences in law and equity is to prevent disclosure and misuse, not to disqualify people from competing. Megarry J said in Coco v A N Clark [1969] RPC 41 (p49):

    I also recognise that a conscientious and law-abiding citizen, having received confidential information in confidence, may accept that when negotiations break down the only honourable course is to withdraw altogether from the field in question until his informant or someone else has put the information into the public domain and he can no longer be said to have any start. Communication thus imposes on him a unique disability. He alone of all men must for an uncertain time abjure this field of endeavour, however great his interest. I find this scarcely more reasonable than the artificiality and uncertainty of postponing the use of the information until others would have discovered it.

    We share the view that there it would be unreasonable for the law to place such a "unique disability" on those who possess confidential information.

  36. In determining whether to draw an inference from similarity between confidential information, and what the defendant has disclosed or done, the ultimate test will often be, as Lord Denning MR. put it in Seager v Copydex [1967] 1 WLR 923, 931, whether:

    The coincidences are too strong to permit of any other explanation.

  37. In the absence of direct evidence, however, if there are two reasonably possible explanations for the behaviour of the confidee, it will be a rare case in which the plaintiff can discharge the burden of showing misuse.

  38. In the present case the first question is whether there was a legitimate source for the [percentage] figure. In his evidence Mr. Leech said that the quantity of lecithin coating had previously been disclosed to the public in advertising material, but he was unable to substantiate this assertion in his evidence, and the Judge was entitled to dismiss it as an evidential basis to counter a possible inference that confidential information was misused.

  39. That leaves Dr Iribarren’s evidence which justifies the finding that he told Mr. Leech on a provisional basis and subject to checking that [a particular percentage] coating was likely to be available from one supplier. It is also important that Dr Iribarren first mentioned the percentage lecithin coating figure to Mr. Leech, rather than the other way around. Before hearing back from Dr Iribarren on the outcome of his approach to the supplier of Rosenbusch, Mr. Leech referred to the [percentage] figure, without qualification, in his fax to Rosenbusch addressing the formulation he wanted it to supply, to provide what he hoped would be an identical product formulation to that of Norbrook.

  40. It follows that Mr. Leech’s statement in the fax went further than the information Dr Iribarren had given him in their earlier conversation. The question is whether that additional feature should lead the Court to draw an inference that Mr. Leech misused the confidential information. Whether this is so requires an examination of the context in which the fax was drafted and sent.

  41. It is clear that Mr. Leech had taken some comfort from the confidential information in his possession. He said that when Dr Iribarren mentioned the [percentage] figure it "gelled" with him. He was also unable to demonstrate that there was a possible source for that mental reaction, based on his subconscious memory, which was in the public domain. We are satisfied that there is no such source and that the information subconsciously retained in the mind of Mr. Leech was originally derived from confidential information as to the quantity of the coating.

  42. The question, however, is whether he made improper use of that information, either by employing it in the fax to Dr Bisesti, or by omitting to inquire further from independent sources as to the percentage figure. Several matters are relevant in determining this question. 

    • First, while Dr Iribarren’s indication that [the percentage] might be the figure was far from definite, it is clear from his evidence that he thought that was the probable position, given that [that percentage] coating was available for penicillin.

    • Secondly, Mr. Leech had decided to submit a speculative application designed to give Bomac the opportunity to compete selling its newly sourced product in the 2002 season. He hoped that the application would be successful but if it was not approved because of formulation differences Bomac still expected to obtain from the exercise valuable information to assist it to get an approval in time for the following season.

    • Thirdly, it is also of some significance that, as at 12 September 2001, Mr. Leech did not completely understand what the [percentage] figure represented. A schedule attached to his letter to Rosenbusch indicated that he believed that the [percentage] figure was the percentage of lecithin in Dryclox Xtra, when the correct position was that it was the percentage only of the cloxacillin ingredient which formed 28% of the formulated product. This misunderstanding was carried through to the application that Bomac submitted to the ACVM.

  43. Having regard to these considerations we conclude that there was no misuse of confidential information in this case. While Mr. Leech said he took comfort from remembering that the figure was [the percentage], it has not been shown that he did or omitted to do anything on the basis of his comfort. The shift from the possibility that the figure was [the percentage] to an apparently definite reference to [the percentage] has to be viewed bearing in mind that Mr. Leech had already been told that Dr Iribarren believed that "it should be the percentage because our penicillin coating is [the percentage]". Based on that legitimately acquired information, Mr. Leech was entitled to work on the basis that the figure would be [the percentage], albeit that was still provisional. An inference that information had been misused could be drawn only if he had conveyed that the precise figure would be [the percentage]. We accept that it is possible to read the fax in that way. In its context, however, it is more likely that Mr. Leech’s reference to [the percentage] was no more than a shorthand reference to the provisional figure of [the percentage] and based on no more than what Dr Iribarren had told Mr. Leech. In the light of the conversation between Dr Iribarren and Mr. Leech, it is unlikely that a mere reference to [the percentage] without more would have been meant in a more precise way. More specific language would have been required to convey to Rosenbusch that the figure was definitely [the percentage].

  44. In reaching the conclusion that this inference is possible and to be preferred, we also have regard to the fact that the reference to the [percentage] figure does not appear to have materially affected the course of Rosenbusch’s work.

  45. The fact that Mr. Leech did not look for alternative percentages or request that Rosenbusch to do so is also understandable. Bomac had decided to submit a speculative application in the hope that it would be successful in time for the coming season. In those circumstances it is not surprising that Mr. Leech simply accepted the percentage which could be supplied to Rosenbusch from its usual sources. Taking all these matters into account we conclude that Mr. Leech’s comfort with the [percentage] figure had no impact on what he did and that the probable inference is that Mr. Leech was simply referring to information already legitimately available to him in making reference to the [percentage] figure in his facsimile of 12 September 2001.

  46. In these circumstances it has not been shown by Norbrook that the gelling in Mr. Leech’s mind of the [percentage] figure led to any misuse of confidential information. [The percentage] was the only quantity that Rosenbusch expected would be available at the time and that provided a legitimate basis for Mr. Leech to mention it in the way he did on 12 September and to include it in the formulation submitted.

    OUTCOME OF APPEAL

  47. It follows that Norbrook has not shown that there was a misuse of confidential information in the way contended on appeal. The third element of the cause of action of breach of confidential information is accordingly not made out.

  48. The appeal is accordingly dismissed with costs of $6000 to Bomac together with reasonable disbursements and travelling costs to be agreed by counsel and failing agreement fixed by the Registrar.

    CONFIDENTIALITY ORDERS

  49. Norbrook may, by 4pm on 7 April 2004, file written submissions on whether any information set out in the judgment remains confidential and should not be included in the judgment released to the public. Following that period, Bomac shall have until 4pm on Tuesday 13 April to file a written response. Norbrook may, within 24 hours of the end of that period, file any submissions in reply. After considering the submissions, and if it considers it necessary hearing from the parties, the Court will make any orders it considers necessary to protect what it considers to be confidential information contained in the judgment.

  50. In the interim, the Court orders that the judgment not be released, other than to the parties, and generally in respect of paragraphs [1], [2] and [47] to [50]. The Court file in respect of this proceeding may not be searched, copied or inspected other than with leave of a Judge of this Court on application made on notice to both parties, pending further order of the Court.


Cases

A B Consolidated Ltd v Europe Strength Food Co Pty Ltd [1978] 2 NZLR 515; Russell McVeagh McKenzie Bartleet & Co v Tower Corporation [1998] 3 NZLR 641; Prince Jefri Bolkiah v KPMG [1998] 2 AC 222; Coco v A N Clark [1969] RPC 41; Seager v Copydex [1967] 1 WLR 923

Authors and other references

Copinger & Skone James on Copyright (11ed 1971)

Representations

CS Chapman & JK McGrath for Appellant (instructed by Buddle Findlay, Wellington)

I Finch and DL Marriott for Respondent (instructed by James & Wells, Auckland)

Notes:-

[a] This is an edited version of the full judgment of McGrath J delivered on 5 April 2004. All confidential percentage figures reproduced in the full judgment have been omitted in this edited version. The omission is made to achieve compliance with the confidentiality orders by the learned Judge. 


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