Breach of Confidence: Norbrook Laboratories Ltd v Bomac Laboratories Ltd

Auckland High Court

Health J, 2 December 2002, CP 241-SW/02

This decision from Heath J deals with some interesting issues in respect of both breach of confidence and the Fair Trading Act 1986.

The plaintiff was the Northern Ireland manufacturer of veterinary pharmaceuticals for the treatment of mastitis in cows. Bomac, the New Zealand defendant, was a manufacturer of animal health products which since 1984 had acted as New Zealand distributor of Norbrook's mastitis products. In June 2001, their commercial relationship terminated.

In late 2001, Bomac arranged an alternative product from an Argentinean supplier, Rosenbusch, with whom it had been involved since 1992. Bomac applied to the New Zealand regulatory authority, the ACVM for consent to change manufacturer of its mastitis products from Norbrook to Rosenbusch based on chemical equivalence. This approval was granted in December 2001 and for the 2002 season Norbrook and Bomac had competing mastitis animal remedies on the market.

Norbrook commenced proceedings alleging breach of confidence and, in particular, that Bomac had disclosed confidential aspects of its formulation to Rosenbusch or had used confidential aspects of Norbrook's formulation to determine that they were identical or chemically equivalent so that substitution of Norbrook's formulations under existing animal remedy licences was possible.

Heath J found that there was no such breach. He went on to find however that there were breaches of the Fair Trading Act. In the course of a lengthy and careful judgment, Heath J made observations on a number of interesting aspects of confidential information and the Fair Trading Act:

(a)  Were there co-existing obligations of confidence under a secrecy agreement and in equity? 

Here there was a written secrecy agreement between the parties. Given this agreement, Heath J was "satisfied that it would be inappropriate to impose any over-arching obligation of confidence arising in equity". Heath J was not prepared to find additional equitable obligations of confidence on the basis that "once the parties have agreed the extent of any obligation of confidence, equity should not, as a matter of principle, intervene to provide a more stringent obligation than that which has been agreed". There was an entire agreement clause in this case and he held it would be inappropriate to impose additional obligations. Further, Heath J was sympathetic to the view that "it would be wrong to impose an obligation of confidence beyond that agreed in a contract when consideration for the contractual agreement may not be, objectively analysed, a commensurate return for the value of the obligation assumed".

Comment Heath J's finding on these facts that equity should not impose more stringent obligations than in the contract seems well justifiable. 

However, if "the matter of principle" being expressed is that, where there is a contract, equity can never intervene to provide a more stringent obligation than that in the contract, this commentator would respectfully disagree. There may be a number of cases where, despite the existence of a contract, the nature of the parties' relationship has evolved so that obligations in equity are necessary to more properly represent the actual relationship of the parties and their receipt of confidential information. There is ample authority that obligations in contract and equity can arise co-extensively (see the Laws of New Zealand. Intellectual Property: Confidential Information para 7 (Butterworths)). In many breach of confidence cases the parties choose to sue in both contract and equity and indeed on the facts it may be entirely necessary.

Also with respect, it is the relationship which governs the obligation of confidence not the adequacy of contractual consideration. It is suggested that on reflection the proposition from counsel (which Heath J viewed supportively) has only a superficial attraction.

(b)  Limited scale disclosure did not destroy the quality of confidence 

On the facts, one aspect of the claimed confidential formulation had been disclosed to certain vets at meetings in two rural areas of New Zealand. Heath J held that the information revealed should have been referred back to Norbrook for specific approval before it was disclosed. However he was not prepared to regard the limited disclosure as destroying the quality of confidence, relying on Aquaculture Corp v NZ Green Mussel Co Limited (1985) 5 IPR 353, 379 - publication in an evanescent form on a limited scale or in a remote or restricted area does not destroy the confidence.

(c)  Use of "Chinese walls"

Bomac had developed the substitute product with Rosenbusch using a "firewall" between its in-house 'Plan B' development team and those of its employees who had access to the Norbrook dossiers and confidential information. Heath J observed that in some respects Bomac was fortunate that he had taken a benevolent view of the way it went about the development of the substitute product. Ad hoc 'Chinese walls' could be criticised and carried significant risks; Bolkiah v KPMG [1999] 1 All ER 517, 530. Had there been more direct evidence of dissemination of material from the Plan B team to those dealing with the Norbrook dossier, he would have been more prepared to draw adverse inferences against Bomac.

(d)  Injunction or damages

Even if there had been sufficient evidence to show a breach of this secrecy agreement, Heath J noted that damages were readily quantifiable and these and not an injunction would have been the appropriate remedy. This was particularly so as both parties had competed in the market in the 2002 season and to have prevented Bomac from competing in 2003, might well have caused confusion in the market.

(e)  Fair Trading Act; Mandatory Advertising Order

Norbrook alleged various breaches of the Fair Trading Act - some of which involved false representations made to those who would buy their mastitis products. Heath J was not convinced that claims made in relation to getup would have misled the relevant public, given that these were prescription animal remedies sold only to approved wholesalers and vets. However he did find that some misrepresentations may have been made to prospective purchasers. His remedy was an order requiring Bomac to disclose on all packaging and advertising in the forthcoming 2003 season, that its products were no longer manufactured by Norbrook.

Heath J based his jurisdiction to make such a prospective mandatory order on s41(1)(b) which allows an injunction to restrain any attempt to contravene the Act and on an earlier Court of Appeal decision TV3 v Eveready [1993] 3 NZLR 435, 438, 447, 449. In that case, the Court of Appeal held, in a malicious falsehood and defamation case concerning product claims, that there was no jurisdictional bar to the grant of a mandatory injunction when it was required by justice.