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Confidentiality in Special Projects

I understand from Kerrie that the flyer for tonight has 2 topics of discussion. I have chosen to talk about confidentiality in special projects. By that I mean the construction of prisons, military bases, military installations, nuclear power stations and even terrorist training camps and any other projects where security, whether national or otherwise, is an issue.

You might well ask what, if any, is the relevance of this topic to you. My searches have not revealed any cases where this subject has been litigated. And I must admit that this subject immediately brings to my mind the image of Catherine Zeta Jones dressed as catwoman and Sean Connery engineering an elaborate robbery which involves pouring over some complicated blueprints and overcoming a complicated security system using Cirque de soleil type moves. (Entrapment)

Why this subject is of interest

In my view, there are 2 reasons why this subject would be of interest to you:

  1. firstly, it is relevant to the preparation of construction contracts where security is an issue; and
  2. secondly, barristers would be interested from the point of view of proceedings brought to prevent unauthorised disclosure of confidential information.

Relevance to the preparation of construction contracts where security is an issue

For solicitors the issue of confidentiality is relevant in the preparation of construction contracts where security is an issue. I would expect that builders of gaols and military installations would be committed to an express obligation of confidentiality over information collected over the construction of the project.

Although it is conceivable that the Government could bring a case for damages for breach of contract arising from the unauthorised dissemination of the plans to a gaol which ultimately led to a compromise of the gaol’s security and possibly gaol breaks, in my view, the bird would have flown the coop by then.

Injunctive relief to prevent unauthorised disclosure

A more effective protection would be via an injunction to prevent the unauthorised disclosure. A possible scenario is as follows:

— A builder might be issued with a subpoena for production whose scope might include confidential documents.

— An unwitting employee of the builder, unaware of their employer’s obligation of confidentiality, might then copy and produce the documents to the court in answer to the subpoena.

In such a case, the Government would prima facie be entitled to an injunction to compel return of the documents to the Government and to prevent their use in the proceedings. In such a scenario, I would suggest that the principles in Lord Ashburton v Pape [1913] 2 Ch 469 would be applicable. This case deals with the inadvertent production of copies of privileged documents by a clerk in breach of the firm’s obligation of confidence to their client to a court in answer to a subpoena. In that case, the court granted a remedy to enforce an equity of confidence. The reasoning was that if the breach of confidence (that is, the copying and production to the court of the privileged documents) had not occurred, the copied documents would never have been made and would not have been available to tender in evidence.

The case of AG Australia Holdings Ltd v Burton and Anor (2002) 58 IPR 268 is a useful decision where his Honour, Campbell J, discussed Lord Ashburton v Pape and reviewed the subsequent cases on this subject.

Formation of confidential relationship

The obligation of confidence may arise in several ways. There may be an express

term in construction contract, the term may be implied as a matter of law or arising from the nature of the work or it may arise in equity.

Obligation arising by implication

For example, an obligation of confidence may be implied into the contract between the Government and a builder, as a matter of law as being reasonable and necessary in the circumstances of the contract. This would be in keeping with the public interest of keeping information disclosed to builders, by government agencies, in confidence to prevent public disclosure of particular information derived in the course of these types of ‘special projects’.

The obligation may arise where any reasonable person, in the position of the recipient of the information, would have realised that the information was being imparted to them in confidence (Coco v AN Clark (Engineers) Ltd [1969] RPC 41 at 48 per Megarry J affirmed in Smith Kline & French Laboratories (Australia) Ltd v Secretary to the Department of Community Services & Health (1991) 99 ALR 679 at 691 per Sheppard, Wilcox and Pincus JJ). Such an obligation should arise in the context of the construction of sensitive public institutions (e.g. military or criminal). It would be reasonable to expect an ordinary builder, in this context, to infer from the nature of the building being constructed, that information provided to them is confidential.

Express obligation

However, in the context of “special projects”, I would suggest that the obligation of confidentiality would invariably arise expressly. It is likely that builders of gaols, military complexes or other ‘sensitive’ public institutions or facilities would be under an obligation of confidentiality. In my view, in today’s security conscious climate, it would be arguably negligent for a solicitor to prepare a contract which does not incorporate an express obligation of confidence.

An express term, for example, may be incorporated into the building contract, which provides that a builder must not publicly disclose certain ‘confidential’ information. To be effective, an express provision would need to identify what information is confidential as it would be unreasonable to expect a builder to discern what may constitute a breach if it is unclear what information may or may not be disclosed.

The AS2124-1992, the contract which has to my knowledge been used both by the NSW and South Australian Governments has the following clause relating to confidential information:

“Drawings, specifications and other information, samples, models, patterns and the like, supplied by either the Contractor or the Principal and marked or otherwise identified as confidential shall be regarded as confidential and shall not be disclosed to a third party except with the prior agreement of the other party to the Contract.

If required in writing by a party, the other party shall enter into a separate agreement not to disclose to anyone else any confidential matter even after the issue of the Final Certificate pursuant to Clause 42.8 or the earlier termination of the Contract.”

AS 2545-1993, the contract which is often used as the companion contract for subcontractors where the head contract is the AS 2124-1992, has the following confidentiality clause:

“Drawings, specifications and other information, samples, models, patterns and the like, supplied by either the Subcontractor or the Main Contractor and marked or otherwise identified as confidential shall be regarded as confidential and shall not be disclosed to a third party other than the Principal, the Superintendent and their identified consultants for the purpose of the execution, use, maintenance or alteration of the Main Contract Works except with the prior agreement of the other party to the Subcontract.

If required in writing by a party,

the other party shall enter into a separate agreement not to disclose to anyone else other than the Principal, the Superintendent and their identified consultants any confidential matter even after the issue of the Final Certificate pursuant to Clause 42.8 or the earlier termination of the Subcontract.” (Differences to the AS 2124-1992 have been highlighted)

On its face, both clauses appear to satisfy the requirement of specificity – it is only documents that have been marked as “confidential” that are protected. I note however, that the clause does not deal with confidential information that may be communicated orally.

Scope of confidential relationship

The duty to maintain the confidentiality of particular information may extend beyond the builder to its officers, agents, employees and servants. If it does, it would impose an obligation on the builder to implement a system to ensure that neither its employees nor agents disclose confidential information. The degree to which builders may have to regulate their relationship with their employees depends on the circumstances. It may be the case, for example, that only particular employees (perhaps those in senior or executive positions) would have information deemed confidential. As such, it may be enough to incorporate specific terms into those employee’s contracts of employment, restraining them from disclosing particular information.

Consequences of breach

Where an express contractual term prohibiting disclosure of confidential information has been breached, the appropriate remedy would be damages. Damages may however in the context of “special projects” be an inadequate remedy. In my view, in this context, the appropriate remedy for preventing the disclosure of confidential information would be an injunction.

The Court, in considering whether to order an injunction, makes a distinction between cases involving private citizens and those involving public authorities. Justice Mason held in Commonwealth v John Fairfax & Sons Ltd (1980) 147 CLR 39 (at 51) that “when equity protects government information it will look at the matter through different spectacles”. If public discussion and criticism of government is the only consequence of not restraining the disclosure of information then the Court will be reticent to grant an injunction.

The central consideration in cases involving disclosure of confidential government information is whether the disclosure of that information is in the public interest. If disclosure is “inimical to the public interest because national security…or the ordinary business of government will be prejudiced [then] disclosure will be restrained” (Commonwealth v John Fairfax & Sons Ltd (1980) 147 CLR 39 at 52 per Mason J). Though, on the one hand, these comments by Justice Mason may seem abstract and theoretical, on the other, they are useful because they demonstrate the considerations that inform the Court’s reasoning in cases where confidential government information is in issue. Where a government agency can demonstrate a clear detriment to the public interest that may flow from disclosure of confidential information, a Court will intervene to restrain the disclosure of that information.

If security is the main consideration then it would be difficult to imagine a scenario when it would be in the public interest to refuse an injunction.

Term of obligation of confidentiality

An obligation to maintain information in confidence will often survive the termination of the contractual relationship between principal and builder. A contract will either specifically stipulate that the obligation is an ongoing one or, where there is no specific contractual term, the obligation may be implied.

Both the AS-2124 and the AS-2545 are silent on this point. I would suggest that it would be prudent to include a term in the contract expressly stipulating that the obligation of confidentiality is ongoing and survives both the issue of the Final Certificate and the conclusion of the building works as well as unauthorised disclosure of the confidential information.

Case of Maggbury P/L v Hafele Aust P/L (2001) 210 CLR 181

The High Court held in Maggbury P/L v Hafele Aust P/L (2001) 210 CLR 181 at 198 that the law only protects, from disclosure, information that is imbued with “the quality of confidentiality”.

If, over time, the subject matter loses its quality of confidentiality because, for example, it has been publicly disclosed, then any restraint against disclosure would cease to be effective.

In that case, Maggbury invented a wall mounted ironing board with foldaway wings. Maggbury proposed to Hafele that they enter into an agreement in order to cover the costs of obtaining a patent and to commercially exploit the invention. Hafele which was an existing industry player entered into a confidentiality agreement with Maggbury. Under that agreement, Maggbury disclosed the invention which was also the subject of an unpublished patent application to Hafele.

Hafele agreed to only use the invention for the purpose of considering whether Hafele was interested in joining Maggbury in the commercial exploitation of the invention. There were no exceptions to the obligations of confidentiality.

The agreement to commercially exploit the invention never eventuated between Maggbury and Hafele. Hafele returned the confidential documents it had received from Maggbury to Maggbury. In the meantime however, the patent application was published as part of the normal patent procedure for complete applications and the information about the invention became public knowledge.

Hafele then proceeded to market products based on Maggbury’s invention. Maggbury commenced proceedings against Hafele seeking an injunction to prevent Hafele marketing products based on the invention on the basis that it was a breach of the confidentiality agreement between Maggbury and Hafele.

The injunction was granted at first instance but was set aside in the Court of Appeal. By majority, the High Court dismissed the appeal on the basis that the contractual obligation (which had undoubtedly been breached) to continue to treat the information as confidential was unenforceable as a restraint of trade. The key factor was that information, the subject of the confidentiality agreement, had become publicly available as a result of the patent application.

The decision has been the subject of much adverse press possibly because Hafele had encouraged Maggbury to show its invention at certain trade fairs to gauge market potential. The combined effect of the trade fairs and the patent application is that the invention was exposed publicly thereby giving third parties access to the information contained in the confidentiality agreement free of charge. In my view, Hafele’s decision to go ahead and exploit Maggbury’s invention has a rather unsavoury quality. The effect of this decision may however be limited.

Case of AG Australia Holdings v Burton and Anor [2002]58 IPR 327

In AG Australia Holdings v Burton and Anor [2002]58 IPR 327, Campbell J held that there was no conflict between the principle in Maggbury and giving effect to a clause in a confidentiality undertaking entered into by the parties of that case. That clause provided that:

“The covenant in this agreement shall not apply to any information which becomes generally known to the public otherwise than as a breach of this agreement or the breach of any similar agreement.”

In that case, AG Australia, formerly GIO Australia, had been successful in proceedings brought against the defendants to restrain the defendants from using information belong to GIO in other court proceedings involving a Mr King and GIO. In that case, one of GIO’s former employees had disclosed commercially sensitive and other confidential information in breach of his contractual obligations. The intention was to incorporate that information into an affidavit for use in the proceedings between King and GIO.

Justice Campbell quoted the following passage from Maggbury:

“Ordinarily, the obligations relating to the use and disclosure of the Information would be construed as limited to subject matter which retained the quality of confidentiality at the time of breach or threatened breach of those obligations. An expression of a contrary intent should, as Judge Learned Hand put it in Picard v United Aircraft Corp 128 2 F 2d 632 (1942), be explicit.”

He went on to hold without elaboration that he:

“did not discern any conflict between the principles which are there stated, and giving effect to cl 3 of the confidentiality undertaking using the actual words of cl 3.”

In my view, the decision of AG Australia shows that the decision of Maggbury may be limited by appropriate drafting.

Conclusion

Builders may, in most commercial relationships, be required to maintain information relating to construction projects in confidence. The distinction in the case of particular government projects is that the disclosure of information may have consequences beyond simply the loss of a commercial advantage. Disclosure of some confidential government information may compromise the public interest. Maintaining information in confidence is therefore a paramount consideration in construction projects that touch on sensitive matters of State.

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