Aardwolf Industries LLC v Tayeh

Sydlow Pty Ltd (In Liq) v TG Kotselas Pty Ltd (1996) 65 FCR 234; [1996] FCA 233 Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515; [2004] HCA 16 Category: Principal judgment Parties: Aardwolf Industries LLC (First Applicant) Aardwolf Australia Pty Ltd (Second Applicant) Riad Tayeh (First Respondent) Antony Anne de Vries (Second Respondent) Representation: Counsel: M Galvin QC / S Dyrenfurth (Applicants) T W Marskell (Respondents)

Solicitors: Actuate IP (Applicants) Wotton + Kearney (Respondents) File Number(s): 2020/118255 Decision under appeal Court or tribunal: Supreme Court of NSW Jurisdiction: Equity - Corporations List Citation: [2020] NSWSC 299 Date of Decision: 26 March 2020 Before: Rees J File Number(s): 2019/205840

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

HEADNOTE [This headnote is not to be read as part of the judgment] In 2011 Aardwolf Pty Ltd and Herdgraph Pty Ltd were ordered to be wound up in insolvency and the respondents were appointed as liquidators. The directors of Aardwolf and Herdgraph were Mr James Corbett and Mr Mark Corbett ("the Corbetts"). In the course of the windings up, the liquidators assigned to Mr Nhon Nguyen by a Trade Mark Deed of Assignment of 29 November 2013 ("the Deed") interests that Aardwolf and Herdgraph claimed in relation to various trade marks connected with the name "AARDWOLF". The Corbetts, Mr Nguyen and their associated companies then engaged in international litigation over who owned the rights to the "AARDWOLF" trade marks. The Corbetts' companies, the present applicants, were ultimately successful. The applicants then brought the present proceedings against the respondent liquidators for negligence and also for misleading and deceptive conduct under s 18 of the Australian Consumer Law ("the ACL") constituted by the liquidators' making of false representations to Mr Nguyen in the recitals to the Deed. They claimed in damages their irrecoverable costs incurred in the trade mark litigation, losses of profit and compensation for reputational damage. Due to the respondents' status as liquidators of the Court, the applicants sought leave to sue them, which the primary judge refused. The applicants then sought leave to appeal to this Court against that decision. The principal issues on appeal were: (1) Whether there were sufficient prospects of the applicants establishing a duty of care warranting a grant of leave. (2) Whether there were sufficient prospects of the applicants establishing the misleading and deceptive conduct claim to warrant a grant of leave. (3) To what extent the applicants' delay affected adversely their application for leave. The Court granted leave to appeal but dismissed the appeal: (Per Macfarlan JA, Bell P and Leeming JA agreeing): In relation to Issue 1 (duty of care): Vulnerability is one of the "salient features" of a case relevant to whether a duty of care should be imputed in novel circumstances: [55]. The applicants pleaded that their vulnerability was one of three matters which gave rise to the relevant duty of care and their case therefore assumed vulnerability was an essential element: [58]-[60]. The primary judge had no obligation to consider an alternative argument not put to her when making her discretionary decision to refuse leave that it was unnecessary to establish vulnerability: [60]. It was clearly open to her Honour to take the view that the applicants were not vulnerable, as they could have protected themselves against the liquidators' actions: [61]. There is no relevant distinction between the applicants' ability to protect themselves from the consequences of any want of due care and ability to thwart the negligent act itself: [62]-[63]. Caltex Refineries (Qld) Pty Ltd v Stavar (2009) 75 NSWLR 649; Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515; Macedonian Church v Eminence Petar (2008) 237 CLR 66, referred to. In relation to Issue 2 (misleading and deceptive conduct): It was open to the primary judge to find that it was most unlikely that Mr Nguyen had relied on the recitals to the Deed. The clear inference from the available evidence was that Mr Nguyen was, as between himself and the liquidators, the active party with greater knowledge of the circumstances: [69]. It could readily be inferred that Mr Nguyen knew the true position of the relevant trade marks despite any inaccuracy in the recitals to the Deed: [70]. ASIC v Hellicar (2012) 247 CLR 345, referred to. The primary judge erred in finding that the applicants had poor prospects of establishing that the representations in the Deed were made "in trade or commerce": [77]. Although the liquidators were performing their statutory functions, the assignment of intellectual property with a view to facilitating Mr Nguyen's interests conducting business was at least arguably a transaction or activity of an essentially trading or commercial character: [76]. The primary judge's error was not however vitiating; and her ultimate conclusion was correct: [77]. Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594; Houghton v Arms (2006) 225 CLR 553, referred to. In relation to Issue 3 (delay): The absence of evidence of specific prejudice to the liquidators was not crucial because prejudice can be presumed in the circumstances of such a lengthy delay: [80]. There is a public interest in protecting liquidators against belated actions: [81]. It was not reasonable for the applicants to refrain from incurring expenses whilst awaiting the outcome of the trade mark litigation at the cost of lulling the liquidators into a false sense of security: [82]. Brisbane South Regional Health Authority v Taylor (1996) 186 CLR 541; Mamone v Pantzer [2001] NSWSC 26, referred to. (Per Leeming JA, Bell P agreeing): Additional observations as to the issue of whether leave was required to sue the liquidators, the rationale and history of such a requirement, how it would attach to a claim under s 18 of the ACL, the precise nature of the relevant test to warrant a grant of leave and jurisdictional issues: [88]-[95]. Aston v Heron (1834) 2 My & K 390; 39 ER 993; Re Siromath (1991) 9 ACLC 1,580; Perera v Genworth Financial Mortgage Insurance Pty Ltd (2017) 94 NSWLR 83; McGowan v Chadwick [2002] EWCA Civ 1758; Karlsson v Griffith University [2020] NSWCA 176, referred to.

Judgment

1. BELL P: I agree with the reasons of Macfarlan JA and share his Honour's reservations as to the primary judge's view that the prospects of the representations in the Deed of Assignment being ultimately found to have been made in trade or commerce were poor. I too, however, would have reached the same ultimate conclusion as the primary judge in relation to the grant of leave. I also agree with the additional observations of Leeming JA.
2. MACFARLAN JA: On 8 August 2011 the Supreme Court of New South Wales, on the petition of Abaco Machines (Australasia) Pty Ltd as creditor, ordered that Herdgraph Pty Ltd and Aardwolf Pty Ltd be wound up in insolvency and that the respondents, Mr Riad Tayeh and Mr Antony de Vries, be appointed as liquidators. On 29 November 2013, in the course of the windings up, the liquidators entered into a "Trade Mark Deed of Assignment" purporting to assign to Mr Nhon Hoa Nguyen for the consideration of $5,000 interests that Herdgraph Pty Ltd and Aardwolf Pty Ltd claimed in or in relation to certain trade marks connected with the name "AARDWOLF". Mr Nguyen and two of his brothers ("the Nguyens") were associated with the petitioning creditor.
3. Litigation subsequently ensued in Australia, Canada and the United States of America between the Nguyens and their company on the one side and Aardwolf Industries LLC and Aardwolf Australia Pty Ltd (the present applicants, both incorporated in 2011) on the other. The principals of the applicants were Mr James Corbett and his son Mr Mark Corbett. Between 1995 and 2001 Mr James Corbett had been associated with the Nguyens in a business concerning industrial lifting clamps.
4. In the litigation the Nguyens relied on trade mark rights they claimed to have acquired under the Trade Mark Deed of Assignment, whilst the Corbetts relied on rights they asserted their companies had over the same trade marks. After the Corbetts' interests were ultimately successful in the litigation, their companies commenced the present proceedings against the liquidators, claiming damages for breach by the liquidators of a duty of care owed to the applicants and for misleading and deceptive conduct engaged in by the liquidators. The applicants claimed as damages their irrecoverable costs incurred in the trade mark litigation, losses of profit incurred as a result of it and compensation for damage to their reputations.

Relevant factual circumstances

1. As noted above, between 1995 and 2001 Mr James Corbett and the Nguyens conducted business together. They did so through Abaco Machines (Australasia) Pty Ltd. In July 2001 Mr James Corbett resigned as a director of that company and sold his majority shareholding to the Nguyens.
2. In 2003 Mr James Corbett, through Aardwolf Pty Ltd, commenced use of the name "AARDWOLF" as a word and logo mark in connection with an intended business concerning lifting clamps and other equipment. On 26 February 2003 Herdgraph Pty Ltd applied to register the word "AARDWOLF" as an Australian trade mark and on 3 November 2003 it was registered as trade mark number 945207. Mr Corbett claimed in the present proceedings that in 2007 Aardwolf Pty Ltd ceased trading and that in about May 2007 his company Aardwolf Industries LLC commenced use of the name "AARDWOLF" as a word and logo mark in Australia and worldwide in relation to the manufacturing and distribution of tools and equipment for use in the stone and construction industries. He also claimed that in March 2011, by means of an oral agreement, Aardwolf Industries LLC transferred ownership of the Aardwolf trade marks in Australia to Aardwolf Australia Pty Ltd and that the latter thereafter used those trade marks in Australia. This agreement was said to have been later confirmed in a "Confirmatory Trade Mark Deed of Assignment" dated 8 April 2015.
3. As noted earlier, the respondents were appointed as liquidators of Herdgraph Pty Ltd and Aardwolf Pty Ltd on 8 August 2011. The directors of the two companies were Mr James Corbett and Mr Mark Corbett.
4. By letters of 17 August 2011 the liquidators requested the Corbetts to submit Reports as to Affairs and Questionnaires. The liquidators directed that this be done within 14 days pursuant to s 475 of the Corporations Act 2001 (Cth). The only response the liquidators received was a letter of 13 August 2012 (approximately 12 months later) from Mr James Corbett stating that Aardwolf Pty Ltd and Herdgraph Pty Ltd had been "dormant for more than five years; therefore there are no books to submit". The letter also stated that Herdgraph Pty Ltd was "a company for holding patents only and did not trade" and that Aardwolf Pty Ltd "does not hold any assets". The liquidators then made further requests by letters of 10 December 2012.
5. On about 18 February 2013 the directors submitted Reports as to Affairs stating that the companies had no assets. Completed Questionnaires were returned shortly after. They were to the same effect and stated that the companies had ceased trading in 2007.

The Trade Mark Deed of Assignment of 29 November 2013

1. The Trade Mark Deed of Assignment of 29 November 2013 recited that Herdgraph Pty Ltd was the registered proprietor of trade mark number 945207 which had expired but in respect of which renewal was possible (this was in fact not possible at 29 November 2013).
2. It also recited that Herdgraph Pty Ltd was the registered proprietor of trade mark registrations 1544186 and 1544189 (the Parent Applications) (this was also inaccurate because these marks were applied for by Aardwolf Australia Pty Ltd and had not in any event yet been accepted). It further recited that Herdgraph Pty Ltd had common law rights associated with the trade marks and that Aardwolf Pty Ltd might also have such rights. It then recited that consent had purportedly been given on behalf of Herdgraph Pty Ltd to assignment of registered trademarks 1544186 and 1544189 to Aardwolf Australia Pty Ltd. This was also inaccurate because Aardwolf Australia Pty Ltd had been the original applicant for the marks (see [15] above as to the purported consent by Herdgraph Pty Ltd to registration of the Parent Applications, as opposed to assignment).
3. The recitals then asserted that the letter of consent of 27 May 2013, purported to have been given on behalf of Herdgraph Pty Ltd, was not authorised by the liquidators. A copy of the letter was attached to the Deed.
4. The Deed finally recited that the assignors (Herdgraph Pty Ltd and Aardwolf Pty Ltd) wished to assign to the assignee (Mr Nhon Hoa Nguyen) "all their rights and title in the applications, the Trade Marks and any and all common law rights that [the assignors] may have".
5. The consideration for the assignment was stated to be $5,000 and the "Trade Marks" the subject of the assignment were defined as follows: "[6.10.1.1] Trade Marks means the trade marks that appear in the Schedule 1, and all common law rights of [sic] attaching, if any, to such marks and the use and goodwill of such marks as used by Aardwolf from time to time, and all causes of action, if any, arising from any breach of Trade Mark by any person whether known to the [assignors] or not as at the date of this Deed".
6. In a clause at the end of the Deed headed "Definitions and Interpretation" a list of matters of a formal nature appeared, prefaced in cl 6.10.2 by the words "unless the context requires otherwise". At the end of that list the following was stated: "[6.10.2.10] The Parties warrant that each of the recitals is true and correct and acknowledges that the [sic] each is entering into this Deed in reliance thereon."

Events subsequent to the Deed of Assignment

1. In the period of about four years following the Deed of Assignment, the Corbett and Nguyen interests competed for registrations in Australia, Canada and the United States in relation to the word and logo "AARDWOLF". The Corbetts' interests ultimately prevailed, with the final step being a United States District Court Ruling of 13 November 2017. Details of the relevant applications and litigation are contained in the primary judgment (at [43], [49], [56]-[69]). In the meantime, Herdgraph Pty Ltd and Aardwolf Pty Ltd were deregistered on 7 September 2015 following the liquidators' request for deregistration by ASIC under s 601AB(2) of the Corporations Act 2001 (Cth).
2. The first indication to the liquidators of a possible complaint about their conduct was made by letter of 1 September 2016 to them from Actuate IP, lawyers acting on behalf of Aardwolf Australia Pty Ltd. The letter stated that Aardwolf Australia Pty Ltd was "extremely concerned about the Purported Deed" of 29 November 2013 and sought information as to what investigations and inquiries the liquidators had made before entry into it.
3. The liquidators responded by letter of 15 September 2016, stating inter alia that: 1. Early in the liquidation the liquidators received "the advice of the petitioning creditors' solicitor of suspected asset stripping namely, involving Mark Corbett setting up a new company with a similar name and trading in the same goods and services". 2. "Given the confluence and timing of events, the liquidators were investigating potential 'phoenix activity' by the former directors of Aardwolf Pty Ltd in transferring assets (including Intellectual Property) to Aardwolf Australia Pty Ltd". 3. The directors did not cooperate in identifying any assets of the companies. 4. "The value of the deed of assignment was discounted to reflect the anticipated costs the purchaser reasonably expected to incur in disputing the unlawful registration of the trade marks by Aardwolf Australia Pty Ltd". 5. "Nhon Hoa Nguyen, the purchaser, knew the trademarks were taken over by [Aardwolf] Australia Pty Ltd without legal authority and wanted to take action against Aardwolf Australia to oppose their registration".
4. Over 12 months later, on 6 December 2017, Actuate IP responded and sought clarification of a number of matters. They stated that they would be seeking their clients' instructions "on how it will next approach this issue making reference to the considerable time, cost and damage the Purported Deed has caused our client".

The Statement of Claim

1. The applicants' Statement of Claim filed on 3 July 2019 seeks damages on the basis first of breach of a duty owed by the liquidators to the applicants "to exercise reasonable care and skill in investigating, inquiring and determining ownership of the Aardwolf Trade Marks". The duty is alleged to be owed by reason of three matters, as follows: 1. That it was reasonably foreseeable to the liquidators that if they failed to exercise such reasonable care and skill, the applicants would suffer economic loss. 2. That the liquidators knew that if they failed to exercise such reasonable care the applicants would suffer economic loss. 3. That the applicants were "vulnerable in that they were unable to protect themselves from the consequences of a want of reasonable care on the part of the Liquidators, either entirely, or at least in a way which would cast such consequences on the Liquidators".
2. The Statement of Claim alleges that the liquidators breached their duty of care in a number of respects, including by failing to take "any proper or reasonable steps to determine the ownership of the Aardwolf Trade Marks" before entering into the Trade Mark Deed of Assignment. As noted earlier, the loss claimed by the applicants comprises unrecoverable costs of legal proceedings concerning the trade marks, a loss of sales and damage to reputations.
3. The other cause of action pleaded in the Statement of Claim is for loss suffered by the applicants as a result of misleading or deceptive conduct of the liquidators in contravention of s 18 of the Australian Consumer Law.
4. In support of this claim, the applicants plead that, by the Trade Mark Deed of Assignment of 29 November 2013, the liquidators made false or misleading representations to Mr Nhon Hoa Nguyen to the following effect: 1. That Herdgraph Pty Ltd was the registered proprietor of Australian trade mark 945207 and that registration was expired with renewal being possible. 2. That Herdgraph Pty Ltd was at the date of liquidation the registered proprietor of Australian trade marks 1544186 and 1544189 (the Parent Applications). 3. That Herdgraph Pty Ltd had, and Aardwolf Pty Ltd may have had, common law rights associated with the Trade Marks.
5. The applicants say that these were false because, as to (1), the registration had in fact expired with renewal not being possible; as to (2), Aardwolf Australia Pty Ltd was in fact the applicant for those trade marks in the Parent Applications which had not yet been registered and did not exist at the date of Herdgraph Pty Ltd's liquidation; and as to (3), those companies did not in fact have any such common law rights because they had abandoned the trade marks by 2007.

The judgment at first instance

1. The primary judge first referred to the necessity for a plaintiff to obtain the Court's leave to sue a court-appointed liquidator. As her Honour's discussion at [81]-[89] of the principles involved was not challenged in this Court, it is sufficient for present purposes to refer to the statement of McLelland J in Re Siromath Pty Ltd (No 1) (1991) 9 ACLC 1,580 at 1582 as follows that her Honour quoted: "It is well established that at least unless the Court's leave has been obtained, the Court 'will not allow its officer to be subject to an action in another court with reference to his conduct in the discharge of the duties of his office, whether right or wrong. The proper remedy for anyone aggrieved by his conduct is to apply to the Court in the action in which he was appointed'."

The alleged duty of care

1. Turning to consider the applicants' contention that the liquidators owed them a duty of care, her Honour noted that the applicants' claim was one for recovery of economic loss such as addressed in Perre v Apand Pty Ltd (1999) 198 CLR 180; [1999] HCA 36 and Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515; [2004] HCA 16 and that, as Debelle J said in Mills v Sheahan (2007) 99 SASR 357; [2007] SASC 365, "[t]he vulnerability of the plaintiff is an important requirement" of the success of such a claim.
2. Her Honour said that, as she understood it, the vulnerability alleged by the applicants was that "if the liquidators did not exercise due care and skill in ascertaining what the assets of Herdgraph and Aardwolf were, then the liquidators may purport to sell assets which they thought the companies were entitled to sell but in fact the companies were not so entitled".
3. For the following reasons, her Honour concluded that there was no real prospect that the applicants could establish the posited duty "as they lacked the vulnerability which they contend formed the basis of that duty": "[103] It is uncontentious that the liquidators were seeking information from the directors of Herdgraph and Aardwolf as to what the assets of those companies were. True it is that the directors had provided information, albeit sparse, from which it is said that the liquidators should have figured out that Herdgraph and Aardwolf had abandoned their intellectual property rights. But even accepting, for the moment, that the liquidators should have divined from the scant information provided that the intellectual property rights had been abandoned, the missing piece of information was that Aardwolf Industries had somehow acquired the trade mark rights and then assigned those rights to Aardwolf Australia. That information was not disclosed in any documentary or oral information provided by the directors of Herdgraph and Aardwolf to the liquidators, nor was it to be found on any register. The exclusive repository of that information was Mr Corbett Snr and Mark Corbett, with whom the liquidators were in communication. It would have been a simple matter for them to inform the defendants of this fact, for example, during one of the telephone calls from the liquidators' staff when Mr Corbett Snr was challenged as to apparent 'phoenixing' activity. Mr Corbett Snr does not suggest that he took the opportunity which these telephone calls presented to inform the liquidators that the plaintiffs, in fact, were entitled to the intellectual property rights previously held by Herdgraph and Aardwolf and the liquidators would do well not to sell assets which those companies did not own. In circumstances where Mr Corbett Snr had signed the letter of consent, which represented that Herdgraph was the owner of the Name and Logo, only Mr Corbett Snr or Mark Corbett could have 'corrected' this piece of information. [104] Thus, I do not consider that there is any real prospect that the plaintiffs will establish the posited duty as they lacked the vulnerability which they contend formed the basis of that duty. Aardwolf Industries and Aardwolf Australia were able to protect themselves from the consequences of any want of due care by the liquidators; it was entirely within the power of the directors of the plaintiffs to protect their companies by simply telling the liquidators what only they knew - that Herdgraph and Aardwolf having abandoned their rights to the Name and Logo, Aardwolf Industries had acquired common law rights through usage and had orally assigned those rights to Aardwolf Australia. The ability to ensure that the liquidators did not sell assets which did not in fact belong to Herdgraph and Aardwolf was in the hands of Mr Corbett Snr and Mark Corbett." (Emphasis in original.)

The alleged misleading and deceptive conduct

1. The primary judge concluded on two bases that the applicants' misleading and deceptive conduct claim lacked sufficient merit to warrant a grant of leave to sue the liquidators. First, her Honour considered that the prospects of the applicants establishing that the representations made by the Trade Mark Deed of Assignment were made "in trade or commerce" as required by s 18 of the Australian Consumer Law were poor. Secondly she stated that she had "serious doubts as to whether the [applicants] have any prospect of establishing reliance by Mr Nguyen" which was pleaded as an element of the cause of action relied on.
2. As to the former basis, her Honour concluded: "[121] The liquidators' actions seem to me to fall classically within a Court appointed liquidator's function of identifying assets of the company and realising those assets as best can be done in the circumstances so that a distribution can be made to creditors or contributories. There is no suggestion that the purchase price resulted in any profit being earned by the liquidators. The modest price of $5,000, coupled with Abaco Machines' agreement to subordinate its priority for its costs of the application to wind up the companies, likely had the result that the liquidation became a 'nil sum game' for the liquidators. There is nothing apparent from the evidence that would indicate that the liquidators' conduct was anything other than performing their statutory powers under Part 5.3A [of the Corporations Act 2001 (Cth)]. I consider that the prospects of establishing that the representations in the deed were made 'in trade or commerce' are poor."
3. As to the other basis, her Honour concluded: "[125] Whatever clause 6.10.2.10 of the Trademark Deed of Assignment provided, the factual context in which the deed was executed indicates that the person who [knew] what there was to be known about the intellectual property rights of Herdgraph and Aardwolf was Mr Nguyen. He was the source of the liquidators' information on the subject. It was Mr Nguyen who brought the Parent Applications to the attention of the liquidators. It was Mr Nguyen who wished to take the matter further as part of a very long running dispute with Mr Corbett Snr in respect of the intellectual property rights of the 'Abaco' and 'Aardwolf' trade marks. It is difficult to think of a person less likely to rely on the liquidators' understanding of the position set out imperfectly in the recitals to the deed."

The applicants' delay

1. Her Honour noted the liquidators' submission that the applicants' delay in making their claim against the liquidators was a basis for refusing leave to sue the liquidators and that the liquidators relied on what was said by Santow J in Mamone v Pantzer [2001] NSWSC 26; (2001) 36 ACSR 743. In that case lessors of commercial premises sought to sue the liquidator of the corporate lessee of the premises. Santow J concluded that the lessors sought "[t]o approbate the Liquidator's actions leading to the new tenancy whilesoever the rent was paid, but reprobate it after later default" (at [8]). His Honour continued at [9]: "… litigation brought in such circumstances has all the hallmarks of the spurious. That the litigation does not interfere with the particular current winding up does not detract from its capacity to do so in a broader sense. If leave were to be given following completion of the liquidation and for litigation so weakly grounded no future liquidator could have any sense of safety in carrying the onerous tasks imposed. No liquidator could feel safe that there would not be some belated action brought at the very time when the liquidator has no longer the wherewithal to be indemnified from the company's assets. It would be incongruous indeed if a plaintiff were precluded from bringing such an action during the winding up because of its capacity to interfere with that process, but were to be advantaged by holding back and suing thereafter. Nothing could be more calculated to interfere with the integrity of the liquidation process." (Emphasis in original.)
2. The primary judge then reached the following conclusions concerning delay: "[129] Having regard to the principles set out [above] at [81]-[89], I consider the follow matters are relevant to whether leave should be granted, in addition to the views I have reached on the merits of the proposed causes of action. (a) The liquidators of Herdgraph and Aardwolf were presented with significant difficulties by reason of the failure of the directors of those companies - also the directors of the plaintiffs - to comply with their statutory obligations to cooperate with the liquidators, hand over the books and records and promptly submit a RATA. (b) The directors eventually provided information which was less than fulsome and did not specifically alert the liquidators to the suggestion later made that the intellectual property rights of Herdgraph and Aardwolf had been abandoned, acquired by Aardwolf Industries and assigned to Aardwolf Australia. Mr Corbett Snr was challenged by the liquidators as to whether he was engaging in 'phoenixing' activity and did not take the opportunity to set the liquidators straight. The timing of the incorporation of Aardwolf Australia after Herdgraph and Aardwolf discontinued the Federal Court proceedings and were the subject of adverse costs orders [see below at [69(2)]] was itself an indication of possible 'phoenixing'. (c) Instead, on being informed that Herdgraph's trade mark had expired and during the six month 'grace period', another corporate entity with the same directors as Herdgraph and Aardwolf, being Aardwolf Australia, made a prompt application to become the registered owner of the Name and Logo. In support of that application, the Corbetts submitted a letter of consent to IP Australia, purportedly on behalf of Herdgraph, to the effect that Herdgraph owned the Name and Logo and consented to those trade marks being registered by Aardwolf Australia. This was in circumstances where the trade mark examiner had supplied a significant amount of information to Mark Corbett as to ways in which Aardwolf Australia could support its application to register the Name and Logo. (d) By March 2014, Mark Corbett was aware of the Trademark Deed of Assignment and addressed its contents in detail in his declaration of 24 March 2014. But Mark Corbett did not take his complaints up with the liquidators at the time. The liquidation of Herdgraph and Aardwolf continued for another 15 months, until the Delegate refused the Parent Applications on the basis that Aardwolf Australia had executed a falsehood upon the Registrar of Trade Marks by reason of the letter of consent. (e) True it is that the plaintiffs have since compiled a substantial amount of affidavit and documentary material to support a claim of abandonment, which has found acceptance in the US and with IP Australia. But no complaint was made to the liquidators until 2016 and it was another three years until these proceedings were commenced, moments before the expiry of the limitation period. [130] I am not prepared to allow a Court appointed liquidator to be subject to such an action in respect of matters which happened so long ago and in respect of which the plaintiffs have not agitated their complaints in a timely manner. Having apparently failed to cooperate with the liquidators at the time, I consider it is necessary to protect the integrity of the winding up process by refusing leave to permit Mr Corbett Snr and Mark Corbett through their corporate vehicles - the plaintiffs - to now sue the liquidators for how they did their job in the absence of such cooperation."

The applicants' case on appeal

1. The applicants challenge her Honour's discretionary decision to refuse them leave to sue the liquidators on a number of bases set out in their draft Notice of Appeal. Their broad contentions on appeal are however sufficiently identified as follows.
2. First they contend that the primary judge erred in concluding that there was no real prospect that the applicants would, if leave were granted, establish the posited duty of care "as they lacked the vulnerability which they contend formed the basis of the duty". They contend that her Honour erred in treating vulnerability as a prerequisite to the existence of the duty and that her Honour in any event erred in not finding that the applicants were relevantly vulnerable.
3. I note that her Honour was not asked to consider other reasons why, if leave were granted, the applicants might not succeed on their duty of care claim: for example, an argument that the posited duty was inconsistent with the liquidators' statutory and other duties to realise the assets of the company (compare Sullivan v Moody (2001) 207 CLR 562; [2001] HCA 59 and Hunter and New England Local Health District v McKenna (2014) 253 CLR 270; [2014] HCA 44) and an argument that breach of the duty of care could not in the circumstances of the present case be established.
4. Secondly, the applicants challenge her Honour's conclusion that the misleading and deceptive conduct claim lacked merit, challenging her Honour's conclusions both as to the trade and commerce requirement and as to reliance.
5. Thirdly, the applicants challenge her Honour's conclusion that the applicants' delay in pursuing their alleged rights adversely affected their application for leave to sue the liquidators.

Leave to appeal

1. Although I have, for the reasons set out below, concluded that the primary judge did not err in refusing to grant the applicants leave to sue the liquidators, I consider that leave to appeal should be granted because whilst her Honour's judgment is interlocutory (as at least in theory a further application could be brought) it "has the practical effect of finally determining the rights of the parties" and this is a strong factor favouring a grant of leave to appeal (see Ex parte Bucknell (1936) 56 CLR 221 at 225-6; [1936] HCA 67). It follows from what I have said that the appeal for which leave is granted should however be dismissed.

Duty of care

1. As I have indicated, the applicants challenge the primary judge's finding that they lacked vulnerability. Vulnerability is one of the "salient features" of a case identified by Allsop P in Caltex Refineries (Qld) Pty Ltd v Stavar (2009) 75 NSWLR 649; [2009] NSWCA 258 at [103] as relevant to whether a duty of care should be imputed in novel circumstances. His Honour identified as the fourth of 17 factors he listed: "the degree of vulnerability of the plaintiff to harm from the defendant's conduct, including the capacity and reasonable expectation of a plaintiff to take steps to protect itself".
2. In Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515; [2004] HCA 16 at [23] the plurality referred to vulnerability "as an important requirement in cases where a duty of care to avoid economic loss has been held to have been owed" and described the word "as a reference to the plaintiff's inability to protect itself from the consequences of a defendant's want of reasonable care, either entirely or at least in a way which would cast the consequences of loss on the defendant".
3. The applicants' first argument in this context is that the primary judge erred in not proceeding, after her Honour found that the applicants were not in a vulnerable position, to consider whether the applicants had reasonable prospects of establishing the posited duty of care notwithstanding that they had not been relevantly vulnerable.
4. This argument should be rejected as the applicants pleaded in their Statement of Claim that their vulnerability was one of the three matters which gave rise to the relevant duty of care (see [33] above). Neither there nor in their written or oral submissions to the primary judge did the applicants suggest that they had a fall-back position which her Honour needed to consider.
5. On appeal, the applicants referred to a statement in the liquidators' oral submissions below that "there has to be vulnerability" and suggested that erroneously, her Honour had implicitly accepted that submission by assuming in her judgment at [104] (see [43] above) that there could be no duty in the absence of vulnerability.
6. Her Honour was however doing no more than addressing the applicants' case as propounded. That assumed that vulnerability was an essential element of the circumstances that they said gave rise to the posited duty of care. Her Honour had no obligation to consider an alternative argument that was not put to her. It follows that the applicants are unable to rely upon it as a basis for challenging her Honour's discretionary decision to refuse leave to sue the liquidators. As the plurality stated in Macedonian Church v Eminence Petar (2008) 237 CLR 66; [2008] HCA 42 at [120]: "when a court is invited to make a discretionary decision, to which many factors may be relevant, it is incumbent on parties who contend on appeal that attention was not given to particular matters to demonstrate that the primary judge's attention was drawn to those matters, at least unless they are fundamental and obvious." See also Australian Health & Nutrition Association Ltd v Hive Marketing Group Pty Ltd (2019) 99 NSWLR 419; [2019] NSWCA 61 at [5], [73].

The misleading and deceptive conduct claim

1. As noted earlier, the applicants have two points of attack on the primary judge's conclusions concerning this claim. As her Honour referred to the question of reliance as the "more pressing issue" (as compared to that in relation to trade and commerce), I shall deal with that issue first.

Reliance

1. As noted above, the Statement of Claim alleges that "[i]n reliance on the Representations [in the recitals to the Deed], Nhon [Hoa] Nguyen entered into the Purported Deed". On appeal, the applicants contend that there was no evidence to support the primary judge's finding that Mr Nguyen was most unlikely to have relied on the recitals to the Deed.
2. They stress first that there was no evidence called from Mr Nguyen to support this proposition. That is not however, as the applicants appear to assert, decisive of the issue, or even virtually so. As the plurality in ASIC v Hellicar (2012) 247 CLR 345; [2012] HCA 17 stated at [165]: "Disputed questions of fact must be decided by a court according to the evidence that the parties adduce, not according to some speculation about what other evidence might possibly have been led."
3. In the absence, as in this case, of the basis for a Jones v Dunkel ((1959) 101 CLR 298; [1959] HCA 8) submission, her Honour needed to determine, as she did, on the basis of the evidence before her whether the inference of reliance for which the applicants contended was likely to be able to be drawn. No adverse inference could be drawn against the liquidators from the absence of Mr Nguyen from the witness box.
4. Next, the applicants rely on the acknowledgement in cl 6.10.2.10 of the Trade Mark Deed of Assignment of the parties' reliance on the correctness of the recitals. This provision is not in my view however of any particular present significance. The point at which it is located in the Deed and its language suggest that it is a "boilerplate" provision not specifically adapted to the particular circumstances dealt with by the Deed. In litigation between the liquidators and Mr Nguyen it could well be of importance because it would be likely to estop the parties taking a contrary position to what is stated in the Deed's recitals. No such estoppel operates between the liquidators and the applicants, who are not parties to the Deed. As a result, I do not think that the clause bears significantly on the question at issue here of whether Mr Nguyen was likely in fact to have relied upon the recitals, because, as her Honour held, the evidence all pointed in the opposite direction.
5. The inference from that evidence is that Mr Nguyen was, as between himself and the liquidators, the active party, with greater knowledge of the circumstances. I refer in particular to the following: 1. Historically, My Nguyen had been in business with Mr James Corbett (see [7] above) but they appear to have fallen out by 2001. 2. Mr Nguyen's company was involved in litigation against Aardwolf Pty Ltd and Herdgraph Pty Ltd before their windings up commenced, and obtained an order for costs against them. 3. In the absence of payment of the costs, Mr Nguyen's company petitioned for their winding up. 4. On 27 August 2013 Mr Nguyen gave notice, through his company, to the Registrar of Trade Marks of an intention to oppose Aardwolf Australia Pty Ltd's trade mark applications. The statement in support revealed that some months before the Trade Mark Deed of Assignment was entered into Mr Nguyen was aware of the Australian mark 945207 (in the name of Herdgraph Pty Ltd) and of the mark's similarity to those for which Aardwolf Australia Pty Ltd applied. The statement asserted that first user of the trade mark "AARDWOLF" in Australia was by Herdgraph Pty Ltd and/or Aardwolf Pty Ltd, rather than by the Corbetts' companies.

Trade and commerce

1. In Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594; [1990] HCA 17, the plurality, in referring to the now-repealed s 52 of the Trade Practices Act 1974 (Cth), said at 604: "What the section is concerned with is the conduct of a corporation towards persons, be they consumers or not, with whom it (or those whose interests it represents or is seeking to promote) has or may have dealings in the course of those activities or transactions which, of their nature, bear a trading or commercial character."
2. In Houghton v Arms (2006) 225 CLR 553; [2006] HCA 59 at [34] the plurality accepted that: "…statements made by a person not himself or herself engaged in trade or commerce may answer the statutory expression if, for example, they are designed to encourage others to invest, or to continue investments, in a particular trading entity".
3. As the primary judge indicated, in the present case the liquidators were not carrying on a business or otherwise. Instead, they were performing their function of identifying assets of the company and realising them as best they could by the exercise of their statutory powers. Despite this, I do not however with respect consider that the applicants' prospects of establishing that the representations made in the Deed were made "in trade or commerce" were poor.
4. In the present case, what was in question, that is, the assignment of intellectual property with a view to facilitating Mr Nguyen's interests conducting business by using or transferring that property, was a transaction or activity of an essentially trading or commercial character. It is to be contrasted with the intra-corporate activity addressed in Concrete Constructions.
5. The source of the liquidators' power to assign and the reasons why they did it do not in my view detract from this essential character of the transaction. As Houghton v Arms indicates, it does not matter for this purpose that one of the participants in the activity or transaction is not himself or herself engaged in trade or commerce.
6. Accordingly, I consider that the primary judge erred in concluding that the applicants' prospects of establishing that the representations were made in trade or commerce were poor. It is not clear whether her Honour would nevertheless have refused leave to sue the liquidators absent this conclusion. Her reference to the issue of reliance as being "[t]he more pressing issue" (at Judgment [122]) concerning the misleading and deceptive conduct claim suggests that she would. In any event, even if her Honour's refusal to grant leave were regarded as vitiated by this erroneous conclusion, I would, on re-exercise of the discretion, reach the same ultimate conclusion as her Honour, namely, that leave for the applicants to sue the liquidators should be refused.

The applicants' delay

1. On appeal, the applicants do not contend that any delay on their part was not a relevant factor to be taken into account in deciding whether as a matter of discretion leave to sue the liquidators should be granted. They do however say that there were a number of matters that should have led her Honour to disregard, or at least discount, delay as a relevant factor.
2. First, they submit that there was no evidence of specific prejudice to the liquidators by reason of the delay in making demand on them and commencing proceedings.
3. This is not however a crucial factor because prejudice to the liquidators can be presumed from the absence of notice to them until 6 December 2017, long after the windings up had terminated on 7 September 2015. To require the liquidators, without prior notice, over four years after the Trade Mark Deed of Assignment was executed (or in reality more like 7 or 8 years after, when the final hearing might be expected to occur) to recall the events of what were undoubtedly two small liquidations and to find and marshal any documents still existing which pertain to it could be presumed to cause the liquidators prejudice (see generally Brisbane South Regional Health Authority v Taylor (1996) 186 CLR 541 at 556; [1996] HCA 25 per McHugh J).
4. Moreover, as Santow J pointed out in Mamone v Pantzer (see [47] above), there is a public interest in protecting liquidators against belated actions. As his Honour stated, "[n]othing could be more calculated to interfere with the integrity of the liquidation process". Tamberlin J made observations to similar effect in Sydlow Pty Ltd (In Liq) v TG Kotselas Pty Ltd (1996) 65 FCR 234 at 241; [1996] FCA 233. The applicants submit that the primary judge failed to give adequate reasons for finding that it was necessary to refuse leave to sue the liquidators "to protect the integrity of the winding up process". That submission should however be rejected as what her Honour had in mind is clearly indicated by these authorities, to both of which she referred.
5. Secondly, the applicants submit that because their damages accumulated over time (through the incurring of litigation expenses and loss of profit) it was reasonable for them to defer taking action against the liquidators until a final resolution of the trade mark litigation was achieved in late 2017. As the liquidators submit, this did not however excuse the absence of notice for so many years to the liquidators of the possibility of an action against them. Because, as the applicants asserted, their damages accrued over time, there was ample loss incurred years earlier to form the basis for giving notice to the liquidators. The reality is that the applicants were probably waiting before incurring expense in considering their rights against the liquidators to see whether they had ultimate success in the worldwide litigation (which was finally clear at the end of 2017). It was not however reasonable for them to refrain from incurring such expenses at the cost of lulling the liquidators into a presumed false sense of security over a period of years.

ORDERS

1. For the reasons above, I propose the following orders: 1. Leave to appeal granted. 2. The applicants are directed to file a Notice of Appeal conforming with the draft supplied to the Court within 14 days of today's date. 3. Dismiss the appeal with costs.
2. LEEMING JA: I agree with Macfarlan JA that while there should be a grant of leave, the appeal should be dismissed. I agree with his Honour's reasons. I add the following by way of supplementation.
3. At all relevant times the parties appear to have proceeded on the basis that leave was required in accordance with the principle formulated (by reference to authority) and applied by the primary judge. That common ground left unargued certain aspects of that principle, which are best mentioned lest they be overlooked in later cases.
4. First, what is the underlying rationale for the requirement of leave? The weight of authority appears to favour the explanation given in the elaborate judgment of Brougham LC in Aston v Heron (1834) 2 My & K 390 at 396; 39 ER 993 at 995, concerning a court-appointed receiver who was sued in trespass in a common law court, leading to a common injunction restraining the action. The Lord Chancellor refused to discharge the injunction, on this basis: "The acts of the receiver, in the administration of the estate, are the acts of the Court; and the Court may, therefore, if it pleases, prevent any other jurisdiction from questioning those acts, because, strictly speaking, that would be to question the Court's administrative proceedings. Nevertheless, the Court is fully authorised, on a case being made, to leave the acts of its receiver to be questioned elsewhere, for the purpose of trying a right in those for whom it holds possession, just as it is fully authorised to leave a complaint of irregular or oppressive execution of its orders to be adjudicated elsewhere, if that, upon the facts disclosed, should appear to be the preferable course."
5. This was regarded as settled by Neville J in In re Maidstone Palace of Varieties Ltd [1909] 2 Ch 283 at 286, by Tamberlin J in Sydlow Pty Ltd (In Liquidation) v T G Kotselas Pty Ltd (1996) 65 FCR 234 at 240, by McLelland J in Re Siromath (1991) 9 ACLC 1,580, and most recently by Brereton J in In the matter of Worldwide Speciality Property Services Ltd (in liq) [2017] NSWSC 1851; 35 ACLC 17-063 at [21]-[23].

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 20 November 2020