Architecture HQ Pty Ltd v Propertylinc Pty Ltd

REASONS FOR JUDGMENT 1 Architecture HQ Pty Ltd (the applicant) is a company providing architectural services. The applicant claims to be the owner of copyright in architectural drawings for a shopping centre that were produced between August of 2009 and July of 2010 and supplied under contract to the first respondent Propertylinc Pty Ltd (Propertylinc). The applicant claims that for producing its designs it invoiced Propertylinc in the sum of $830,944. The applicant further claims that that sum has remained unpaid for several years. 2 On the material before me, it appears that the licence to use the applicant's designs conferred upon Propertylinc and persons or entities associated with it was revoked on or about 25 November 2010. The material before me also demonstrates that the applicant's designs were used by Propertylinc in or about June 2010 to obtain a permit from the Darebin Council to build a shopping centre at 850 Plenty Road, Reservoir in the State of Victoria (the land). It is also deposed in an affidavit relied upon by the applicant and made by its director, Antony Michael Parks, that the then owner of the land, a company called Condec Pty Ltd (with which Propertylinc had an association), later sold the land relying upon the applicant's designs. 3 That sale is said to have occurred some time before 15 January 2013. The purchaser was the third respondent, Summerhill Shopping Centre Pty Ltd (Summerhill). On 18 November 2013, Summerhill became the registered proprietor of the land. Mr Parks deposed that prior to that time, Summerhill made an application to amend the permit obtained by Propertylinc to build the shopping centre. 4 The applicant alleges that its designs were used by Summerhill's architects (the second respondent (Toscano Architects)) in the drafting of the architectural drawings which were submitted with the application to amend the permit. It is alleged that those architectural drawings were based upon, or essentially based upon, the applicant's designs. It is further deposed that Summerhill obtained an amended permit and built the shopping centre based on the drawings which accompanied the permit application. 5 It is deposed that on 2 June 2015, Summerhill contracted to sell the land to BAEV-LaSalle Summerhill Pty Ltd. The settlement of that sale is scheduled for this afternoon and, as I understand it, may well be taking place as I deliver this judgment. 6 In the context of the facts as I have outlined them, the applicant has filed an originating application in which it claims: (1) an order that Propertylinc pay $830,944.95 to the applicant; (2) alternatively, an order that Propertylinc pay damages to the applicant in that sum; (3) an order pursuant to s 115(2) of the Copyright Act 1968 (Cth) (Copyright Act) that Toscano Architects and Summerhill pay damages to the applicant in a sum to be assessed; (4) in the alternative, an account of profits as against Toscano Architects and Summerhill, pursuant to s 115(2) of the Copyright Act. 7 Urgent interlocutory relief is sought. That is the subject of this application. 8 The interlocutory relief sought is an order pursuant to rr 7.32 and 7.35 of the Federal Court Rules 2011 (Cth) preventing Summerhill from disposing of, dealing with or diminishing the value of its assets in the jurisdiction in the sum of $830,944 or such other sum as the Court may order. What, in essence, the applicant seeks is a freezing order which would prevent Summerhill from dealing with or diminishing the sum of its assets below the sum allegedly owed by Propertylinc to the applicant for the applicant's designs. 9 In support of its application, as I have said, the applicant relies upon the affidavit of Antony Parks. Each of the respondents appeared. Given the shortness of service, I gave Mr Toscano, a director of Toscano Architects, leave to appear on behalf of Toscano Architects. The respondents did not seek to rely upon any material themselves and it was only Summerhill that made substantive submissions in opposition to the order sought against it alone. 10 It became clear in the applicant's submissions that the applicant relied on r 7.35 of the Federal Court Rules. That rule relevantly applies if an applicant has a good arguable case on an accrued or prospective cause of action that is justiciable in the Court. Rule 7.35(4) provides as follows: (4) The Court may make a freezing order or an ancillary order or both against a judgment debtor or prospective judgment debtor if the Court is satisfied, having regard to all the circumstances, that there is a danger that a judgment or prospective judgment will be wholly or partly unsatisfied because any of the following might occur: (a) the judgment debtor, prospective judgment debtor or another person absconds; (b) the assets of the judgment debtor, prospective judgment debtor or another person are: (i) removed from Australia or from a place inside or outside Australia; or (ii) disposed of, dealt with or diminished in value. 11 For the applicant to succeed, I need to be satisfied that: (1) the applicant has a good, arguable case against Summerhill on an accrued or prospective cause of action; and (2) there is a danger that any judgment that may be obtained against Summerhill will be wholly or partially unsatisfied because the assets of Summerhill will be disposed of, dealt with, or diminished in value. 12 As Kenny J observed at [13] in Deputy Commissioner of Taxation v Hua Wang Bank Berhad (2010) 273 ALR 194, there is also an overarching question of whether it is in the interests of justice that a freezing order be issued. 13 The material before me as to whether or not the applicant has a good arguable case is not particularly strong, although that might be a reflection of the apparent rush to court in which the applicant has been involved. In the absence of countervailing evidence, especially as to the opinion given by Mr Parks (the reception of which was not objected to), that the architectural designs relied upon for the application to amend the permit are substantially similar to the applicant's designs, I am prepared to find that the applicant has a good arguable case for an order for damages under s 115(2) of the Copyright Act. 14 That case is based upon the following propositions which I am prepared to accept on the material before me as being arguable. The first is that the applicant is the copyright owner of its designs. The second is that Toscano Architects reproduced the applicant's designs, or a substantial part of them, in breach of s 36(1) of the Copyright Act. The third is that Summerhill authorised that conduct. Although Summerhill raised a defence of acquiescence, I am not satisfied on the material before me that such a defence will necessarily be made out. On the material, I am satisfied that a good arguable case has been established. 15 The real question on this application is whether or not there is a danger that any judgment that the applicant may obtain, will be unsatisfied because Summerhill's assets will be dissipated. In essence, the applicant contended that as of today Summerhill will have converted the land into a liquid asset. The applicant says that I should infer that Summerhill will distribute the net proceeds of sale to its shareholders and, therefore, that Summerhill's only asset will be dissipated. The applicant contended that I should infer that Summerhill is merely a special purpose corporate vehicle for developing the shopping centre. Now that its purpose has been achieved, its assets will be distributed to its shareholder or shareholders and will, therefore, become unavailable to meet any judgment obtained in this proceeding by the applicant. There was some evidence before me suggestive of the fact that the land is the only land in Victoria owned by Summerhill. I am prepared to proceed on that basis. 16 Summerhill contended that there is no evidence capable of supporting the inferences that the Court is being asked to draw. It contends that the Court should not speculate but should only act upon evidence. 17 To consider these competing contentions, it is necessary to turn to the relevant authorities and examine the degree of proof that is required in an application such as this. It is, I think, appropriate to commence with a consideration of those authorities that have made it clear that a high degree of caution is required on the part of a court invited to make a freezing order. Such an order is a drastic remedy, which should not be granted lightly: Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 at [50] and [51] (Gaudron, McHugh, Gummow and Callinan JJ). Their Honours emphasised at [51] what had been said by the NSW Court of Appeal in Frigo v Culhaci [1998] NSWCA 88, namely that the function of a freezing order is not to provide a plaintiff with security in advance for a judgment that he hopes to obtain and that he fears might not be satisfied, nor is it to improve the position of the plaintiff in the event of the defendant's insolvency. The Court of Appeal in Frigo emphasised that many authorities attest to the care with which courts are required to scrutinise applications for a freezing order. At [53] of Cardile, Gaudron, McHugh, Gummow and Callinan JJ also referred to the discretionary considerations that may be relevant, including whether an applicant has proceeded diligently and expeditiously. 18 The degree of proof required in an application such as this was considered by the NSW Court of Appeal in Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319. In particular, Meagher JA at 326-327 stated that an applicant for a freezing order needed to do more than prove a "more than usual likelihood" of dissipation. Instead: …the plaintiff is required to prove, on a balance of probabilities, that there is a real risk of the dissipation of assets. (emphasis added) 19 That approach has been followed by a number of authorities, including Commissioner of Taxation v Growth Investment Fund SA [2014] FCA 780. At [15] Gilmour J said: There must, however, be facts from which the Court can infer a real risk or danger that the respondent will dispose of or otherwise deal with its assets in a way that the applicant will not be able to satisfy any judgment obtained against the respondent. (emphasis added) (citations omitted) His Honour relied on a number of authorities in support of that proposition, including Patterson. 20 Further assistance on the question of the degree of proof required is provided in the judgment of Edmonds J in Curtis v NID Pty Limited [2010] FCA 1072 at [10], where his Honour said: What is settled, however, is that solid evidence of a danger of dissipation or disposal of assets be produced. The relevant test was enunciated by Brereton J in Finn v Carelli [2007] NSWSC 261 at [4], where his Honour referred to the NSW Court of Appeal's decision in Frigo v Culhaci [1998] NSWCA 88: It is not necessary for an applicant to show that the respondent has a positive intention of evading a judgment, and it is sufficient to show that the course on which the respondent proposes to embark is, objectively speaking, calculated to have that effect. But as the Court of Appeal made clear in Frigo v Culhaci, an applicant must establish, by evidence and not mere assertion, that there is a real danger that by reason of the respondent absconding or otherwise dealing with assets, the applicant will not be able to have its judgment satisfied. While acknowledging that there has been much debate as to the precise degree to which that has to be shown, the Court emphasised that mere assertion that the defendant was likely to put assets beyond the plaintiff's reach was inadequate, for which the Court cited Ninemia Maritime Corp v Trave GmbH and Co Kg (The Niedersachsen) [1984] 1 All ER 298 as well as Patterson v BTR Engineering. (emphasis added) 21 Is there a real risk that Summerhill will dissipate its assets in the manner which the applicant contends that I should infer it will? On the evidence that is before me, there is not. The only evidence supporting the asserted potential for dissipation is that a very substantial asset held by Summerhill (which I was told from the bar table has a value of over $80 million) will today be converted into a liquid asset. Whilst an assertion has been made that Summerhill is merely a vehicle for developing the land and that it will now disappear having served its purpose, there is no evidence before me about Summerhill, its record, its prior dealings or the overall nature of its business. 22 The applicant contended that I should make the orders sought if its contention was established as a possibility. It is clear from the authorities to which I have referred that I am unable to act on the basis of a mere possibility. What is required is that the evidence demonstrates a real risk. There is no solid evidence before me from which I could draw the inference that the applicant invites the Court to draw. On the material before the Court I am not satisfied that there is a real risk that Summerhill will dissipate its assets in a way that the applicant will not be able to satisfy any judgment it may obtain against Summerhill. 23 There are discretionary considerations which I could also take into account, but it is not necessary that I do so. I record, however, that the evidence before me shows that the sale of the land by Summerhill occurred on 2 June 2015. That evidence was given by Mr Parks without any explanation as to why the applicant only moved to protect its position as of late last week. I would infer that this is not a case in which the applicant has had to come to Court without a proper opportunity to gather material upon which it could have relied. I am also not satisfied that the interests of justice favour the granting of the orders sought. 24 An oral application was made in the course of the applicant's submissions that, in the alternative to making a freezing order today, the Court ought make an order ancillary to a prospective freezing order (pursuant to r 7.33(1)) that Summerhill provide information as to its assets. I decline to make such an order. I do so because even if it be assumed (as essentially I have) that the only asset held by Summerhill is the land or the proceeds of the sale of the land, that of itself would not be a sufficient basis for the Court to make a freezing order for the reasons I have given. The order sought would not assist the applicant in demonstrating a proper basis for the grant of a freezing order. Of course, the applicant's capacity to make a further application for a freezing order, should the applicant wish to do so on the basis of new material, is not foreclosed. 25 Costs are sought by Propertylinc and also by Summerhill. There is no reason why costs should not follow the event. 26 The application should be dismissed with costs orders in favour of Propertylinc and Summerhill. I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Bromberg.