Australian Mud Company Pty Ltd v Globaltech Corporation Pty Ltd

Federal Court of Australia|2023-05-26|Before: Ms P, Besanko J

An order be made against the respondents in terms of paragraph 1 of the Amended Interlocutory application subject to the following: (a) Paragraph (5) of Schedule A be amended to delete the following: "proceeding NSD 1040/2019, proceeding NSD 986/2022 and proceeding NSD 1266/2021, being related proceedings" (b) Paragraph (7) of Schedule A be deleted.
Upon the undertaking given by Votraint No 1609 Pty Limited and referred to in the reasons of the Court, paragraph 2 of the Amended Interlocutory application be dismissed. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Introduction 1 This is an application by the applicants for freezing orders against the respondents to a proceeding and a third party. The applicants in the proceeding are Australian Mud Company Pty Ltd and Reflex Instruments Asia Pacific Pty Ltd (together AMC) and they brought a claim for relief in relation to the infringement of a patent being Australian Patent No 2010200162 (the Patent). The respondents to the proceeding are Globaltech Corporation Pty Ltd and Globaltech Pty Ltd (together Globaltech). The third party is a company called Votraint No 1609 Pty Limited (Votraint). 2 AMC's claim proceeded to hearing on the issue of liability and the applicants were successful. This resulted in the V5 Judgment and V5 Liability Orders. Globaltech appealed to the Full Court of this Court and their appeal was dismissed. Globaltech applied to the High Court of Australia for special leave to appeal, but that application was refused. 3 The matter has been set down for a hearing as to quantum in mid-June 2023. 4 AMC's application is supported by an affidavit of a solicitor within the firm that represents AMC. That is an affidavit of Mr Christopher Williams sworn on 28 March 2023. The managing director of Globaltech has sworn an affidavit in response. That is the affidavit of Mr Khaled Hejleh sworn on 3 April 2023. 5 Freezing orders may be made under Division 7.4 of the Federal Court Rules 2011 (Cth). As r 7.36 makes clear, the Rules do not diminish the inherent, implied or statutory jurisdiction of the Court to make a freezing order or ancillary order. The statutory jurisdiction of the Court to make a freezing order or an ancillary order is contained in s 23 of the Federal Court of Australia Act 1976 (Cth). The Rules provide that the purpose of a freezing order is to prevent the frustration or inhibition of the Court's process by seeking to meet a danger that a judgment or prospective judgment of the Court will be wholly or partly unsatisfied. An order may be made restraining a respondent from removing any assets located in or outside Australia, or from disposing of, dealing with, or diminishing the value of, those assets. The Court also has the power to make an ancillary order and one such ancillary order is an order designed to elicit information relating to assets relevant to the freezing order. 6 The Court may make a freezing order against third parties. The key rule in this respect is r 7.35. It is not necessary to refer to subrules (1), (2) and (3) in any detail. The applicants have a judgment on liability and what remains is a determination of damages and an account of profits. The applicants have elected for damages in respect of Orifinder Tools supplied by Globaltech that have been used in Australia. They have elected for an account of profits in respect of Orifinder Tools supplied by Globaltech that have been exported from Australia. Insofar as there may be Orifinder Tools which do not fit into either category, AMC has elected for damages in respect of those tools. 7 AMC and Globaltech have each engaged an expert. Those experts have conferred and prepared a joint experts' report. They have agreed upon certain calculations. As is often the case, those calculations depend upon the proof of assumptions and the issue of what assumptions can be proved is the subject of the hearing in mid-June 2023. The experts have agreed that, on the assumptions specified, the figure for damages is $4,971,688 reflecting the second applicant's lost profits, assuming it would have rented out the same number of ACT tools as Boart Longyear Australia (BLYA) for the period 23 January 2019 to 30 April 2019, including interest at Court rates to 30 June 2023 and the figures for the account of profits range from $2,253,222 to $2,585,733. 8 In the circumstances, AMC has established the relevant matters in subrules (1), (2) and (3) of r 7.35. 9 The Court may make a freezing order against the respondents if it 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 the following might occur, relevantly, the assets of the respondents are removed from Australia or from a place inside or outside Australia or disposed of, dealt with, or diminished in value. 10 The Court may make a freezing order against a third party if it is satisfied, having regard to all the circumstances, that: (a) there is a danger that a judgment or prospective judgment will be wholly or partly unsatisfied because: (i) the third party holds or is using, or has exercised or is exercising, a power of disposition over assets (including claims and expectancies) of the judgment debtor or prospective judgment debtor; or (ii) the third party is in possession of, or in a position of control or influence concerning, assets (including claims and expectancies) of the judgment debtor or prospective judgment debtor; or (b) a process in the Court is or may ultimately be available to the applicant as a result of a judgment or prospective judgment, under which process the third party may be obliged to disgorge assets or contribute toward satisfying the judgment or prospective judgment. (See Cardile v LED Builders Pty Ltd [1999] HCA 18; (1999) 198 CLR 380 (Cardile) at [57].)

The long-running disputes between the parties and involving others 11 I will make reference to some aspects of the history of the disputes between the parties, but not to the level of detail set out in the affidavit evidence of AMC's solicitor. It is unnecessary to do so. 12 There is a long history of disputes between the applicants and the respondents. In addition to these proceedings, there are and have been the following proceedings: (1) On 19 February 2015, AMC's related entities commenced proceedings in this Court in respect of infringement of Australian Patent 2008229644 (the 644 Patent) against Globaltech. This is referred to as the V4 Proceeding (NSD 142 of 2015). The V4 Proceeding was settled confidentially between the parties and, on 19 October 2015, injunctions were made by consent and without admissions as to liability by Bennett J restraining the respondents from infringing the 644 Patent. (2) On 24 October 2019, Globaltech Corporation commenced proceedings in this Court against the second applicant in respect of infringement of Australian Patent 20121297564 (the 564 Patent). The second applicant filed a notice of cross-claim in the proceeding seeking a declaration that certain claims of the 564 Patent are and have at all times been invalid and an order revoking those claims of the patent. On 12 July 2022, Jagot J issued judgment in favour of Globaltech Corporation in the proceeding finding the claims in suit valid. The second applicant admitted infringement (Globaltech Corporation Pty Ltd v Reflex Instruments Asia Pacific Pty Ltd [2022] FCA 797). On 26 July 2022, the Court issued orders in the 564 Patent proceeding, including among other things, restraining the second applicant from infringing the 564 Patent and ordering that the second applicant pay the first respondent's costs of and incidental to its claim in the proceedings in respect of liability for infringement on a party and party basis. On 17 March 2023, a registrar of this Court determined Globaltech Corporation's lump sum application in accordance with the orders of the Court and issued an order that the second applicant pay Globaltech Corporation the sum of $835,705 by 14 April 2023. On 19 October 2022, the second applicant brought an appeal from the judgment and on 9 November 2022, Globaltech Corporation filed a notice of contention in the appeal. The appeal has been heard and the Full Court has reserved judgment. (3) On 27 November 2019, the first applicant commenced a proceeding in respect of infringement of the Patent by Globaltech, BLYA and Boart Longyear Limited (BLY Limited) (together BLY). This is known as the V6 Proceeding (NSD 1040 of 2019). On 10 February 2020, BLYA filed a notice of cross-claim in the V6 Proceeding seeking a declaration that each of the claims in the Patent is and at all material times has been invalid and an order that the Patent be revoked. On 6 October 2022, a judge of this Court delivered a judgment in favour of AMC in the V6 Proceeding finding that the claims in suit are valid and had been infringed by Globaltech and BLY (Australian Mud Company Pty Ltd v Globaltech Corporation Pty Ltd (No 3) [2022] FCA 1189). On 28 October 2022, the Court made orders in the V6 Proceeding, including among things, restraining Globaltech and BLY from infringing the patent and certifying that pursuant to s 19 of the Patents Act 1990 (Cth), the validity of each claim of the patent was questioned in the proceeding. On 3 November 2022, Globaltech and BLY brought an appeal from the orders in respect of infringement, validity, joint tortfeasorship and authorisation and additional damages. The appeal is listed for hearing on 22-23 May 2023. (4) On 3 December 2021, the first applicant commenced a proceeding in respect of infringement of the Patent by BLY (BLY V5 Proceeding). 13 Mr Williams has expressed the opinion that AMC's costs in respect of the quantum phase of this proceeding already is likely to exceed $1 million on a party and party basis. Based on his experience, he estimates that AMC's costs for a five day quantum inquiry listed in mid-June 2023 will exceed $350,000 on a party and party basis.

The assets of Globaltech 14 The sum sought to be frozen is comprised of a calculation as to AMC's damages and loss of profits and an assessment of costs less an amount of costs that the second applicant is required to pay Globaltech Corporation. 15 AMC's expert has reviewed Globaltech's financial records. He is of the opinion that but for the capitalisation of research and development expenses in its financial statements, Globaltech would have recorded losses in each year since the commencement of this proceeding on 4 July 2016 for the period that financial statements have been disclosed, that is, up until September 2019. The expert has informed Mr Williams that Globaltech's financial statements record negative net tangible assets such that it would not even be able to pay an amount of $3.85 million. 16 Neither Globaltech Corporation Pty Ltd nor Globaltech Pty Ltd owns any real property in Australia. Globaltech Corporation owns a portfolio of 22 trademarks and 26 patents in Australia. Globaltech Pty Ltd does not own any intellectual property assets and neither party owns any registered designs. Globaltech Corporation has 18 granted patents in a number of key mining markets internationally, including the United States, Canada, Eurasia and Chile. 17 Mr Williams has conducted searches of the Personal Property and Securities Register (PPSR) in respect of Globaltech. Votraint has registered security interests against one trade mark and 70 patents owned by Globaltech Corporation that commenced in September 2016. These proceedings were commenced in July 2016. Under s 55(3) of the Personal Property Securities Act 2009 (Cth), perfected security interests in collateral have priority over unperfected security interests in the same collateral. 18 Boart Longyear Group Ltd and some of its subsidiary companies, including Votraint, are parties to a deed of cross-guarantee, but Globaltech Corporation, another wholly-owned subsidiary, is not included in that arrangement. 19 Votraint acquired approximately 32% of the shares in Globaltech Corporation on 9 February 2015. On 17 September 2018, BLY announced its majority stake in Globaltech Corporation through Votraint (51%). 20 BLYA and Votraint have the same registered office in South Australia and the same directors. The ultimate holding company of Votraint is Boart Longyear Group Ltd which holds 207,797,660 shares. In the annual report of Boart Longyear Group Ltd, Votraint is described as being a drilling services business rather than a holding company. Internet searches by Mr Williams regarding Votraint have located no evidence that Votraint owns any valuable assets or that it operates as anything other than a holding company. Votraint has no real property in Australia. Nor does it own any trade marks, designs or patents in Australia or overseas. There are security interests over the assets of Votraint. 21 Mr Williams opines that, as a result of BLY wholly owning Votraint, if Votraint was to exercise its right of security against Globaltech Corporation's assets in the event of default, this right would defeat AMC's right to payment of any judgment debt of Globaltech Corporation in these proceedings and Globaltech Corporation's assets would ultimately become the property of Boart Longyear.

The matters giving rise to this application 22 The V6 Judgment was delivered on 6 October 2022. Following the judgment, Veracio Ltd (Veracio) acquired 47,046,913 shares in Globaltech Corporation from Votraint. Veracio is shown in the annual report of Boart Longyear Group Ltd as a wholly-owned subsidiary of that company and as a holding company incorporated in the United States of America. The acquisition means that Veracio is now the majority shareholder in Globaltech Corporation, having acquired 58.32% of the issued shares and Votraint is no longer a shareholder of Globaltech. I will refer to this as the transfer of ownership in Globaltech. 23 On 21 February 2023, Boart Longyear issued the following announcement: Veracio, a wholly owned Boart Longyear subsidiary, offers mining clients a range of solutions that improve, automate, and digitally transform their orebody sciences. Championing a modern approach through a diverse product portfolio by fusing science and technology together with digital accessibility. Veracio leverages AI and advanced analytics to accelerate real-time decision making and significantly lower the cost of mineral exploration. 24 Veracio advertises mineral exploration technologies which, in a number of respects, are the same as the technologies advertised by Globaltech. I refer to the TruShot and TruSub products. I will refer to this as Veracio's field of business. 25 Mr Williams addresses his concern that Globaltech and BLY have previously demonstrated what he characterises as a deliberate and flagrant disregard of Court orders. He referred to the findings of the judge in the V6 Judgment in support of a conclusion that additional damages were warranted as follows: (1) Globaltech and BLY's conduct in releasing the V6 Tool in the face of the general injunction in the V5 Liability Orders; (2) failure to proffer details of the workings of the V6 Tool prior to the preliminary discovery application; (3) failure to seek a declaration of non-infringement or to provide an example tool to AMC for inspection prior to launching the V6 Tool; (4) continued sale of the V5 Tools after the injunctive relief came into effect on 24 January 2019; and (5) the taking of a calculated risk in circumstances where BLY was "acutely aware of the effect of the [V5 Liability Orders], including the penal notice". 26 Mr Williams also claims that the BLY entities have refused to recognise the Court's orders unless they have been named as parties. Furthermore, Mr Williams asserts that BLY has demonstrated a pattern of seeking to rely on its complex corporate structure in denying control over and liability for conduct within its corporate group. He refers to observations made by the judge to this effect in the V6 Judgment about Globaltech relying on corporate structure (at [222], [309] and [321]). 27 I will refer to these matters collectively as reliance on the corporate structure. 28 Mr Williams expresses his concern as follows: AMC considers that as Votraint has registered security interests against Globaltech Corporation's assets, in the unique circumstances of this case, a freezing order against Votraint is required to ameliorate the significant danger that the Prospective Judgment Debt will be either wholly or partially unsatisfied by Globaltech dissipating its assets to frustrate or abuse the process of the Court. This is because even if a freezing order against Globaltech was in place, Votraint's right to security over Globaltech's assets would prevail over AMC's rights to enforce the Prospective Judgment. I am concerned by the risk that Votraint will ultimately obtain title to and then move Globaltech's assets off-shore, and that AMC will be unable to recover the Prospective Judgment Debt from Globaltech. 29 AMC proposes to give undertakings which are appropriate subject to two matters I will identify. The amended order sought against Votraint is restricted to Votraint's registered security interests in the patents and trade marks owned by Globaltech.

Globaltech's evidence 30 Mr Hejleh is the managing director of the two Globaltech companies. He deposes to the fact that the Globaltech companies have been ordered to pay costs to AMC in current and related proceedings and have done so. He states that Globaltech Pty Ltd has no assets. Globaltech Corporation owns trade marks and patents in Australia and overseas. The trade marks and patents have been part of Globaltech's IP portfolio since they were filed and Mr Hejleh states that Globaltech has no intention to sell off any of its IP portfolio to any third party. He deposes that Globaltech Corporation is an R & D company and continues to conduct R & D into new technologies, continues to file and prosecute patent applications worldwide and will continue to take proceedings against entities who are infringing its IP portfolio, including AMC. 31 Mr Hejleh states that Globaltech immediately ceased the use of the V5 Tools upon receiving judgment in the present proceedings and invented a new tool which they believed did not infringe the AMC's patent. The judge at first instance in the V6 Proceeding concluded otherwise. That judgment is the subject of an appeal. Mr Hejleh states that he does not understand how a change in the shareholding of Globaltech Corporation enlivens a real risk that the assets of Globaltech Corporation will be moved outside the jurisdiction. He states that there has been no change in the day-to-day operations of Globaltech following the change of shareholding and that Globaltech intends to meet any quantum and costs order made against it by the Court in this proceeding.

Should an order be made against the respondents? 32 Globaltech Pty Ltd has no assets. Globaltech Corporation Pty Ltd hold the assets which will be the subject of the freezing orders, if they are made. Of course, if Globaltech Pty Ltd was to acquire assets, then those assets would be the subject of the freezing orders, if they are made. 33 AMC relies on the three matters previously identified as the basis for freezing orders against Globaltech. They are the following: (1) the transfer of ownership in Globaltech; (2) Veracio's field of business; and (3) reliance on the corporate structure. 34 These matters are said to give rise to a danger that a prospective judgment will be wholly or partly unsatisfied because the assets of Globaltech might be removed from Australia or from a place inside or outside Australia or disposed of, dealt with, or diminished in value. 35 The only "disposition" by Globaltech to have occurred since these proceedings were commenced on 4 July 2016, was the grant of security interests over some of the intellectual property assets of Globaltech Corporation in September 2016. 36 AMC emphasised that the matter which has given rise to the application is the transfer in the ownership and control of Globaltech Corporation which does own assets. AMC submits that they do not know the value of the assets, but they are assets which Globaltech Corporation treats as having significant value. They appear to relate to technology that has been deployed by Veracio, either the Veracio business or the Boart Longyear Group. The share transfer took place on 22 February 2023. That transfer is completely unexplained on the evidence before the Court. The security interests in the name of Votraint do not cover all of the patents held by Globaltech Corporation. They clearly do not cover all the trade marks because they only cover one trade mark. As far as the patents are concerned, the security interests only cover those which were in existence in 2016. 37 AMC submits that although the evidence is that Globaltech Pty Ltd has no assets and the thrust of the application is against Globaltech Corporation, there is no reason why Globaltech Pty Ltd should not be the subject of an order because it may acquire assets in the future. 38 It is true that Globaltech itself has not taken any steps to deal with its assets and, according to Mr Hejleh, it has no intention of doing so. However, Globaltech is part of the Boart Longyear Group as is Votraint and Veracio. In the circumstances, control resides in the Boart Longyear Group. 39 Globaltech submits that an order should not be made against them for a number of reasons. 40 First, they point to the fact that the purpose of freezing orders is to prevent the frustration or inhibition of the Court's process by seeking to meet a danger that a judgment or a prospective judgment of the Court will be wholly or partly unsatisfied. They submit that AMC is, in effect, seeking to obtain security in advance for a judgment and that is not a proper purpose of such an order (see Cardile). Globaltech submits that the evidence of AMC's expert referred to by Mr Williams is that Globaltech has recorded losses in each year since the commencement of this proceeding for the period that financial statements have been disclosed. AMC must be taken to have been aware of that and yet Globaltech has not taken any steps to divest themselves of their assets and there has been no default in terms of meeting any of the pecuniary orders that have been made. In the circumstances, it is to be inferred that AMC is, in effect, seeking security for their judgment. The respondents referred to a letter from AMC's solicitors which makes reference to Globaltech providing security within seven days. That security is to be by payment into Court. Globaltech submits that if there was a concern about Globaltech frustrating judgment, then AMC would have moved at an earlier time. I do not accept this submission. I accept that this application comes forward as a result of recent events, including the transfer of ownership in Globaltech and Veracio's field of business. 41 Secondly, Globaltech refers to the matters identified by AMC as giving rise to the real risk that the judgment will be unsatisfied because assets are removed from Australia or disposed of, dealt with, or diminished in value. There are four such matters. They are identified in the letter from AMC's solicitors dated 31 March 2023 and are as follows: (a) The major shareholder of Globaltech Corporation Pty Ltd (Globaltech) was previously Votraint No 1609 Pty Limited (Votraint), being an Australian entity wholly owned by Boart Longyear Group Limited; (b) Following the commencement of this proceeding, Votraint registered security interests in various Globaltech assets; (c) Votraint has now transferred its shares in Globaltech to Veracio Limited (Veracio), being a US entity wholly owned by Boart Longyear Group Limited; and (d) Veracio has begun advertising Globaltech's mineral exploration technologies, including, in other jurisdictions, the infringing tools. 42 Globaltech submits that none of the matters concern Globaltech. The share transfer does not affect the security interests that Votraint has over Globaltech's property. That security interest has been in place since September 2016. It relates to the entirety of the company's patent portfolio. It is true that the recent matters do not directly involve Globaltech's assets, but that is not decisive. 43 Thirdly, Globaltech submits that Globaltech Pty Ltd has no assets, and there is no basis upon which a freezing order should be made against it. It is true that Globaltech Pty Ltd has no assets. 44 Fourthly, Globaltech submits that there is no evidence of any default by Globaltech. That is correct on the evidence. 45 Fifthly, Globaltech submits that the Court should reject any suggestion that the security interests created or registered in September 2016 might be set aside as part of a voidable transaction. There is no evidence that there is a basis for that suggestion. In those circumstances, there is nothing to suggest that the case falls within r 7.35(5)(b), that is to say, that there is or may ultimately be available to AMC as a result of a judgment or prospective judgment, a process in the Court under which process the third party may be obliged to disgorge assets or contribute toward satisfying the judgment or prospective judgment. 46 Sixthly, Globaltech submits that AMC has delayed in bringing this application and the underlying share transfer does not provide a proper foundation on the eve of trial for a freezing order. This is similar to an aspect of the first point and I respond in the same way. I do not think there has been any delay in light of the transfer of ownership in Globaltech and Veracio's field of business. 47 Globaltech also makes some submissions about the terms of the proposed orders against them. The orders should be restricted to Globaltech's Australian assets. Furthermore, the order should not be framed in terms which permit AMC to use the information obtained as a result of the orders in any of the other proceedings that are before the Court. 48 I consider an order should be made against Globaltech because, on the one hand, AMC has a liability judgment in its favour and is close to obtaining some form of judgment in its favour and, on the other, there has been a transfer in the ownership of Globaltech and an overseas company, all within the same group of companies, has started to use similar technology to Globaltech. The order should be a worldwide one, but the Harman undertaking should not be varied by a sidewind (see para 5 of the undertakings). Furthermore, it is accepted that para 7 of the undertakings is unnecessary. Globaltech Pty Ltd should be included in the order as it may acquire assets in the future.

Should orders be made against Votraint? 49 AMC relies primarily on r 7.35(5)(a). Reference was made to r 7.35(5)(b), but that can be ruled out on the basis that there is no evidence presently before the Court that indicates that there is a basis to think the transaction creating the security interests can be set aside. 50 AMC made it clear that they rely on both r 7.35(5)(a)(i) and r 7.35(5)(a)(ii). 51 Votraint submits that orders should not be made against it. It submits that various submissions were made by AMC which related to parties who are not before the Court. Those parties include Veracio, the Boart Longyear Group and the Boart Longyear Australia company. Those submissions by AMC do not assist. 52 Votraint submits that the circumstances do not fall within r 7.35(5)(a)(i). All there has been is a transfer of shares in Globaltech. There is no evidence that Votraint has done anything that affects the assets of Globaltech. Rule 7.35(5)(b) is not relevant. There is no reason to think that Votraint's security interests might be set aside. In the circumstances, there is simply no evidence of any danger within the terms of the rule. 53 Votraint highlighted various aspects of the terms of the proposed order. The assets which are frozen are Votraint's assets up to the unencumbered value of $7,619,720. The proposed order requires Votraint to provide information about its assets worldwide within 10 days which is an unreasonably short period. 54 AMC made something of the fact that Votraint had not offered an undertaking. In the course of submissions, Votraint offered an undertaking not to call upon the charges recorded on the PPSA until after the hearing in mid-June 2023 and thereafter to give 14 days' notice to AMC of any intention to call on the undertaking. As I understand it, that was offered on the basis that it would be in lieu of a freezing order. AMC submits that the undertaking would not cover or include a transfer of the security interests. 55 I consider that the undertaking offered by Votraint is sufficient in the circumstances. It has registered security interests and, as I have said, there is no basis to think the transaction creating the security interests can be set aside.

Conclusions 56 A worldwide freezing order should be made against the respondents with the modifications I have identified. Votraint has proffered an undertaking and I decline to make a freezing order against it. I certify that the preceding fifty-six (56) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Besanko.

Federal Court Rules 2011(Cth)rr 7.35, 7.36, 7.38

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