Chen v Diversipak Pty Ltd

1. The applicant be refused leave under s 471B of the Corporations Act 2001 (Cth) to commence proceedings against the respondent in liquidation.
2. The originating application be dismissed.
3. The applicant pay the respondent's costs of and incidental to the proceeding. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

BROMWICH J: 1 These reasons concern the question of leave to commence proceedings against a company in liquidation and the question of interlocutory relief. 2 By an originating application, the applicant, Ms Lay Sieng Chen, brings a proceeding against Diversipak Pty Ltd ACN 122 831 707 (in liquidation). Ms Chen was a director of Diversipak until 25 May 2017, when she was terminated from that position by the provisional liquidator. She was then an employee of the company in liquidation until she resigned on 29 June 2018. Her letter of resignation purported to terminate a licence to use a trade mark registered in her name. That trade mark was registered with a priority date of 31 July 2009. It consists of the words "Diversipak Packaging Solutions", with an image above it in a stylised form of two open boxes forming the letters "DP". Broadly speaking, Ms Chen is concerned that the liquidator of Diversipak has sold and will continue to sell stock bearing this trade mark in the winding up of the company. 3 The relief Ms Chen seeks in the originating application is as follows (verbatim): 1. Leave under section 500(2) of the Corporations Act 2001 (Cth) to commence proceedings against the Respondent. 2. Orders in relation to alleged infringement by the Respondents of the Australian Trade Mark Registration No. 1312815 [image omitted] in the name of Lay Sieng Chen (Registered Trade Mark) in the course of offering for sale, selling, advertising, and promoting in Australia containers bearing the identical or deceptively similar trade mark specifically. 3. A declaration that the Respondent has contravened section 120 of the Trade Mark Act 1995 (Cth) (Trade Mark Act). 4. An inquiry as to damages or at the Applicant's election an account of profit; and an order for payment of all sums found due; 5. An order pursuant to section 126(1)(a) of the Trade Mark Act; 6. An order pursuant to section 126(1)(b) of the Trade Mark Act; 7. Interest pursuant to section 51A of the Federal Court of Australia Act 1976 (Cth); 8. Costs under section 43 of the Federal Court of Australia Act 1976 (Cth). 4 It is uncontroversial that [1] of the relief sought by the applicant should instead refer to s 471B of the Corporations Act 2001 (Cth), as s 500(2) applies in the case of a creditors' voluntary winding up. 5 Ms Chen also seeks the following interlocutory relief in her application (verbatim): 1. An order pursuant to rule 7.32 of the Federal Court Rules 2011 preventing the Respondent to dispose, sell, move or otherwise deal with stock without prior consent from the Applicant. 2. An order to that the Respondent must maintain registration until final determination of this matter. 6 The matter first came before me as duty judge on 7 August 2018. At that time, it was proposed by both parties that the matter be brought back for an urgent interlocutory hearing on 10 August 2018 to determine the questions of leave and interlocutory relief. To preserve the status quo, the respondent gave undertakings not to dispose, sell, move or otherwise deal with stock bearing the trade mark and to remain registered as a corporation until close of business on 10 August 2018. 7 The matter returned for interlocutory hearing before me as duty judge at 2.30 pm on 10 August 2018. The threshold question arising is whether Ms Chen should be granted leave under s 471B of the Corporations Act to commence proceedings against Diversipak. That leave is required to seek both the interlocutory relief and the substantive relief in the originating application. If leave is to be granted, Ms Chen asks that the Court also make interlocutory orders preserving Diversipak's stock and registration as a company pending the hearing and determination of her claim. Diversipak opposes the grant of leave and any interlocutory relief. 8 I turn now to the principles relevant to the threshold question of the grant of leave to commence proceedings. 9 As was pointed out by McKerracher J in Commissioner for Consumer Protection v Unleash Solar Pty Ltd (in liq) [2015] FCA 348 at [13], leave will only be granted where the applicant has established that there is a serious question in dispute. This does not mean that a prima facie case in the technical sense of that expression must be established, but, rather, that there is a solid foundation for the claim: Vagrand Pty Ltd (In Liq) v Fielding (1993) 41 FCR 550 per Wilcox, Burchett and Beazley JJ at 556. 10 At [22] in Unleash Solar, McKerracher J identified the following factors that may be relevant to the exercise of discretion to grant leave under s 471B of the Corporations Act: (a) the amount and seriousness of the claim; (b) the degree and complexity of the legal and factual issues involved; (c) the stage to which the proceedings, if commenced, may have progressed; (d) whether a cross-claim arises out of the same factual matrix as the claims made in the primary proceedings; (e) the risk that the same issues would be re-litigated if the claims were to be the subject of a proof of debt; (f) whether the claim has arguable merit; (g) whether proceedings are already in motion at the time of liquidation; (h) whether the proceedings will result in prejudice to the creditors; (i) whether the claim is in the nature of a test case for the interest of a large class of potential claimants; (j) whether the grant of leave will unleash an 'avalanche of litigation'; (k) whether the cost of the hearing will be disproportionate to the company's resources; (l) delay; and (m) whether pre-trial procedures, such as discovery and interrogatories, are likely to be required or beneficial. 11 At [23], his Honour identified the following three other relevant factors: (a) whether the action would interfere with the orderly winding up of the company; (b) whether the action would serve any sufficient purpose; and (c) whether the action would have any adverse effect upon the respondent and its shareholders. 12 I propose to adopt the same approach in this case. I am assisted in this process by the parties' written and oral submissions. I do not propose to repeat what is in those submissions, as opposed to the conclusions that I have reached by reference to and assisted by them. 13 Turning to the first relevant factor, I observe that the parties are divided as to the amount and the seriousness of the claim that Ms Chen wishes to advance under the Trade Marks Act 1995 (Cth). 14 Ms Chen submits that the matter is relatively straightforward, both legally and factually. In this regard, she places considerable reliance on the fact of registration of the trade mark in her name, and the absence of any evidence to suggest that the rights to the trade mark were transferred to Diversipak. As to the amounts Ms Chen seeks to recover from Diversipak for infringement, her claim is said to concern both the trade mark value of trade mark stock that has not been sold by the liquidator, that stock being worth some $42,000, together with some component of past sales of trade mark stock, those sales amounting to a figure between some $405,000 and some $536,000. Counsel for Ms Chen candidly conceded, as was proper to do, that he could not attribute a particular dollar value to Ms Chen's infringement claim in respect of either past or current sales. 15 On that particular topic, Mr Turner of counsel, who appeared for Diversipak, took the Court to evidence in relation to the stock on hand and pointed to the fact that the differences between the manufacturing costs of trade mark stock and apparently identical non-trade mark stock were either slight or non-existent. He submitted that this, of course, did not necessarily translate into the value that such stock might have when it came to sale. However, his primary submission was to the effect that very little value could be attributed to the past and future value of the trade mark. The most that could be concluded was that it would be a small or slight amount. That submission must be accepted as far as it goes. It follows that, insofar as the seriousness of Ms Chen's claim can and must be weighed, the amount of any potential award is uncertain, with there being no evidence to suggest that it would be very substantial. 16 On the question of the seriousness of the claim, it is difficult to ascertain just how solid its foundation is. One difficulty is that the company was in existence for some time before the registration of the trade mark. It must have used at least the name component of that trade mark prior to registration and has used it for some time since then. There is no evidence or material before me by which I can assess the value of the design independently of the use of the name which the company was, plainly enough, entitled to use. 17 Further, it is difficult to see how the trade mark issue is capable of being regarded as straightforward, either legally or factually, at the threshold of ascertaining who the true owner of the trade mark is. The difficulties that can be encountered in that regard can be demonstrated, without going into any great detail, by the decision of Davies J in Insight Radiology Pty Ltd v Insight Clinical Imaging Pty Ltd [2016] FCA 1406; 122 IPR 232. That case involved a similar issue and her Honour, at [63] of that judgment, observed that the contest of ownership really concerned the element of intention to use, which is a requirement of a claim of ownership of an unused mark and an express requirement of s 27(1)(b) of the Trade Marks Act. 18 I do not say that Insight Radiology is on all fours with this case, or even that the disputes are the same, but only that this case indicates the difficulty that can be involved in determining issues of ownership when a trade mark is registered in the name of an individual associated with a company but used by that company. In Insight Radiology, her Honour earlier concluded at [62] that the evidence tended to the conclusion that the registration was made in the wrong name and should have been made in the name of the company. Furthermore, at [66], her Honour did not accept the evidence of the company director that it was his intention to licence to the company the trade mark in question. Rather, her Honour found that, at the time of registration, the director intended that the company would use the mark. 19 Again, this indicates the level of complexity that may be involved in dealing with a trade mark dispute of the kind sought to be advanced by Ms Chen. Moreover, even if the trade mark dispute were able to be resolved and even if the quantity of past stock bearing the trade mark were able to be readily ascertained, there remains a very difficult question of assessment of any award to Ms Chen, whether by way of damages or an account of profits. It follows that the second limb of this first test as to the amount and seriousness of the claim poses a distinct problem for Ms Chen, in that she cannot show that her claim is straightforward either factually or legally, or that there is a particularly strong foundation for her claim. 20 I cannot say that Ms Chen's claim is without merit, but only that it is difficult to accept that the merits are as strong as they are said to be. This seems to me to be the sort of case where the cost of the litigation is not just unlikely to meet the value of the fruits of the litigation, but carries a very distinct risk of exceeding it by a very substantial degree. To an extent, this has flowed into the second topic: the degree and complexity of the legal and factual issues involved. 21 In weighing the third issue identified by McKerracher J in Unleash Solar as a relevant factor, I observe that the proceedings are at a very early stage. Necessarily, that means that there is going to be considerable delay before a proceeding such as this can even be prepared for hearing, let alone heard and a judgment delivered. The proposed delay arises in circumstances where the liquidation is well advanced and the liquidator, having received tenders for the sale of the remaining assets, wishes to progress to the finalisation of contracts for that sale, if not the receipt of the money, and to largely complete the liquidation in time for a meeting of creditors in one week's time on Friday, 17 August 2018. 22 In terms of the remaining issues referred to by McKerracher J in Unleash Solar, I have already addressed the question of whether the claim has arguable merit and there is at least some shadow of doubt cast over that. The proceedings were not already in motion at the time of liquidation. The proceedings will result in prejudice to the creditors both in terms of finalising the liquidation and payment out at the presently indicated rate of 77 cents in the dollar. That return to creditors is likely to be diminished to some extent by this proceeding and the hearing of this application, but will undoubtedly be further diluted if this proceeding is allowed to continue. There is nothing to indicate that this is a test case, nor that it will unleash an avalanche of litigation. 23 As I have already indicated, the cost of the hearing would be, on my assessment of the evidence available to me, disproportionate to the company's resources. The delay occasioned is likely to be significant. In terms of the other factors listed by McKerracher J in Unleash Solar, I note that the action will interfere with the orderly winding up of the company, which is close to completion. It would not, in my view, serve a sufficient purpose to warrant that interruption, given the disproportionately adverse effect it would have on the respondent company in liquidation and its creditors. 24 In all the circumstances, I consider that the arguments in favour of granting leave to commence the proceedings against Diversipak on the part of Ms Chen are comfortably and significantly outweighed by the disadvantages of doing so. I therefore refuse to grant that leave in the exercise of my discretion. In those circumstances, there is no point in determining the questions concerning the rest of the relief sought except to the extent that it has already been necessary to do so for the purposes of this judgment. 25 It follows that the rest of the case cannot be maintained. The applicant's originating application, including the claim for interlocutory relief, must be dismissed. Accordingly: (1) the originating application is dismissed with costs; and (2) the applicant, Ms Chen, must pay the costs of and incidental to the proceedings. I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Bromwich.