Daiwa Can Company v Barokes Pty Ltd [2016] VSC 296

2 In August 2015, Barokes commenced proceedings in Japan, against Daiwa, its major shareholder (and others), for infringement of its patent ('the Japanese Proceeding'). As a result of challenges to its authority to do so and other matters as set out below, Knights Quest and SMS (holding 40% of the shares in Barokes) apply nunc pro tunc under s 237 of the Corporations Act (Cth) for leave to bring (or continue) the Japanese Proceeding in the name of Barokes.

3 The Court Book relating to this application comprises six double sided volumes. In addition numerous exhibits were tendered. Much of the background is of little relevance. Much of the technical evidence is also, in the context of this application, of limited use. I was persuaded to permit limited cross-examination. It was of limited utility. Each side raised numerous objections to evidence. It has not been necessary to resolve any of the objections. There is more than enough admissible evidence to enable the application to be properly considered. A short relevant background and overview of the matter follows. Further facts will be dealt with as and when appropriate.

4 Barokes holds or is the applicant for patents referred to as 'Vinsafe' in 17 countries, which includes Japanese patent JP 3668240 ('JP 240'), with priority dates from 28 September 2001.[3]

5 The English translation of claim 1 of JP 240 (Claim 1, which is relevant to and the subject of the Japanese Proceeding) is:

A process for packaging wine in aluminium cans including the steps of:

• preparing wine characterised in that it has less than 35ppm of free SO2, less than 300ppm of chloride and less than 800ppm of sulfates;
• filling a two piece aluminium can body with the above wine and sealing the can with an aluminium closure such that the pressure within the can is at least 25psi and wherein the inner surface of the aluminium is coated with a corrosion resistant coating.[4]

6 Barokes also holds or is the applicant for patents referred to as 'Ressafe' in 38 countries,[5] with priority dates from 23 December 2011, and for the patent referred to as 'Resvin' in 7 countries, with a priority date of 27 August 2012.[6]

7 Daiwa manufactures aluminium cans, including cans in the shape of bottles, including the 'slim bottle can' ('SBC') and 'new bottle can' ('NBC').[7]

8 Daiwa supplies cans to Monde Shuzo Ltd ('Monde') for use in canning wine, including SBCs and NBCs.[8] Monde is a Japanese subsidiary of Daiwa.

9 The copy products being the subject of the Japanese Proceeding are filled in SBCs and are known as Petit Monteria Blanc ('White wine'), Petit Monteria Rouge ('Red wine') and Petit Monteria Sparkling ('Sparkling wine').[9]

10 Barokes alleges that Daiwa and others have infringed and continue to infringe Claim 1 of JP 240.

11 Daiwa denies that it is infringing Claim 1 of JP 240.

12 As to non-infringement, Daiwa's position appears to be that:

(a) its 'slim bottle can' is not a 'two piece aluminium can body ... with an aluminium closure';

(b) the correct point of time to measure the free SO2 requirement in Claim 1 is prior to the SBC being filled and, at that point, the free SO2 content of some of the wine is greater than 35 ppm; and/or

(c) some of the wine within the can has pressure of less than 25 psi; or

(d) because of (a), (b) or (c), it is very likely that the Japanese doctrine of equivalence will not apply.

13 As to invalidation, Daiwa's position appears to be that JP 240 will be found to be invalid because of a lack of an inventive step given certain prior art.

Mr Stokes desire to commence the Japanese Proceeding

14 At a board meeting of Barokes held on 28 January 2015, Mr Stokes said that he wanted Barokes to sue a number of companies including Monde for patent infringement. Mr Ikeda and Mr Yamashita, both appointees of Daiwa on the board of Barokes, disagreed with Mr Stokes' proposed strategy, because they wished the company to focus on increasing sales, rather than spending funds on patent protection. The meeting ended prematurely. On 10 March 2015, the meeting was resumed. Mr Stokes put forward several resolutions authorising himself to cause Barokes to commence litigation:

(a) against such persons as Mr Stokes determines in relation to an alleged agreement to fund working capital;

(b) against such persons as Mr Stokes determines in relation to an alleged failure to supply slim bottle cans;

(c) against such persons as Mr Stokes determines in relation to an alleged breach of confidential information and intellectual property to assist Monde to breach Barokes patent in markets including China;

(d) against such persons as Mr Stokes determines in relation to an alleged breach of the Shareholders Deed by proposing to manufacture cans in breach of Barokes' patent; and

(e) against such persons as Mr Stokes determines for alleged breaches of directors' duties.

15 The resolutions were defeated, with Mr Stokes and Mr Barics voting in favour of the resolutions, and Mr Ikeda and Mr Yamashita voting against the resolutions.

16 On 14 August 2015, and notwithstanding the defeated resolution, Mr Stokes caused Barokes to commence a patent infringement proceeding, in relation to its Vinsafe patent, in the Tokyo District Court, Japan,[10] against Daiwa, Monde, Itochu-Shokuhin Co Ltd ('Itochu-Shokuhin') and Seven-Eleven Japan Co Ltd ('Seven-Eleven'). The court documents in that proceeding were served on Daiwa Can on 26 August 2015.

17 The Japanese Proceeding alleges that Daiwa and Monde have breached Claim 1 of JP 240. Page 2 of the document sets out the amount of damages that Barokes claims, being an amount of JPY ¥80,000,000. This equates to less than AUD $1 million.

18 In the Japanese Proceeding, Barokes makes a number of allegations against Daiwa and the other defendants, including that:

(a) since 2011, Daiwa has manufactured and sold products which infringe Barokes' patent;

(b) since 2011, Monde, by using the bottle cans, has manufactured products which infringe Barokes' patent;

(c) since 2011, Monde has sold the infringing products to Itochu Shokuhin and Seven-Eleven Japan;

(d) since 2011, Itochu Shokuhin has purchased the infringing products from Monde, and has sold them to Seven-Eleven Japan;

(e) since 2011, Seven-Eleven Japan has sold the infringing products to consumers; and

(f) the activities alleged above by the defendants constitute a joint tort by all of them.

19 On 11 September 2015, I made orders effectively putting the Japanese Proceeding on hold essentially because of the existence of various other proceedings in this Court between the parties. I published my reasons on 18 September 2015.[11]

20 A number of disputes have arisen between the shareholders of Barokes. They are the subject of 3 proceedings in this Court:

(a) proceeding S CI 2015 01529 commenced on 8 April 2015, in which Knights Quest sought leave to commence a derivative proceeding in the name of Barokes against Daiwa, for allegedly failing to honour representations about additional funding. The application for leave was heard by the Honourable Associate Justice Efthim on 18 June 2015. Leave was refused. His Honour published reasons on 30 October 2015[12];

(b) proceeding S ECI 2015 307 commenced on 24 August 2015 (2 days before service - but after issue - of the Japanese Proceeding on Daiwa), in which Daiwa seeks to wind up Barokes on the just and equitable ground, to remove Mr Stokes as a managing director at the expiry of his term of office, and to invalidate a default notice served by Knights Quest and SMS Management on Daiwa for alleged defaults under a shareholders deed ('the Winding Up Proceeding'); and

(c) proceeding S ECI 2015 309 commenced on 26 August 2015 (the day of service of the Japanese Proceeding on Daiwa), in which Knights Quest and SMS Management allege that they are oppressed by Daiwa and seek to buy Daiwa's shares in Barokes, and also seek orders allowing Mr Stokes to commence and continue with litigation in the name of Barokes, including a proceeding in China and the Japanese Proceeding ('the Oppression Proceeding').

21 Proceedings S ECI 2015 307 and S ECI 2015 309 ('the Victorian Proceedings') are being case managed together, and were listed for trial before the Honourable Justice Judd on 27 January 2016. The hearing of both matters was adjourned and orders were made enabling this application to proceed.

22 On 7 July 2015, Mr Stokes caused Barokes to commence a patent infringement proceeding in Chengdu, China against certain parties engaged in the distribution of beverages in China, including Seven-Eleven (Chengdu) Co Ltd ('Seven Eleven Chengdu'), a subsidiary of the Seven&i group. That proceeding seeks to restrain Seven Eleven Chengdu, and those other parties, from selling Monde products in China as they allegedly breach one of Barokes' patents ('Chinese Proceeding'). The claim document states that Barokes requests the court to place an order on the defendants to stop selling products that infringe Barokes' patent, and to mediate in the compensation of all losses that the defendants have caused for Barokes.

23 Although Daiwa is not a defendant in the Chinese Proceeding, it contends that it is adversely affected, and Barokes is also adversely affected, by that proceeding, as the proceeding is harmful to the trading relationship between Daiwa and the Seven&i group.

24 Daiwa does not press for interlocutory relief in relation to the Chinese Proceeding; however at the hearing of the trial in the Victorian Proceedings, Daiwa has indicated that it will seek an anti-suit injunction to restrain Barokes and Mr Stokes from taking any further steps in the Chinese Proceeding.

25 In an email sent on 29 July 2015, Mr Stokes alleged that there have been patent infringements by 'Daiwa, Monde, Mann, Yomeishu, Yamata, Malus, Takahata, and all those involved in the supply chain that enabled this infringement eg. Seven-Eleven, Circle K/ Sunkus, Itochu, etc'. In that email, Mr Stokes stated that he intended 'to take such steps as are necessary to ensure that Barokes pursues its rights and recovers the losses suffered by reason of this wrongful conduct'.

26 At the time of Daiwa's acquisition of its shares in Barokes, a Shareholders Deed dated 27 August 2012 was entered into between Barokes, Daiwa, Knights Quest and SMS Management. It is governed by Victorian law, and contains a submission to Victorian jurisdiction.

27 Under clause 3.2 of the Shareholders Deed, each of Daiwa and Knights Quest was entitled to appoint 2 directors to the board of Barokes. Since then, the board of Barokes has comprised 4 directors:

(a) Mr Yoshitaka Ikeda, as an appointee of Daiwa;

(b) Mr Tetsuo Yamashita, as an appointee of Daiwa;

(c) Mr Stokes, as an appointee of Knights Quest; and

(d) Mr Barics, as an appointee of Knights Quest.

28 Clause 5 of the Shareholders Deed refers to a managing director. Mr Stokes was appointed as the managing director under the Stokes Executive Services Agreement dated 27 August 2012.

29 The Stokes Executive Services Agreement is also governed by Victorian law, and contains a submission to Victorian jurisdiction.

30 Clause 3.2 of the Stokes Executive Services Agreement states:

The Employment will commence on the Commencement Date (or a later date as agreed in writing between the Executive and the Company) and will continue for a fixed-term of 3 years where the Employment will end on the expiry of the fixed-term, unless terminated earlier in accordance with this Agreement (Initial Term).

31 Clause 4.8 of the Executive Services Agreement states:

The Executive acknowledges that the Executive has no authority to bind the Company except as set out in the Shareholders Deed or otherwise authorised by the Board. The Executive will not make any unauthorised representations to any third party in relation to such authority.

32 Mr Stokes' employment as managing director commenced on 13 September 2012. The expiry of the fixed term was 11:59pm on 12 September 2015.

33 Schedule 3 of the Shareholders Deed sets out a list of matters that require a Special Majority (75%) of the Shareholders of Barokes. Item 1.18 states:

Instigate or settle any litigation, arbitration or other proceedings involving a Group Company when the aggregate amount claimed is in excess of $1 million (except the instigation of claims against debtors in the ordinary course of business).

34 Schedule 4 of the Shareholders Deed sets out a list of matters in relation to which the managing director has authority. Item 1.8 states:

Instigate or settle any litigation, arbitration or other proceedings involving a Group Company when the aggregate amount claimed is less than $1 million.

35 The application is brought pursuant to s 237 of the Corporations Act 2001 (Cth) which provides:

(1) A person referred to in paragraph 236(1)(a) may apply to the Court for leave to bring, or to intervene in, proceedings.

(2) The Court must grant the application if it is satisfied that:

(a) it is probable that the company will not itself bring the proceedings, or properly take responsibility for them, or for the steps in them; and

(b) the applicant is acting in good faith; and

(c) it is in the best interests of the company that the applicant be granted leave; and

(d) if the applicant is applying for leave to bring proceedings - there is a serious question to be tried; and

(e) either:

(i) at least 14 days before making the application, the applicant gave written notice to the company of the intention to apply for leave and of the reasons for applying; or

(ii) it is appropriate to grant leave even though subparagraph (i) is not satisfied.

36 Daiwa opposes the application on the grounds that the applicants are not acting in good faith, it is not in the best interests of Barokes for leave to be granted, and there is no serious question to be tried. It is conceded that Barokes will not itself bring or continue the Japanese Proceeding.

37 There is also the question as to whether Mr Stokes did indeed have authority under the Shareholders Deed to commence (and presumably continue) the Japanese Proceeding. This matter will be dealt with at the end.

38 The principles for determining whether an application has been brought in good faith were considered by Palmer J in Swansson v R A Pratt Properties Pty Ltd & Anor.[13] Noting the section offers no guidance as to the matters the court ought take into consideration in making its determination, Palmer J identified 'two interrelated factors to which the courts will always have regard in determining whether the good faith requirement is satisfied'[14];

[36] ...[T]he first is whether the applicant honestly believes that a good cause of action exists and has a reasonable prospect of success. Clearly whether the applicant honestly holds such a belief would not be a matter of bald assertion. The applicant may be disbelieved if no reasonable person in the circumstances could hold that belief. The second factor is whether the applicant is seeking to bring the derivative suit for such a collateral purpose as would amount to an abuse of process.

39 These two factors have been citied with approval in numerous subsequent decisions.[15] In Chahwan v Euphoric Pty Ltd[16] Tobias JA, endorsed Palmer J's factors and stated that:

[74] ...an applicant will only be acting in good faith for the purpose of s 237(2)(b) where, as a current or former shareholder or director of the company, he or she would suffer a real and substantive injury if a derivative action were not permitted provided that that injury was dependent upon or connected with the applicant's status as a shareholder or director.

40 The onus of demonstrating that the application is brought in good faith lies with the applicant.[17] The objective facts and circumstances will speak louder than the applicant's words.[18] However, in so demonstrating, Palmer J in Swansson made the following comments;

[38] [W]here the application is made by a current shareholder of a company who has more than a token shareholding and the derivative action seeks to recover property so that the value of the applicant's shares would be increased, good faith will be relatively easy for the applicant to demonstrate to the courts satisfaction. So also where the applicant is a current director or officer: it will generally be easy to show that such an applicant has a legitimate interest in the welfare and good management of the company itself, warranting action to recover property or to ensure that the majority of the shareholders or of the board do not act unlawfully to the detriment of the company as a whole.[19]

41 Mr Stokes, on behalf of the plaintiffs, deposed to an honest belief that a good cause of action exists in the Japanese Proceeding that has a reasonable prospect of success. It was submitted by the plaintiffs that this belief went beyond mere bald assertion, and amounted to a reasonable belief as it was based upon advices from lawyers, patent attorneys, laboratories and persons skilled in the art relevant to the patent. Particular emphasis was placed upon the advice received from Seiwa, Barokes' Japanese patent attorneys.

42 Daiwa disputed that Mr Stokes' belief was honestly held. It was asserted that Mr Stokes, through lawyers he had instructed on behalf of Barokes in legal proceedings in Europe and Australia, had previously made representations regarding the Vinsafe patent that are inconsistent with the position now sought to be advanced in the Japanese Proceeding. This inconsistency, it was submitted, belies a lack of honest belief in the merits of the Japanese Proceeding. It was further submitted that Mr Stokes' belief was not reasonably held, as it was based upon an irrational view that any commercially viable wine in a can must be produced in breach of the Vinsafe patent. Regarding the advice received from Seiwa, Daiwa submitted it was not reasonable for Mr Stokes to rely upon this advice, as it was unreasoned and appeared to have been based upon opaque instructions.

43 Daiwa submitted further that the Japanese Proceeding was incapable of being unscrambled from the broader controversy between the parties, the subject of the Victorian Proceedings, and that it had been issued for the collateral purpose of placing pressure on Daiwa to come to a settlement regarding the Victorian proceedings. It was submitted such an inference unavoidably flowed from, amongst other things, the following facts;

(a) The delay between the receipt of the advice from Seiwa on 29 January 2015 and the commencement of the Japanese Proceeding on 3 August 2015;

(b) The lack of inclusion of the Japanese Proceeding within the derivative leave applications heard by this court in April and July 2015;

(c) The lack of letters of demand having been sent to either Seven-Eleven Japan or Itochu-Shokuhin, named defendants to the Japanese Proceeding; and

(d) The inflammatory letter Mr Stokes had written to the Japanese Ambassador in Australia seeking he intervene in the dispute.

44 The plaintiffs submitted there were reasonable explanations for each of these matters raised by Daiwa and disputed that any collateral purpose existed. Mr Harris QC for the plaintiffs took the court to two authorities in which the court had found that leave to bring a derivative action was being sought for a collateral purpose. The first case was Chahwan[20], where Tobias JA (Beazley and Bell JJAs concurring) held that in seeking to assert his own beneficial ownership in properties held by the company the applicant was not acting in the interests of the company as a whole and so was acting for a collateral purpose. The second case was Goozee,[21] where Barrett J held that bringing a proceeding in order to persuade the other shareholders to cause the company to either pay dividends or purchase the applicant's own shares was a collateral purpose. It was submitted by the plaintiffs that neither case embraced matters of the sort that had been identified by Daiwa as evidencing a collateral purpose.

46 Clearly Mr Stokes genuinely believes based on substantial advice and his own substantial knowledge and experience that Barokes has a good claim. He wants Barokes to agitate the claims which as I have found are serious and arguable. Although he may have an exaggerated (and perhaps irrational) view of the reach of 'his patent', his subjective view in relation to the particular case at hand is sufficiently supported by experts in the field. I do not consider that the advice is unreasoned or necessarily inconsistent with previous statements said to be admissions. This is but another serious matter to argue about.

47 Although one cannot ignore the fact that there are broader issues between the parties, as evidenced by the Victorian Proceedings, and there may be tactical issues on both sides, I do not consider that the Japanese Proceeding was issued (and will be continued) for a collateral purpose, notwithstanding the fact that a favourable result will undoubtedly benefit the plaintiffs and of course Barokes and consequently Daiwa. Of course the proceeding is inextricably linked to the broader issues. They often are.

48 Daiwa submitted that there were several matters that justified a conclusion or inference of collateral purpose.

49 First, it was submitted that the Japanese Proceeding was commenced without leave, in circumstances where Mr Stokes knew that leave was required because he had sought such leave earlier in the year in relation to a separate claim. I accept the answer that Mr Stokes believed he had authority under the Shareholders Deed.

50 Second, it was submitted that there was a significant delay between the advice and the commencement of the proceeding and having commenced the proceeding it was only served on Daiwa two days after Daiwa commenced the Winding Up Proceeding in this Court. In these circumstances it was submitted that there was an ulterior motive or collateral purpose, namely to bring pressure to bear on Daiwa. Part of the pressure was the commencement on the same day as service of the Japanese Proceeding, of the Oppression Proceeding.

51 There are a number of matters that would in my view make it unwise to draw the suggested inference. As is to be expected both parties are involved in tactical manoeuvres and forensic decisions. This is not meant as a criticism but a reflection on the reality of hard fought litigation and mutual suspicion. Mr Stokes said that he waited until August because he was obtaining advice and that he finally issued the proceeding on 14 August before any winding up proceeding was commenced. It so happened, because of the Japanese vacation period, the proceeding was only served[22] two days after the Winding Up Proceeding commenced. There is evidence to such effect and I accept it. I do not accept that delay is sufficiently suggestive of some tactical impermissible collateral advantage.

52 Next, it was contended that collateral purpose could be inferred from the fact that the Japanese Proceeding included customers without warning letters. Again Mr Stokes gave evidence that the steps taken were based on advice which he accepted.

53 Finally, it was submitted that the letter to the Japanese Ambassador was clearly undertaken with a view to putting maximum pressure on Daiwa and that this was evidence of collateral purpose. I do not agree. The letter, intemperate as it is, was born of desperation in order to endeavour to resolve the deadlock.

54 In the final analysis, using the Japanese Proceeding as a means of resolving the deadlock is not in the circumstances of this case a collateral purpose but a legitimate purpose specifically embraced and approved by the authorities. This is of overwhelming benefit to Barokes, the separate legal entity.

55 Section 237(2)(b) of the Corporations Act 2001 (Cth) requires that it be in the best interests of the company that the applicant be granted leave to bring, or to intervene in, proceedings.

56 The Part 2F.1A provisions (of which s 237 is part of) were inserted into the Corporations Act 1989 (Cth)[23] by the Corporate Law Economic Reform Program Act 1999 (Cth). The policy behind 'best interests of the company' in Part 2F.1A of the Corporations Act 2001 (Cth) is evident from the Explanatory Memorandum to the amending Act:

The main difficulties associated with the common law action centre around the effect of ratification of the impugned conduct by the general meeting of shareholders (if effective, the purported ratification by a majority of shareholders could deny the company as a whole, and hence minority shareholders, any right of action against the directors).[24]

57 To remedy the above difficulty, Part 2F.1A allows for:

An individual shareholder to bring an action on behalf of a company for a wrong done against the company, where the company is unwilling or unable to do so.[25]

58 The 'best interests of the company' criterion in the Explanatory Memorandum to the Corporate Law Economic Reform Program Act 1999 (Cth) envisioned that courts would focus on the true nature and purpose of the proceedings. In that way, the court would recognise that:

A company might have sound business reasons for not pursuing a cause of action open to it and that its management might legitimately have decided that the best interests of the company would be served by not taking action. For example, a decision may be taken in a case where, although it may be clear that there has been a breach of duty by a director, the loss to the company may only be nominal. In this case, the costs of taking proceedings may outweigh any benefit to the company.[26]

59 In Swansson[27] Palmer J noted that in order for the court to be satisfied in granting leave, it must determine that it is in the best interests of the company. Section 237(2)(c) is not satisfied if the proposed derivative action may be, or appears to be, or is likely to be, in the best interests of the company.[28]

60 In Maher v Honeysett and Maher Electrical Contractors[29] Brereton J said:

The phrase "best interests" directs attention to the company's separate and independent welfare...This imports the familiar concept of the interests of the company as a whole.[30]

61 There is no fixed test to determine best interests[31] and there is no special standard of proof or any presumption or disposition against the granting of relief.[32] However, the court will always have regard to whether the benefits of the proceeding are outweighed by the costs and risks that the company would suffer in bringing them.[33]

62 In Metyor Inc v Queensland Electronic Switching Pty Ltd (2002)[34] the Queensland Court of Appeal said:

[10] To require that disputes between members be resolved before leave is granted to bring proceedings on behalf of the company would defeat the very purpose which those statutory provisions are designed to serve.

It may be accepted that ss 236 and 237 were not intended to preserve the former law; but they should surely be approached as measures of reform designed to improve, rather than to place novel obstacles in the way of, such proceedings. It is because one group of members are in control of the management or affairs of the company and refuse to permit it to take proceedings that there is a dispute between the two groups of shareholders or members here. It is only by permitting proceedings to be taken on behalf of the company that the dispute in question can be resolved at all and that the complaint of one set of members against the others can be remedied. Otherwise the majority will be able to prevent the minority and through them the company from obtaining redress against the actions of the majority.

63 Similarly, in Fiduciary Ltd v Morningstar Research Pty Ltd[35] Austin J said:

[47] It seems to me that, where the company in question is a joint-venture vehicle and one of the venturers alleges that the other has acted unlawfully causing the company loss, it will usually be appropriate to allow the complaining venturer to bring proceedings in the company's name against the other venturer and its representatives on the board, even though there are no other shareholding interests than those of the litigants and the effect of success of the litigation will be indirectly to benefit the complaining venturer proportionately to its shareholding

[51] There is a balance to be struck between the prejudice that the company will suffer if claims are pressed unsuccessfully on its behalf and there is an adverse costs order, and the advantage that it will gain, indirectly for the benefit of its shareholders, if the claims are successful: see McLean v Lake Como Venture Pty Ltd [2003] QSC 562 at [7]. Sometimes satisfaction of the "serious question to be tried" criterion will lead readily to the conclusion that the applicant should be permitted to assert the company's claims on its behalf. But where, as here, the assertion of those claims is simply a manifestation of aspects of the overall dispute between the parties, it will often be appropriate for the court to address the question of costs in the event that the claims fail. A suitable way of doing so, addressed during the hearing of the present application, is to grant leave on terms that the applicant is responsible for the costs ordered against the company, and undertakes not to seek contribution or indemnity from the company.[36]

64 In Swansson Palmer J provided four factors for the applicant to address in order to establish on the balance of probabilities that granting leave be given to bring an action is in the best interests of the company. These factors were summarised in a list by the South Australia Court of Appeal in Ragless v IPA Holdings Pty Ltd (in liq):[37]

(1) There should be evidence as to the character of the company.

(2) There should be evidence of the business, if any, of the company so that the effects of the proposed litigation on its proper conduct may be appreciated.

(3) There should be evidence enabling the court to form a conclusion whether the substance of the redress which the applicant seeks to achieve is available by a means which does not require the company to be brought into litigation against its will**.**

(4) There should be evidence as to the ability of the defendant to meet at least a substantial part of any judgment in favour of the company in the proposed derivative action so that the court may ascertain whether the action would be of any practical benefit to the company.[38]

65 In Ragless v IPA Holdings Pty Ltd[39], with regard to the above factors the South Australia Court of Appeal said:

[35] In discussing the first of those matters, Palmer J suggested that the procedure was not suitable in the case of a joint venture company where the controlling interests are deadlocked. He said (at [57]):

[57] ... [T]he company may be a joint venture company in which the venturers are deadlocked so that the proposed derivative action is seen as being for the purpose of vindicating one side's position rather than the other's in a way which will not achieve a useful result: see eg Talisman Technologies Inc v Queensland Electronic Switching Pty Ltd [2001] QSC 324.

After Palmer J had delivered judgment, the Court of Appeal of Queensland published its decision in Meytor Inc in which it allowed an appeal against the decision in Talisman Technologies Inc v Queensland Electronic Switching Pty Ltd [2001] QSC 324 (Talisman Technologies). As already noted, that decision identified the utility of granting leave to resolve a deadlock between controlling interests in a joint venture company...Joint venture companies in which no one shareholder has a controlling interest have a real potential to become bogged down in a stalemate because the shareholders cannot agree how to conduct the business of the company. The decisions in Meytor Inc and in Fiduciary establish that a grant of leave is a suitable means by which to resolve deadlocks of that kind.[40]

66 In MG Corrosion Consultants Pty Ltd v Vinciguerra[41] the full Federal Court said:

[60] If it can be assumed that the conclusions in the Gorey Report were at least in part sound, then it is reasonable to expect that an action taken by a company for recovery of payments made, must necessarily be, if successful, in the best interests of the company. It generally follows that pursuit of an action by or on behalf of a company against an officer for recovery of compensation for damage done to the company by the officer's breach of duty is in "the best in the interests of the company": Vigliaroni v Concrete Precast Systems Pty Ltd [2009] VSC 253 at [29] per Davies J. It is not a requirement under s 237(2) of the CA that oppression proceedings be unavailable to a shareholder. There would be no basis to conclude that an oppression action (as an alternative approach) would have less impact on MGCC's affairs than a statutory derivative action. It is no more in the interests of the company as a whole that an oppression action be brought rather than a derivative action be pursued.

67 In South Johnstone Mill Ltd (ACN 101 695 575) and Others v Dennis and Scales (ACN 004 044 987) and Another (2007),[42] Middleton J's analysis of best interests was within a cost benefit context:

[73] This issue is to a certain extent connected to the strength or otherwise of the case the applicants wish to advance on behalf of the company. The applicants have accepted that they will bear the costs of the proceedings if unsuccessful. This puts the balance of the consideration of what is in the best interests of the company in favour of the applicants.

68 The plaintiffs submitted that the Japanese proceeding is in the best interests of Barokes because it ensures that the patent is protected. Further, it also sends a strong signal to the international market that copy products that are unlicensed will not tolerated.

69 By reference to the authorities earlier referred to, the plaintiffs contended that when a proceeding involves a company's inability to prosecute claims due to deadlock, it will usually be appropriate to allow the minority shareholder to bring the proceeding in the name of the company as the means to resolve that deadlock.

70 It was submitted that once a serious question has been established against a shareholder of financial substance, it can be assumed that it must necessarily be, if successful, in the best interests of the company to bring the action. With regard to this submission, the plaintiffs relied on the decision of the Full Federal court in MG Corrosion Consultants Pty Ltd v Vinciguerra referred to above.

71 The plaintiffs contended that submissions by Daiwa with regard to the potential damage to Barokes are hollow. This is because of proceedings issued by Daiwa on 24 August 2015 to seek to wind up Barokes and Daiwa's intention to take steps to declare JP 240 invalid.

72 It was submitted that Barokes' entitlement to damages was in the amount of about $56m for the 42 products listed in the annexure to the originating motion. It was submitted that the cost to Barokes for prosecuting the Japanese proceeding to judgment would be about $100,000, which it may recover, at least in part, if it succeeds. If the proceeding was not successful, the plaintiffs submitted that save for immaterial amounts, Barokes will not be liable for the defendants' costs.

73 The plaintiffs contended that as they will provide an indemnity in relation to the costs that would be associated with the Japanese Proceeding, the consideration of the best interests of the company is in favour of the plaintiffs . With regard to Austin J's analysis referred to above, it was submitted that if there is a serious question to be tried and costs are indemnified then the balance is in favour of granting the application.

74 It was submitted by the plaintiffs that the evidence demonstrated that no matter how strong a case Barokes had, and even if it were indemnified for its costs, Mr Ikeda would not authorise a suit against the companies of which he is also a director, Daiwa or Monde. As a result, it was contended that Mr Ikeda demonstrated an inability to have regard to Barokes' interests to the extent that they diverge from the interests of Daiwa and Monde.

75 It was submitted by Daiwa that the plaintiffs' current application derives from an internal dispute between shareholders of Barokes. As a result, the best interests of the company would be for Barokes to focus on increasing sales of its product instead of pursuing a hopeless action.

76 Daiwa submitted that in circumstances where the shareholders and the board are deadlocked, it is not in the interests of the company for leave to be given to commence a proceeding by one side against the other.

77 It was contended that if Barokes were to bring this proceeding, damage to the company's reputation and the low likelihood of success, would be detrimental to the company. The reputation to a company, it was submitted, is made worse in the case of a Japanese Proceeding because suing a major shareholder is unheard of in Japan and is considered to be embarrassing and shameful to both Barokes and Daiwa. Further, it was submitted that significant damage to Barokes will occur because the opportunity to supply potential distributors would be severely damaged.

78 Daiwa submitted that there is an 80% likelihood that the Japanese proceeding will be unsuccessful. More specifically, it contended that the prospects of success of the Japanese Proceeding are hopeless as to White wine and Red wine and are extremely low with respect to Sparkling wine.

79 Daiwa also submitted that uncertainty about the validity and infringement has a value to Barokes that will be destroyed if Barokes is unsuccessful in the Japanese proceeding.

80 In my view, the Japanese Proceeding is in the best interests of Barokes as a separate and independent entity.

81 In summary, it has a serious case, will not be liable for the costs and stands to benefit from a substantial award in its favour, which overall, subject to appeal, is likely to be satisfied. On any cost benefit analysis the odds are in favour of the case proceeding.

82 It is in the best interests of the company as a whole, apart from, but obviously consisting of, its rival factions, that the ongoing bitter dispute between its shareholders be resolved. Resolving a deadlock situation is obviously in the best interests of Barokes.

83 The authorities recognise that one way of resolving such a deadlock is to use the procedure provided in the Corporations Act. In fact, as suggested by the authorities, this may be the preferable way, particularly where the claim in the name of the company against a shareholder is the very reason for the deadlock. The rationale and justification provided in the authorities is attractive and compelling if there is - as indeed I have found - a serious case. I propose to follow these decisions.[43]

84 I do not accept that any reputational damage is sufficiently extensive so as to conclude, given all of the circumstances, that it is not in Barokes best interests to proceed. To some extent, as pointed out, the damage has already been done. Further, protecting intellectual property rights is hardly non beneficial to a company, even in a country that is its main market. In fact how much more so is the need for protection. The company is entitled and indeed obliged to protect its intellectual property.[44] If it has a serious case it should proceed particularly if the cost consequences are negligible.[45]

85 There was an issue between the parties as to the test to be applied. Daiwa submitted that the test was the same as that of an interlocutory injunction. This position is supported by authority generally in relation to interlocutory injunctions[46] and specifically in relation to applications under s 237.[47] Accordingly, it was submitted that Barokes was required to show 'a sufficient likelihood of success'.[48]

86 The plaintiffs submitted that a lower threshold was required. It was submitted that, in cases of this kind, that is for leave under s 237, and in particular in relation to patent cases, all that was necessary was that the claim was not frivolous. As I have found that there is a sufficient likelihood of success, it is not necessary to resolve this issue.

87 The plaintiffs submitted that the following were serious questions to be tried in relation to Claim 1 of JP 240:

(a) Whether the SBC is a 'two piece aluminium can body ... with an aluminium closure' within the meaning of JP 240?

(b) What is the correct point of time to measure the free SO2 requirement in Claim 1?

(c) Whether pressure is an essential part of JP 240?

(d) Given any finding in relation to (a), (b) or (c), how will the Japanese doctrine of equivalence be applied?

(e) Is JP 240, under Japanese law, in fact, an inventive step?

88 Despite forceful submissions made on behalf of Daiwa, I am unable to conclude that there is no serious issue to be tried. The dispute between the parties is certainly not frivolous. There is something to argue about. Indeed, there are rival experts reports and the parties have spent days arguing over whether there is a serious issue to be tried!

89 The submissions by both parties, on this issue, comprise over 43 paragraphs with numerous footnotes and references to the substantial evidence and experts' reports. The submissions are technical and of course argumentative and contentious in circumstances where there has been no cross-examination of the experts in relation to matters concerning Japanese law. In an aide memoire handed up at the end of the hearing and subsequently amended, the plaintiffs challenged close to 50 paragraphs and footnotes referred to in Daiwa's submissions as not being supported by evidence. Under cover of an objection Daiwa responded. I have not read the document or its response. There is no point in saying anything more about the substantial volume of material that is often filed in heavily contested interlocutory type applications.

90 The function of the Court, on applications of this kind are not in dispute. The Court does not resolve the dispute but merely exposes and identifies its existence and then determines whether it is serious or frivolous. Further it is not the function of the Court and it is preferable that the Court not express any view on the relative strengths and weaknesses of the respective claims.

91 The claim for infringement of the Vinsafe patent is a serious case. It involves sufficiently complex technical and factual matters that make it extremely difficult, inappropriate, undesirable and indeed unfair for a court to conclude, in the face of rival experts reports, that the claim is not a serious one. It has all the hallmarks of being a serious case. There is no single straightforward 'knock out point'. Barokes may well fail, but it is entitled, subject to satisfaction of the other two issues, to have the argument.

92 The suggested 'knock out points' are problematic and indeed expose the serious issues. By reading paragraphs 29-42 of the plaintiffs' submissions and paragraphs 6-34 of Daiwa's submissions it is unarguable that there is something serious to argue about. The mere articulation of point and counter point is probably sufficient.

93 However, in my opinion, and at the very least, there is a serious issue in relation to the claim that the Sparkling wine infringes Claim 1 of JP 240. There is clearly a sufficient argument in relation to each of the three integers of Claim 1 of JP240 in relation to this product.

94 The Sparkling wine accounts for 54% of the claim. The evidence is that 72% of the wine contains less than 35 ppm of free SO2 at or prior to filling (integer 1). The evidence is comprehensive, unchallenged and not a limited sample as assessed by Daiwa.[49] Further, the pressure within the container is at least 25 psi (integer 2). The only issue is whether the slim bottle can is a 'two piece aluminium can' (integer 3).

95 Daiwa argues that it is a three piece can and falls outside the patent. Barokes argues that it is a 'two piece can', notwithstanding that it has three components. The evidence on this issue is extensive and exposes the rival contentions and seriousness of the issue. The seriousness is demonstrated by the following matters.

96 First, three experts and Stokes all gave evidence (as more fully set out below) that the infringing can is a two piece can. Their evidence is sufficiently detailed and comprehensive. By contrast, the evidence of Mr Kasahara on behalf of Daiwa was not entirely conclusive and he was not provided with many relevant documents in relation to this issue.

97 Second, the effect of the evidence tendered by the plaintiffs (as more fully set out below) is that someone 'skilled in the art' would regard the Daiwa product as a 'two piece aluminium can' irrespective of the number of pieces. Mr Kasahara does not adequately deal with this issue.

98 Third, in my opinion there is (as more fully set out below) a real and serious issue as to whether, the Japanese doctrine of equivalence applies.

99 Accordingly, I am satisfied that there is a real or serious issue in relation to the alleged Sparkling wine infringement. Subject to the other requirements of the section, this claim should proceed.

100 The claims in respect of the white and red wines (accounting for 18% and 28% respectively) involve the same issues (mainly integer 3) and accordingly they should be permitted to proceed subject to satisfaction of the other requirements of the section. They will not add much to the claim.[50]

101 The following evidence, as a whole, establishes to my satisfaction that Barokes has a sufficient likelihood of success or a prima facie claim particularly in relation to the Sparkling wine product -

**(a) Advices from Seiwa Patent and Law (Japan) comprising - **

• Letter of advice dated 29 January 2015 (CB 619-620)[51]

• Letter of advice dated 3 February 2015 (CB 621-622)

• Letter of advice dated 3 September 2015 (CB 1829-1831)

• Letter of advice 18 September 2015 (CB 1332-1336)

• Mr Watanabe expert opinion dated 8 April 2016 (CB 1377-1380) (Watanabe 1)
• Mr Watanabe expert opinion dated 26 April 2016 (CB 2296-2330) (Watanabe 2)

(d) Lynch Cox Gilman & Goodman (USA) (CB 1504-1508);

(e) China Patent Agent HK (China) (CB 1166-1168);

(f) Industry advice from Visy Australia and KJM Aluminium (CB 550-553);

(g) Advice from persons skilled in the art - Charles Brossia;

• Affidavit 11 April 2016 (Brossia 1) (CB 1393-1397)

• Affidavit 25 April 2016 (Brossia 2) (CB 1404-1411)

(h) Advice from persons skilled in the art - Richard Lukins;

• Affidavit 26 April 2016 (Lukins 1) (CB 2194-2289)

• Affidavit 29 April 2016 (Lukins 2) (CB 4372.1-4372.165)

• Affidavit 2 May 2016 (Lukins 3) (CB 4666-4726)

• Affidavit 10 May 2016 (Lukins 4) (CB 4761).

102 This evidence not only establishes an honest belief on the part of Stokes, but clearly establishes a prima facie case and therefore a serious question to be tried as to whether as part of a technical infringement or under the Japanese doctrine of equivalence the SBC is a 'two piece aluminium can body ... with an aluminium closure' within the meaning of Claim 1 of JP 240, the Vinsafe patent.

103 The following specific opinions and matters (within the body of evidence) establishes a prima facie case in relation to the contention that the infringing cans fall within Claim 1 of JP 240 or the doctrine of equivalence -

(a) Seiwa advice 29 January 2015 (paras 1 and 2) (CB 1/619);

(b) Seiwa advice 3 September 2015 (page 2) (CB 3/1830);

(c) Seiwa advice 18 September 2015 (page 2) (CB 2/1333);[52]

(d) Watanabe 2 (pages 3-4) (CB 3/2299-2300). This opinion is particularly important. Mr Watanabe criticises Mr Kasahara's first report[53]and concludes that in his opinion "it is highly likely that the SBC [the infringing cans] will be found to be 'two piece aluminium can body ... with an aluminium closure'".[54] The opinion is that of a highly experienced senior partner in a leading firm of Patent Attorneys in Tokyo. Having read the Expert Witness Code of Conduct Mr Watanabe's expert opinion, in my opinion goes a long way to establishing a prima facie case;

(e) The advice of Lynch, Cox, Gilman and Goodman of Louisville Kentucky, in relation to United States patent law, so far as it may be relevant, confirms that a "two piece aluminium can" would cover "aluminium cans made from more than two pieces ..." (para 4(c)(ii) - CB 3/1507 - emphasis in the original.);

(f) Brossia 1 (pages 3-5 - CB 2/1395-1397). Mr Brossia is a mechanical engineer with over 40 years' experience in relation to containers and cans. He has read the Expert Witness Code of Conduct. He concludes that the SBC and NBC [the infringing cans] cans "are substantially manufactured by conventional two piece can forming technologies and regardless of their final shape can be characterised as being 'a two piece aluminium can body ... with an aluminium closure' within the meaning of Claim 1 of the Barokes patent" (page 5 - CB 2/1397);

(g) Brossia 2 (pages 2-7 - CB 2/1406-1411). Mr Brossia confirms his earlier opinion as expressed in Brossia 1 and criticises the opinions of Mr Omori and Mr Kasahara. The criticisms are detailed and clearly expose the serious issue (see page 6 - CB 2/1410);

(h) Lukins 1 (pages 11-12, [76]-[84] - CB 3/2204-2205). Lukins is a chemical engineer with 17 years' experience in food manufacturing operations. He concludes that counting the number of parts does not determine whether the can is two piece or three piece technology. He says this is not accepted industry practice.

104 The evidence referred to is in my view sufficient. There is the clearest of argument as to whether a 'two piece aluminium can' can have more than two pieces. Persons skilled in the art have opined that it can. Further, there is the question as to the applicability and extent of the doctrine of equivalence.

105 This substantial body of evidence is not in my opinion affected or 'shaken' by the evidence put forward by Daiwa. To the contrary, the evidence, which challenges the conclusions of the experts relied on by the plaintiffs and Barokes, exposes very clearly the differences of opinion. They are, on any view, serious differences which must be resolved and indeed can only be resolved following a trial of the proceeding. It is neither necessary nor desirable to say anything further.

106 Having found that leave is appropriate it is strictly not necessary to deal with this issue. However, in the event that the matter goes further, it is in my opinion that the better view is that Mr Stokes did not have authority to commence the Japanese Proceeding substantively for the reasons given by Daiwa. Even if Barokes was commencing a claim for under $1m it was clearly intended to be a springboard for further substantial claims well in excess of $1m. Indeed that formed part of its argument as to why the proceeding was in the best interests of Barokes.

107 For the reasons given I propose to grant the relief sought by the plaintiffs, subject to the plaintiffs providing the necessary undertaking to indemnify and hold Barokes harmless against all or any costs that may be incurred in relation to the Japanese Proceeding.

108 I will hear from the parties as to the precise form of order, undertaking and costs.

[1] Knights Quest is controlled by Mr Stokes.

[2] SMS Management is controlled by Mr Barics.

[3] Second affidavit of Gregory John Charles Stokes sworn 26 April 2016, exhibit 'GS-60', CB 1639.

[4] First Affidavit of Gregory John Charles Stokes sworn 11 April 2016, paragraph 17, CB 14-5. An English translation of the claims in the Japanese Vinsafe patent is at First Affidavit of Gregory First Affidavit of John Charles Stokes sworn 11 April 2016, exhibit 'GS4', CB 62.

[5] Second Affidavit of Gregory John Charles Stokes sworn 26 April 2016 , exhibit 'GS60', CB 1639.

[7] First Affidavit of Gregory John Charles Stokes sworn 11 April 2016, paragraph 35, CB 20 and paragraph 50, CB 25-6.

[8] First Affidavit of Gregory John Charles Stokes sworn 11 April 2016 exhibit'GS35', CB 635.

[9] First Affidavit of Gregory John Charles Stokes sworn 11 April 2016, exhibit 'GS35', CB 635.

[11] Daiwa Can Company v Barokes Pty Ltd & Ors [2015] VSC 502.

[12] Knights Quest Pty Ltd v Barokes Pty Ltd [2015] VSC 601.

[13] [2002] NSWSC 583 ("Swansson").

[14] Although his Honour emphasised at [35] that this was not intended to be a compendious statement of the factors to be taken into account in assessing whether the applicant was acting in good faith, a factor re-emphasised in subsequent cases. See eg Chahwan v Euphoric Pty Ltd T/as Clay & Michael and Anor [2008] NSWCA 52; (2008) 245 ALR 780 at [81]- [82] per Tobias JA ("Chahwan").

[15] Maher v Honeysett & Maher Electrical Contractors Pty Ltd [2005] NSWSC 859, [28] (Brereton J); Chahwan at [70] (Tobias JA); Showtime Management Australia Pty Ltd v Showtime Presents Pty Ltd [2008] NSWSC 618, [77] (Austin J).

[16] Chahwan v Euphoric Pty Ltd T/as Clay & Michael and Anor [2008] NSWCA 52; (2008) 245 ALR 780 [83]

[18] Maher v Honeysett & Maher Electrical Contractors Pty Ltd [2005] NSWSC 859, [33].

[20] [2008] NSWCA 52; (2008) 245 ALR 780.

[21] Goozee & Anor v Graphic World Group Holdings Pty Ltd & Ors [2002] NSWSC 640; (2002) 42 ACSR 534.

[22] Proceedings in Japan are served on defendants by the Court.

[23] Part 2F.1A of the Corporations Act (Cth) 2001.

[24] Explanatory Memorandum to Corporate Law Economic Reform Program Act 1999 (Cth), 6.23.

[25] Explanatory Memorandum to Corporate Law Economic Reform Program Act 1999 (Cth), 6.11

[26] Explanatory Memorandum to Corporate Law Economic Reform Program Act 1999 (Cth), 6.38.

[27] [2002] NSWSC 583.

[29] [2005] NSWSC 859.

[31] True Value Solar Holdings Pty Ltd v Fernandez [2013] VSCA 27, [13]. Vinciguerra v MG Corrosion Consultants Pty Ltd [2010] FCA 763; (2010) 79 ACSR 293, 119 (appeal dismissed: MG Corrosion Consultants Ltd v Vinciguerra [2011] FCAFC 31; (2011) 82 ACSR 367).

[32] Fiduciary Ltd & Others v Morning Star Research Pty Ltd and Others [2005] NSWSC 442; [2005] 53 ACSR 732, [15].

[33] Oates v Consolidated Services Ltd (2009) 70 NSWLR 69, [119].

[34] (2002) 42 ACSR 398.

[35] [2005] NSWSC 442; (2005) 53 ACSR 732.

[36] Fiduciary Ltd v Morningstar Research Pty Ltd [2005] NSWSC 442; (2005) 53 ACSR 732, [47]-[51].

[37] Ragless v IPA Holdings Pty Ltd (in liq.) [2008] SASC 90, [35].

[38] Swansson, Ragless v IPA Holdings Pty Ltd (in liq.) [2008] SASC 90, [35].

[39] [2008] SASC 90; (2008) 65 ACSR 700, [35].

[40] Ragless v IPA Holdings Pty Ltd (in liq.) [2008] SASC 90, [35].

[41] [2011] FCAFC 31; (2011) 82 ACSR 367, [60].

[42] [2007] FCA 1448; (2007) 244 ALR 730.

[43] Metyor, Ragless and MG Corrosion are decisions of intermediate Courts of Appeal (Queensland, South Australia and the Full Federal Court respectively) and are highly persuasive. In any event, they are not plainly wrong so far as the point under consideration is concerned. Further, the reasoning of Austin J in Fiduciary Ltd is compelling.

[44] There is evidence that Daiwa and Monde have enjoyed rapid and increasing market share in Japan and China. There is also evidence that Daiwa is seeking to invalidate JP 240.

[45] In this regard, and in other respects, this case is different to the case of Blakeney v Blakeney [2016] WASCA 76, recently handed down by The Court of Appeal in Western Australia.

[46] Australian Broadcasting Corporation v O'Neil [2006] HCA 46; (2006) 227 CLR 57.

[47] Swansson, [25]; Goozee v Graphic World Group Holdings Pty Ltd [2002] NSWSC 640; (2002) 170 FLR 451, [32]; Ehsman v Nutectime International Pty Ltd [2006] NSWSC 887; (2006) 58 ACSR 705, [59]; South Johnstone Mill Ltd and Ors v Dennis and Ors [2007] FCA 1448; [2007] 244 ALR 730 [77]-[82].

[48] See O'Neil at [65]. This was the meaning of prima facie case (per Gummow and Hayne JJ).

[49] The Daiwa data, comprising a Fill Table was confined to the period 6 January 2014 to 14 February 2015. The Fill Table was provided to Mr Kasahara.

[50] Documents provided by Daiwa during the course of the hearing, and analysed by Richard Lukins, suggest that in relation to the red wine, free SO2 levels were below 25 ppm at the time of canning. In relation to the white wine, these levels were achieved within 20 days of filling and before consumption. (See 4th Affidavit of Richard Lukins sworn 10 May 2016, CB 4760). The time for measurement of the free SO2 raises another serious question. There is also an issue in relation to integer 2, pressure. No pressure data has been discovered by Daiwa and there is evidence that pressure may not be an essential element of the inventive step for the purposes of the doctrine of equivalence.

[51] For convenience I have inserted all the Court Book pages that I have relied on. I have not extracted the relevant passages.

[52] In the first Affidavit of Yoichi Watanabe sworn 11 April 2016 (CB 1/1379), he confirms the 3 previous opinions given.

[53] Second Affidavit of Yoichi Watanabe sworn 26 April 2016, paragraph 6.