Delnorth Pty Ltd v Dura-Post

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REASONS FOR JUDGMENT (Revised from transcript) 1 By notice of motion dated 5 May 2010, the applicant (Delnorth) sought freezing orders to the sum of $1.2 million against each of the respondents to the motion (Roadside Products Pty Ltd (Roadside), Ralph Edward Norton, Roger Clive Trethewie, Suzanne Norton and Altrex Investments Pty Ltd (Altrex)) (collectively the respondents), and ancillary orders pursuant to O 25A rr 2, 3 and 5. Alternatively, Delnorth sought orders pursuant to s 23 of the Federal Court of Australia Act 1976 (Cth) restraining the respondents from dealing with certain proceeds of sale. 2 The notice of motion that was filed also sought orders for preliminary discovery against each of the respondents pursuant to O 15A, rr 3, 6 and 12. However, Delnorth did not press this part of its notice of motion when the motion first came on for hearing. 3 The principal proceeding is against Dura‑Post (Aust) Pty Ltd (under administration) (Dura-Post) which, as its current corporate designation makes clear, is a company now under external administration. The respondents to the motion were not parties to the principal proceeding. Mr and Mrs Norton and Mr Trethewie are the directors of Dura‑Post. Mr and Mrs Norton are also the directors and shareholders of Altrex. Altrex is the sole shareholder of Dura‑Post. Mr Norton, Mr Trethewie and two others (Scott Payton and Darren Randall) are the directors and shareholders of Roadside. 4 The motion came on for hearing on 3 June 2010 and judgment was reserved. I would have delivered judgment this week. However, Delnorth sought to re-list the motion for the purpose of seeking leave to re‑open to file and read additional affidavit evidence, and to make further submissions based on that evidence. That application was listed for hearing today. The application to re‑open was not opposed, and an affidavit of John Michael Afaras, sworn 25 June 2010, was read. In response, an undated affidavit of Ralph Edward Norton was read. The parties have made further submissions. In the events which have happened, Delnorth no longer seeks to proceed with its motion, particularly in light of certain amendments which Roadside has indicated it is prepared to make to an undertaking it gave to the Court on 9 July 2009. 5 The undertaking given on 9 July 2009 was in the following terms: 1. [Roadside] by itself, its directors, officers, employees, agents or otherwise will not, until 28 days after final orders are made in Delnorth Pty Ltd's claim for pecuniary relief in Proceedings No. 378 of 2006, or further order, dispose of, encumber or otherwise deal with, in any way, the business name "Dura-Post". 2. Roadside by itself, its directors, officers, employees, agents or otherwise will not, until 28 days after final orders are made in Delnorth Pty Ltd's claim for pecuniary relief in Proceedings No. 378 of 2006, or further order, dispose of, encumber or otherwise deal with, in any way, any of Roadside's money, property or other assets whether in the name of Roadside or not and whether solely or jointly owned, up to the value of $1.2 million, other than for the following purposes: (i) to protect the intellectual property of Roadside by the commencement and prosecution of proceedings against infringement of the same; (ii) to commence and prosecute any other bona fide proceedings which Roadside may be advised to bring; (iii) to defend any other proceedings on foot or that may be brought against Roadside; (iv) to meet Roadside's taxation liabilities; (v) to comply with the statutory requirements to which Roadside is subject; (vi) to meet Roadside's accountancy and legal fees; (vii) to operate its business bona fide including without limitation to pay ordinary and proper business expenses incurred by Roadside, including but not limited to remuneration of staff; (vii) (sic) to operate an ordinary business overdraft secured against the assets of the company, solely for the purpose of the business; (viii) to enter into lease and hire purchase agreements in the ordinary course of its business solely for the purpose of its business. 6 Today, in the course of argument, Roadside indicated that it was prepared to offer an amended undertaking in substantially the same form as the undertaking given on 9 July 2009, save that in paragraph 2 quoted above the words "28 days after final orders are made in Delnorth Pty Ltd's claim for pecuniary relief in Proceedings No. 378 of 2006, or" would be deleted, and the words "and whether or not held by it as trustee" would be added after the words "whether in the name of Roadside or not." 7 In making this indication, Roadside was careful to make clear that it was doing so without concession as to any perceived inadequacy of the undertaking it had given on 9 July 2009. I have, this afternoon, accepted undertakings given by both the applicant and Roadside effectively in substitution (as to their future operation) for the undertakings given by them both on 9 July 2009. 8 It is not now necessary to set out the background to the bringing of Delnorth's motion. It is sufficient to note that it arises out of patent infringement proceedings against Dura-Post. On 24 February 2006 the principal proceeding was commenced by Delnorth against Dura-Post, claiming relief for infringement of an innovation patent which had been certified on 2 February 2006: see s 120(1A) of the Patents Act 1990 (Cth) (Patents Act). The pleadings were subsequently amended to claim relief for infringement of two additional innovation patents which were certified respectively on 6 July 2006 and 5 October 2006. Infringement was in issue, and Dura-Post cross-claimed for revocation of each of the innovation patents. 9 On 13 August 2008 Gyles J delivered judgment (Delnorth v Dura-Post (Aust) Pty Ltd [2008] FCA 1225; (2008) 78 IPR 463). His Honour found that Dura-Post had infringed some of the claims of each of the innovation patents by, amongst other things, making and supplying certain flexible steel roadside posts. 10 On 19 August 2008 his Honour made declarations with respect to infringement and, for the purposes of s 19 of the Patents Act, certified that certain claims of the innovation patents had been questioned unsuccessfully in the proceeding. His Honour granted injunctive relief and made other orders, including certain costs orders in Delnorth's favour, against Dura-Post. His Honour also made orders revoking certain claims of two of the innovation patents. Finally his Honour granted leave to appeal. 11 On 4 September 2008 Dura-Post filed a notice of appeal. 12 In the context of events which I do not need to detail, other than to note that Dura‑Post transferred its business to Roadside on about 28 September 2008, Roadside gave an undertaking to the Court on 26 November 2008, providing for the preservation of assets. Dura-Post also gave an undertaking to the Court. 13 Dura-Post's appeal was dismissed on 30 June 2009. On 9 July 2009, following dismissal of the appeal to the Full Court, Roadside gave the undertaking which I have quoted. This undertaking was substantially in the same terms as that given on 26 November 2008, save that it took into account the fact that Dura-Post's appeal had been dismissed. Dura-Post also gave an undertaking in amended form on 9 July 2009. 14 For present purposes, it is sufficient for me to record that the respondents have resisted the relief sought in the applicant's motion, on a number of grounds. 15 A significant ground in this regard was the continuing existence of the undertaking given by Roadside on 9 July 2009. In the course of oral submissions on 3 June 2010, Delnorth raised a concern that Roadside and those in control of it may hold a view, contrary to Delnorth's view, that the undertaking given on 9 July 2009 only related to assets that were beneficially owned by Roadside, and did not include assets that it held in its name as trustee. 16 However, the respondents, through their counsel, made their position clear: There was no ambiguity in the undertaking, and the words "Roadside's money, property or other assets", as used in the undertaking, meant money, property and assets legally held by Roadside, regardless of whether the money, property and assets were also held by it beneficially. In other words, the undertaking covered, in their submission, money, property and assets whether or not they were held by Roadside subject to a trust. This acknowledgment was properly made, in my view, because this was plainly the context in which the undertakings were given by Roadside. The undertakings given by Roadside on 26 November 2008 permitted Roadside's money, property or other assets to be used for limited purposes, including to operate its business bona fide, and to do other things for the purpose of its business. The undertaking also specifically provided for the preservation of the Dura-Post business name. I am satisfied that prior to the undertaking being given Delnorth and Roadside each knew that the Dura-Post business had been acquired from Dura-Post by Roadside, as trustee of the Roadside Products Unit Trust, and was the business being carried on by Roadside. Roadside had no other business at the time. The undertaking was given by it on 26 November 2008. The "business" referred to in that undertaking was plainly the Dura-Post business. 17 On the evidence presently before the Court, the word "business" in the existing undertaking given by Roadside on 9 July 2009 could not reasonably bear any different meaning. There is no evidence of any other business being carried on by Roadside. 18 In conformity with its ready acknowledgement made on 3 June 2010, Roadside has shown its preparedness to make that understanding explicit, hence the reason for it being careful to ensure that this preparedness does not carry with it any concession that the undertaking given on 9 July 2009 was in any way inadequate to protect Delnorth's position. 19 I should add in this regard that the undertakings given by both Roadside and Dura-Post on 26 November 2008 and 9 July 2009 were the subject of negotiation between Delnorth, Dura-Post and Roadside, once again in the knowledge that Roadside was the trustee of the Roadside Products Unit Trust. 20 Delnorth sought leave to reopen because Dura-Post's creditors have recently voted in favour of a deed of company arrangement. Delnorth voted against that proposal. It seems that the administrator's vote in favour of the proposal was decisive. This has provoked some debate about whether that event affects, or will affect, or could affect, in any way, the continuance, according to its terms, of the undertaking given by Roadside on 9 July 2009. It is not immediately apparent to me that that event does have any such effect, or might have such effect. But Roadside, sensibly in my view, has indicated a preparedness to remove any doubt about the matter by proffering an undertaking that omits the words "28 days after final orders are made in Delnorth Pty Ltd's claim for pecuniary relief in Proceedings No. 378 of 2006, or" where appearing in the undertaking given on 9 July 2009. As I have indicated above, the effect would be to provide an undertaking to the Court which was expressed to be until further order. 21 The fact that Delnorth no longer wishes to proceed with this motion means that the motion should be dismissed. I indicated this morning that, in those circumstances, I could see no reason why Delnorth should not pay the respondents' costs. I remain of that view. In my view, the amendments that Roadside indicated it was prepared to make do not constitute a reason why the respondents should not have their costs. Those amendments simply make clear, beyond any argument, that the undertaking is intended to cover trust assets. Neither Roadside, nor any of the other respondents, have ever suggested otherwise. Indeed, their position has been that the undertaking given by Roadside on 9 July 2009, and the earlier undertaking given by it on 26 November 2008, covered money, property and assets Roadside held as a trustee. It has only been Delnorth that has suggested a possibly different construction of the undertakings. Similarly, the other amendment is probably unnecessary but, nevertheless, removes any doubt about the continuing effect of the undertaking given by Roadside on 9 July 2009. The continuing effect of that undertaking had been the centrepiece of the respondents' resistance to the orders sought by Delnorth on its motion. 22 Delnorth has submitted that it is entitled to its costs since the hearing on 3 June 2010 given certain offers made by correspondence from its solicitors dated 17 June 2010 and 23 June 2010. In my view, the respondents did not act unreasonably in not accepting those offers in the terms in which they were made. 23 Delnorth has also submitted that it is entitled to its costs up to, and including, the service on 31 May 2010, of an affidavit made by Mr Norton on 28 May 2010. In that connection, Delnorth submitted that up to that time "some relief or other which effectively better secured what any reasonable person would have thought the undertakings had secured, was far more likely than not". 24 I do not accept that submission. Mr Norton's affidavit gave details of the transactions underlying the transfer of the Dura-Post business to Roadside, on or about 28 September 2008. But knowledge of those matters does not overcome the fact that undertakings were in place, including Roadside's undertaking given on 9 July 2009, which Delnorth had negotiated. It can be readily inferred that Delnorth regarded those undertakings as satisfactory, otherwise it would not have been prepared to accept them. 25 Delnorth has also submitted that it was entitled to place reliance on the fact that Dura-Post's undertaking given on 9 July 2009 guaranteed the continuing presence of $1.2 million. I refrain from making any finding on that matter in the absence of hearing any argument from Dura-Post on that point. Suffice it to say that I do not see the resolution of any debate on that matter as having relevance to the undertaking given by Roadside. 26 Upon the undertakings being given today by Delnorth and Roadside, the undertakings given to the Court on 9 July 2009 by Delnorth and Roadside are discharged as to their future operation. 27 This order does not discharge and does not affect the operation of those undertakings for the period 9 July 2009 to 25 June 2010 inclusive. 28 In the circumstances, I will order that Delnorth's notice of motion, dated 5 May 2010, be dismissed. I will also order that Delnorth pay the costs of the respondents to the notice of motion. I certify that the preceding twenty-eight (28) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Yates.