Falkenhagen v West

Federal Court of Australia|2021-09-29|Before: Greenwood J, Downes J

The application for leave to amend the statement of claim in the form of the document which is annexure "CPB-1" to the affidavit of Christopher Phillip Blishen sworn 15 September 2021, as further amended by proposed changes to paragraphs 37 and 42 of annexure "CPB-1", is dismissed.
The applicant pay the respondents' costs of and incidental to the application referred to in order 1.
The proceeding be referred to Registrar Schmidt for a mediation to be held prior to 31 October 2021. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

INTRODUCTION 1 This proceeding was commenced by Originating Application filed on 19 August 2019. A Statement of Claim was also filed on 19 August 2019. Following a strike out application brought by the respondents earlier this year, the applicant disavowed reliance on the original statement of claim filed in 2019: see Falkenhagen v West [2021] FCA 575 (Falkenhagen) at [3] and, in particular, order 4 made by Greenwood J. 2 In the face of that strike out application, the applicant applied for leave to amend his Statement of Claim (and Originating Application). That application was heard by Greenwood J. By the time of the hearing of that application, the applicant had proffered three different versions of an Amended Statement of Claim. In Falkenhagen at [5], Greenwood J stated that: The applicant foreshadowed an application for leave to amend the statement of claim in the form of a document which is Exhibit CPB1 to the affidavit of Mr Blishen sworn 3 February 2021. That document was the subject of correspondence between the parties being Exhibit CPB2 to that affidavit. Mr Blishen filed a further affidavit dated 16 April 2021 to which is exhibited a further proposed amended statement of claim in the form of Exhibit CPB2 to that affidavit. That affidavit was also the subject of correspondence between the parties. All of that material has been considered by the Court. On the morning of the hearing of the application, the applicant provided the respondents with a further version of the amended statement of claim and a copy of that document was handed up to the Court on the morning of the hearing on 20 May 2021. That further version seems to take up changes which are more conveniently set out on separate pages reflecting proposed changes to paras 8(a), 25, 29 and 32(d) of the amended statement of claim of 16 April 2021 (which is the document described as Exhibit CPB2 to the affidavit of 16 April 2021). 3 The application before Greenwood J was refused and the following order was made on 31 May 2021: The applicant is directed under section 37P(3)(a) of the Federal Court of Australia Act 1976 (Cth) (the "Act") to consider the reasons for judgment published in support of these orders with a view to formulating a further proposed amended statement of claim and filing and serving an affidavit by his solicitor exhibiting such a document for the further consideration of the Court under sections 37M, 37N and 37P of the Act. 4 Greenwood J also ordered that: The trial of the proceeding will be the subject of a separate hearing and determination of issues going to the formation of the agreement, its express and implied terms, the conduct of the respondents said to constitute breach, the character of the breach (if any), repudiation and a discharge, and any other conduct going to a contended liability on the part of the respondents arising out of the claims for relief sought by the applicant in the principal proceeding. 5 On 20 June 2021, the applicant filed an affidavit of his solicitor which exhibited a further version of his proposed Amended Statement of Claim. However, at that time, the applicant did not bring any application for leave to file that pleading or to otherwise have the pleading considered by the Court as had been proposed by the order of 31 May 2021. 6 By application which was accepted for filing on 20 July 2021, the respondents applied to strike out the Statement of Claim (being the version filed in 2019). That application was set down for hearing on 16 September 2021. 7 The applicant filed a further affidavit of his solicitor on 15 September 2021 which annexed a further version of a proposed Amended Statement of Claim. Also on 15 September 2021, the applicant applied for an order that the applicant have leave to file and serve that proposed Amended Statement of Claim. The application and affidavit were filed on the day before the hearing of the strike out application. 8 In the face of the application filed by the applicant on 15 September 2021, the respondents' strike out application was not pressed at the hearing but the respondents were awarded their costs of that application. 9 At the hearing on 16 September 2021, the applicant's counsel indicated an intention to amend further aspects of the proposed Amended Statement of Claim relating to paragraphs 37 and 42. 10 Accordingly, this was an application by the applicant to file and serve what was, in effect, his seventh attempt to plead a statement of claim. 11 The version of the pleading being addressed in this judgment is in the form of the document which is annexure "CPB-1" to the affidavit of Christopher Phillip Blishen filed on 15 September 2021, as further amended by proposed changes to paragraphs 37 and 42 which were the subject of oral submissions during the hearing of the application (proposed ASOC). 12 The respondents opposed the application filed on 15 September 2021 on the basis that the proposed ASOC would be liable to be struck out pursuant to r 16.21 of the Federal Court Rules 2011 (Cth) (Rules). 13 For the reasons set out below, I agree that it would be liable to be struck out and I dismiss the application filed on 15 September 2021. 14 As this is the seventh attempt by the applicant to plead his case since August 2019 and having regard to ss 37M(1) and (2) of the Federal Court of Australia Act 1976 (Cth), I will also order that the parties attend a mediation with a judicial registrar of this Court for the purposes of, at the least, identifying and narrowing the issues in dispute to enable the matter to progress to a trial on questions of liability in accordance with the Orders of 31 May 2021.

OBJECTIONS TO MATERIAL READ BY the APPLICANT 15 At the hearing, the applicant's counsel read and sought to rely upon a list of material which was contained in paragraph 1 of the Outline of Submissions filed on 13 September 2021. That list included three affidavits filed by the applicant on 19 August 2019 (being the date on which the proceedings were commenced), two affidavits filed by the applicant on 6 November 2019, an affidavit of Mr Blishen (the applicant's solicitor) filed on 4 February 2021 (which attached one of the earlier iterations of the Amended Statement of Claim) and an application filed on 4 February 2021 (which sought leave to file the Amended Statement of Claim annexed to the affidavit filed on 4 February 2021). The application filed on 4 February 2021 was not the application which was before me. 16 The respondents objected to this material being relied upon by the applicant on the grounds of relevance. This objection was in the context of their opposition to leave being granted on the basis that the proposed ASOC would be liable to be struck out pursuant to r 16.21 of the Rules, and that the pleading should stand or fall on its own. 17 The respondents relied upon the decision of Takemoto v Moody's Investors Service Pty Limited [2014] FCA 1081 at [17], where Flick J stated: [Rule 16.21] is "concerned only with the adequacy of the pleading" and "does not permit or allow consideration of facts or evidence outside the pleadings": Imobilari Pty Ltd v Opes Prime Stockbroking Ltd [2008] FCA 1920 at [4], (2008) 252 ALR 41 at 43 per Finkelstein J. See also: Windsor v Sydney Medical Service Co-Operative (No 2) [2009] FCA 704 at [12] per Edmonds J. 18 This statement by Flick J was recently applied by Thawley J in Richards v Han [2020] FCA 1886 at [60]. 19 In Imobilari Pty Ltd v Opes Prime Stockbroking Ltd (2008) 252 ALR 41; [2008] FCA 1920 at [4], which was cited by Flick J, Finkelstein J stated (in relation to the former equivalent of r 16.21) that: The fundamental thing to understand about the strike-out rule, which the language of O 11 r 16 itself makes clear, is that the rule is concerned only with the adequacy of the pleading (or to be more precise, the allegations and the causes of action asserted therein) as a matter of law. The rule does not permit or allow consideration of facts or evidence outside the pleadings... 20 In response to the objection, the applicant's counsel submitted that Greenwood J had considered affidavit material filed by the applicant when considering the application which was then before his Honour. 21 However, no objection appears to have been taken to the affidavit material which was relied upon before Greenwood J. 22 Further, his Honour stated in Falkenhagen at [12]: Nevertheless, the pleading must coherently frame the material facts which, if proved, would give rise to a right to the relief sought both in the proposed amended originating application and the proposed amended statement of claim. 23 With respect, I agree with this statement. I also do not interpret the decision of Greenwood J in Falkenhagen as excusing the applicant from complying with the Rules in relation to pleadings. 24 Accordingly, other than the affidavit of Mr Blishen filed on 20 June 2021, the affidavits listed in paragraph 1 of the applicant's Outline of Submissions filed on 13 September 2021 are irrelevant to the application before me and I have not regard to them for the purposes of deciding this application. 25 In this regard, I note that, other than in the list of material in paragraph 1 and a general reference to unspecified "affidavit evidence" in paragraph 5.11, no mention of any of the affidavits was made in the applicant's Outline of Submissions filed on 13 September 2021. This suggests that the affidavits were not of significance to the applicant's arguments in any event.

RELEVANT RULES AND PRINCIPLES 26 In this application, it is relevant to consider whether the proposed ASOC complies with the Rules. 27 Rule 16.02 provides that: 16.02 Content of pleadings - general (1) A pleading must: (a) be divided into consecutively numbered paragraphs, each, as far as practicable, dealing with a separate matter; and (b) be as brief as the nature of the case permits; and (c) identify the issues that the party wants the Court to resolve; and (d) state the material facts on which a party relies that are necessary to give the opposing party fair notice of the case to be made against that party at trial, but not the evidence by which the material facts are to be proved; and (e) state the provisions of any statute relied on; and (f) state the specific relief sought or claimed. (2) A pleading must not: (a) contain any scandalous material; or (b) contain any frivolous or vexatious material; or (c) be evasive or ambiguous; or (d) be likely to cause prejudice, embarrassment or delay in the proceeding; or (e) fail to disclose a reasonable cause of action or defence or other case appropriate to the nature of the pleading; or (f) otherwise be an abuse of the process of the Court. (3) A pleading may raise a point of law. (4) A party is not entitled to seek any additional relief to the relief that is claimed in the originating application. (5) A party may plead a fact or matter that has occurred or arisen since the proceeding started. 28 Rule 16.03 provides that: 16.03 Pleading of facts (1) A party must plead a fact if: (a) it is necessary to plead it to meet an express denial of the fact pleaded by another party; or (b) failure to plead the fact may take another party by surprise. (2) However, a party need not plead a fact if the burden of proving the fact does not lie on that party. 29 Rule 16.04 provides that: 16.04 References to documents or spoken words (1) A pleading that refers to a document or spoken words need only state the effect of the document or words without including the terms of the document or the words themselves. (2) However, if the words are material to the pleading, the pleading must include the words. 30 The respondents oppose leave being given to file the proposed ASOC on the basis that it would be liable to be struck out pursuant to r 16.21 of the Rules. 31 Rule 16.21 of the Rules provides: 16.21 Application to strike out pleadings (1) A party may apply to the Court for an order that all or part of a pleading be struck out on the ground that the pleading: (a) contains scandalous material; or (b) contains frivolous or vexatious material; or (c) is evasive or ambiguous; or (d) is likely to cause prejudice, embarrassment or delay in the proceeding; or (e) fails to disclose a reasonable cause of action or defence or other case appropriate to the nature of the pleading; or (f) is otherwise an abuse of the process of the Court. (2) A party may apply for an order that the pleading be removed from the Court file if the pleading contains material of a kind mentioned in paragraph (1)(a), (b) or (c) or is otherwise an abuse of the process of the Court. 32 It was stated by Wigney J in Chandrasekaran v Commonwealth of Australia (No 3) [2020] FCA 1629 that: [105] A pleading is likely to cause prejudice or embarrassment, for the purposes of r 16.21(1)(d) of the Rules, if it is susceptible to various meanings, contains inconsistent allegations, includes various alternatives which are confusingly intermixed, contains irrelevant allegations or includes defects which result in it being unintelligible, ambiguous, vague or too general: …. Such a pleading could equally be characterised as evasive or ambiguous for the purposes of r 16.21(1)(c) of the Rules. [106] A pleading may be considered to be embarrassing if it suffers from narrative, prolixity or irrelevancies to the point that it is not a pleading to which the other party can reasonably be expected to plead to:…. A party cannot be expected to respond to mere context, commentary, history, narrative material or material of a general evidentiary nature: …. … [108] A "reasonable cause of action", for the purposes of r 16.21(1)(e) of the Rules, is a cause of action that has some chance of success having regard to the allegations pleaded: …. A cause of action cannot be struck out merely on the basis that it appears to be weak: …. [109] If substantial parts of a pleading are struck out, the Court may strike out the entire pleading on the basis that the residue would be confusing: …. (Citations omitted) 33 The decision whether it is appropriate to strike out a pleading is a case specific inquiry. The application of the principles will differ depending on the case and on the pleading: see Gall v Domino's Pizza Enterprises Ltd (No 2) (2021) 150 ACSR 387, 392 [18]; [2021] FCA 345, [18]. 34 On any application to strike out all or part of a pleading, there will usually be a tension between avoiding taking an unduly technical or restrictive approach to the application of the rules of court, especially if that approach would deprive a litigant of advancing a viable claim or defence, and enforcing the rules of court to the extent required to ensure that the party which is required to respond to a pleading is able to understand the case pleaded against it and to meet that case, and is not put to the added expense of pleading to, preparing for and meeting a case at trial which includes, for example, irrelevant allegations. 35 The tension between the competing interests of the parties was alluded to by the Full Court of the Federal Court in Construction, Forestry, Mining and Energy Union v BHP Coal Pty Ltd [2017] FCAFC 50 at [44] as follows: The Court has a discretion to decline to strike out a defective pleading. Clearly enough, "great caution" should be exercised before striking out a party's pleaded case and thereby potentially placing an impediment in the path to the vindication of a claim for relief. To do so would expose a party to the prospect of being unfairly denied access to the courts. Greater uncertainty, perhaps, surrounds those circumstances in which a party may be exposed to procedural unfairness by being confronted with a pleading which (for example) is accepted to be sufficiently ambiguous or uncertain such that it should be struck out. To permit such a pleaded case to proceed to hearing exposes that party to the prospect of unfairness by being confronted with a deficiently pleaded case. …

ANALYSIS 36 These reasons identify the key reasons why the proposed ASOC does not comply with the Rules and would be liable to be struck out.

Formation of Agreement 37 The proposed ASOC pleads at [4] that the Applicant was the sole inventor of, and possessed intellectual property rights in, the invention of the "Hollow Borer Auger" which is defined as the "invention". 38 The proposed ASOC then pleads at [7] that, "During September of 2017 the Applicant and the First Respondent had discussions regarding a business venture for further development and deployment of the invention and in express oral terms made an agreement". At [7A], it is pleaded that the First Respondent was acting both in his own capacity and on behalf of "a company yet to be formed". 39 Paragraph 8 pleads that: 8. The express oral terms of the agreement between the Applicant and the First Respondent were in terms that; aa) the First Respondent would attend to the incorporation of the Second Respondent, to be named Polemaster Pty Ltd, as a vehicle for the exploitation of the intellectual property rights in the invention; a) the Applicant would, by way of his agent Registered Patent Attorney TJIP Patents Trademarks & Designs, hereinafter referred to as "TJIP", assign to the Second Respondent the sole rights to, title and interests in the intellectual property in the invention, for the United States and all countries throughout the world, which at the material time was subject of the filing with IP Australia of a Provisional Patent Application 2015901126 28 March 2015 and International Patent Application Number PCT/AU2016/050229 24 March 2016, and is hereinafter referred to as the "IP Rights"; b) in consideration for the assignment of the "IP Rights" by the Applicant to the Second Respondent, the First Respondent would transfer or cause to be issued to the Applicant a 30% shareholding in the Second Respondent; c) in consideration for the assignment of the "IP Rights" by the Applicant to the Second Respondent the First Respondent would pay the sum of $1,500,000 to the Applicant; d) the Second Respondent would operate the business development, deployment and operations of the invention; e) the First Respondent would finance the business development, deployment and operations of the invention by the Second Respondent until it made a profit; and f) the Applicant and the First Respondent would share in the profits made by the Second Respondent, 30% and 70% respectively. (emphasis added) 40 It is unclear from [8] of the proposed ASOC whether it is alleged that these were the words or effect of the words used during the discussions between the applicant and first respondent or whether it is alleged that, by reason of the discussions pleaded in [7], the oral agreement contained the express terms pleaded in [8]. 41 However, this is not a criticism which was raised by the respondents. The applicant did not have the opportunity to address this issue at the hearing. If this was the only defect in the pleading, leave would not have been refused. 42 Having said that, should any further attempt be made to plead a statement of claim, the facts relied upon to allege that express oral terms were agreed in discussions should themselves be pleaded or, at the least, the subject of cross-referencing through particulars to paragraphs of identified affidavits in particulars to [7]. 43 This is important because [8] has been amended extensively which tends to suggest that [8] does not plead the words or (where permissible pursuant to r 16.04) the effect of the words used by the applicant and the first respondent in the discussions pleaded in [7]. 44 Further, the terms of the oral agreement lies at the heart of the applicant's case. The facts relied upon to allege the terms of the oral agreement should be pleaded in the proposed ASOC (or at least identified in particulars to material facts in that pleading, with appropriate references to paragraphs of affidavits which have been filed). Presumably, those facts will be the words used (if material within the meaning of r 16.04) or effect of the words used in the discussions pleaded in [7].

Assignment of IP Rights 45 Paragraph 13 of the proposed ASOC pleads that on 27 September 2017, and pursuant to the agreement, the applicant executed an assignment of the IP Rights to the second respondent and provided the first respondent with a copy. The assignment is described as a "valid assignment". 46 Subparagraph 13(c) pleads that the original of the assignment document was held in escrow by the applicant's patent attorneys. The relevance of providing a copy of the assignment to the first respondent (as referred to above) and that the original was held in escrow is not apparent on the pleading. 47 During the course of the hearing, it was submitted by the applicant's counsel as follows: What actually happened, your Honour, is that of the 27th, when that assignment was made, there were a number of communications between the patent attorney acting for the applicant and the first respondent, indicating that the IP rights were going to - firstly - to be registered to the applicant, and the subsequent transfer of the IP rights would take place through the applicant's patent attorney. … 48 These submissions tend to suggest that there was also an agreement to use the applicant's patent attorney, but no such agreement has been pleaded. 49 In Falkenhagen, Greenwood J stated at [95]: …The applicant says that there was "only" one valid instrument, that is, the "valid assignment" (not presently pleaded properly, however, as to the Instrument, its terms or content), and that assignment, it seems (ASOC, para 15), was delivered into the hands of TJIP to be "held" by the firm pending performance of, in particular, the payment term and the share allocation term. It seems to be contended that use of that Instrument by Mr West or Polemaster to give effect to assignments within each relevant patent office prior to performance of the two particular terms of the agreement, is a breach of the agreement and use of a different document, the Deed, to achieve the same result is also a breach of the agreement. 50 However, such a case is not pleaded in the proposed ASOC. If that is the applicant's case, then it should be pleaded. 51 Notwithstanding the agreement reached as pleaded in [8(a)] and the execution of the assignment document as pleaded in [13] of the proposed ASOC, subsequent facts are then pleaded in the proposed ASOC which amount to a complaint that the second respondent has taken steps to act as if it was the valid assignee of the IP Rights and caused certain patent applications to be assigned to it without the applicant's authority. See, for example, [21] - [24], [26], [28], [30] and [32]. 52 However, with one arguable exception which is contained in [8A] which is addressed below, no facts are pleaded to explain why, in circumstances where the IP rights have been validly assigned to the second respondent pursuant to and in accordance with the agreement, the second respondent was not entitled to engage in the conduct pleaded in [21] - [24], [26], [28], [30] and [32] of the proposed ASOC. 53 For example, there is no plea that the IP Rights which were assigned were limited in scope in some way. 54 This is significant because, during the hearing of the application, the applicant's counsel submitted to the effect that, by reason of the conduct of the respondents, they had gained more than had been agreed upon by the applicant: MR WRENN: Had he been advised that that document was being used, he may have been able to protect his rights and not lose 100 per cent of the IP rights without the proper negotiations being completed, because up until this stage, nothing else has happened. It wasn't until later on in the year that my client - and this is clearer from the pleadings - my client wrote a letter to his solicitor and said, "Well, what's happening?" And the reply was - clearly pleaded in his pleadings - that the first respondent owned - the first and second respondents owned 100 per cent of the IP rights, and that - - - HER HONOUR: And is that something that was more than what was agreed to? MR WRENN: Yes, because that's when the client - my client first discovered that he had lost his IP rights, and - - - … HER HONOUR: … Is that something that was more than what was agreed to by your client? MR WRENN: Yes. 55 If that is the applicant's case, then such a case must be pleaded but it does not appear in the proposed ASOC. 56 The applicant was told to make clear the scope of the assignment in Falkenhagen at [37] - [38]: [37] …The terms at para 8(aa) and para 8(a) suggest that all intellectual property rights in the invention (as described in the patent applications), including the patent applications, were to be vested, transferred or assigned into the company to be formed. However, it may be that what is contended is that the applicant would assign the sole rights and interests in the intellectual property consisting of the two assigned patent applications. In other words, an assignment of the patents. [38] To the extent that there is ambiguity about this matter, the applicant needs to make clear in the ASOC the scope of the assignment or transfer which is the subject matter of the agreement. This is especially so as the terms of the agreement are oral terms. 57 The ambiguity about what was assigned has not been removed. Paragraph 8(a) of the proposed ASOC can be read as being an assignment of the sole rights to, title and interests in the intellectual property in the invention, for the United States and all countries throughout the world which happened to be the subject of the filing of two patent applications or it can be read as being an assignment of the sole rights and interests in the intellectual property consisting of the two patent applications. 58 Paragraph 8A of the proposed ASOC alleges that it was an implied term of the agreement: (a) That the performance of each of the promises would be mutually conditional and interdependent on the basis that; … iii) It was reasonable and equitable, and further, or alternatively, in manifestation or furtherance of the duty of the First Respondent to give the consideration detailed in paragraph 8 (b) and (c) to Applicant in order to be entitled to record changes of ownership of the IP Rights to the Second Respondent and perform the operations detailed in paragraph 8 (d) … 59 Having regard to the manner in which it has been expressed, there is almost no prospect of this Court finding that there was an implied term of the kind pleaded in [8A(a)(iii)]. The term as pleaded is not, for example, so obvious that "it goes without saying" and nor is it necessary to give business efficacy to the agreement. More importantly, the alleged implied term is not capable of clear expression: see Falkenhagen at [50]. What, for example, is the duty of the first respondent to which reference is made? 60 This alleged implied term cannot be allowed to stand. Without it, there is no proper foundation for a plea that the assignment of the IP Rights could not be acted upon by either respondent without the payment of the promised money and transfer of the promised shares having occurred. 61 Even if there was an implied term of the kind pleaded in [8A(a)(iii)] of the proposed ASOC, such a term imposed no obligation or restriction upon the second respondent. This means that such a term, even if it existed, did not prevent the second respondent from engaging in the conduct pleaded in [21] - [24], [26], [28], [30] and [32] of the proposed ASOC.

Patent applications 62 Paragraph 11 of the proposed ASOC pleads the awareness of the first respondent of the "Australian Patent Application" as having been made, and the "Patent Applications for Canada, China, Europe, Japan, New Zealand and USA" as proceeding. The relevance of the awareness of the first respondent to any pleaded cause of action is not apparent. 63 Paragraph 12 of the proposed ASOC pleads the awareness of the first respondent of the fact that the "American Patent Application" as progressing. The relevance of the awareness of the first respondent to any pleaded cause of action is not apparent. 64 Paragraph 17 of the proposed ASOC pleads (amongst other things) that, on or about 28 September 2017, the applicant filed Australian Patent Application 2016240396 (AU Patent Application) and US Patent Application 15/562,464 (US Patent Application). It is unclear whether these applications are the Australian Patent Application in [11] and the American Patent Application in [12], or something else. 65 Further, it may be assumed that the patent applications pleaded in [17] relate to the invention referred to in [4] of the proposed pleading. If that is so, then it should be pleaded. If it is not, then its relevance to the applicant's case is not apparent. 66 Paragraph 19 of the proposed ASOC pleads the awareness of the first respondent that the applicant's patent attorneys had received the filing receipt for "New Australian National Phase Entry of International Patent Application Number PCT/AU2016/050229". The relevance of the awareness of the first respondent to any pleaded cause of action is not apparent. 67 Further, the relationship between the "Australian Patent Application" (in [11]), "Australian Patent Application 2016240396" (in [17]) and "New Australian National Phase Entry of International Patent Application Number PCT/AU2016/050229" (in [19]) is not pleaded. 68 Paragraph 25 of the proposed ASOC pleads (in substance) that, pursuant to a request made on behalf of the respondents, a transfer of the AU Patent Application to the second respondent was recorded on the register with IP Australia, and that this was done without prior advice or notice being given to the applicant. The relevance of the allegation that these steps were taken "without prior advice or notice being given to the Applicant" to any pleaded cause of action is not apparent. 69 Paragraph 26 of the proposed ASOC pleads that the request for transfer of the AU Patent Application to the second respondent was accompanied by a "document, entitled 'Deed of Assignment of IP'" (Deed). It is pleaded that the Deed "was not a document that was authorised by the applicant, nor was it legal authority to make the request of IP Australia." 70 Paragraph 29 of the proposed ASOC pleads (in substance) that, pursuant to a request made on behalf of the respondents, transfer of the US Patent Application to the second respondent was registered in the USA and [30] alleges that the request was also accompanied by the Deed. 71 However, the proposed ASOC does not plead the relevance of the Deed to the request for transfer. Further, it does not plead the terms of the Deed or why the Deed needed to be authorised by the applicant. 72 This is so notwithstanding that in Falkenhagen at [99], it was stated that: …the ASOC needs to clearly plead the relevant matters including the Deed and facts material to its existence, terms and role in the conduct of the respondents and the materiality of that conduct in relation to questions of breach.

Breaches of the Agreement 73 Paragraph 32 of the proposed ASOC pleads (in substance) breaches of the agreement by the first and second respondents by reason of the earlier pleaded facts. 74 There is no pleaded foundation for the allegation that the registration of the second respondent as transferee of the AU and US Patent Applications, without the obligations pleaded in [8(b)] and [8(c)] being performed, was a breach of the agreement by the second respondent. 75 Paragraph 32A of the proposed ASOC pleads allegations of breach of contract, but the facts on which at least some of those allegations are based are not themselves pleaded. 76 For example, [32A(e)] pleads that the first and second respondents "in breach of the agreement": failed to sufficiently finance the business development, deployment and operations of the invention by the Second Respondent until it made a profit. 77 There is no proper pleading of the facts which sit behind this allegation and the allegation is otherwise vague. The use of the word "sufficiently" implies that there was some finance provided, but it was not sufficient. Or it could mean that no finance was provided at all. 78 Curiously, [32A(g)] complains that the respondents failed to progress the patent applications with respect to the invention in the other countries which were the subject of the applications by the applicant on 28 September 2017 as pleaded in [17]. 79 So, on the one hand, the applicant alleges a breach of the agreement because the respondents did progress the patent applications in Australia and the United States, but also alleges a breach of the agreement because the respondents did not progress patent applications in other countries. The facts relied upon to make a distinction as to why all of these facts are breaches of the agreement are not pleaded. 80 Subparagraph 32A(h) pleads a breach of the agreement because the first and second respondents "failed to develop a working prototype of the Auger". However, no term of the agreement has been pleaded which imposed any obligation on the first and second respondents to develop a working prototype of the Auger, and the facts relied upon to allege that this failure is a breach of the agreement are not pleaded.

Voidability 81 Paragraph 33 of the proposed ASOC pleads that the "filing of the requests for the Appicants' [sic] IP Rights to be recorded in the name of the Second Respondent for [the US Patent and AU Patent Applications] were recorded by the use of the Deed … the legal effects of which are void or voidable". 82 The allegation is that something, or its "legal effects", is void or voidable. It appears that the applicant alleges that the Deed is void or voidable, having regard to [6.4] of the applicant's Outline of Submissions filed 13 September 2021 and [42(d)] of the proposed ASOC. 83 On that basis, there is no proper pleading concerning the relevance of the Deed or its "legal effects". There is also no proper pleaded foundation for the allegation that the Deed or its legal effects are void or voidable. 84 During the hearing, the applicant's counsel made the following submissions about the Deed which tended to suggest that the applicant alleges improper conduct by the respondents: If a document is purported to be signed by my - a client, put together with a signature on it, and then it's used to gain - to register the IP rights to the second respondent, and that document is foreign - unknown to my client - that means that some - they've gone behind his back and taken the IP rights, without his knowledge and without any consideration whatsoever to this day, or to the commencement of these proceedings, and that's the case. … [O]n 5 March, unbeknown to my client, the events take place from paragraph 21 to 25, and that involves then the complaint that the secret transaction of the - transfer of the rights was sent again through his patent attorney, and the respondents used another patent attorney. They utilised this document that is completely unknown to the applicant and take 100 per cent of the IP rights. … And it's clear then that they didn't use those - the - that assignment that was made when he completed that promise, but they then secretly made up another document which my client knew nothing about and used it to take the IP rights at a later stage. And there were - the evidence, which we're not going to at this stage, your Honour, will be that that's exactly what happened. It was in secret. 85 The facts underlying the allegation that the Deed is void or voidable must be pleaded, especially as it appears that it will be suggested at trial that there was improper conduct surrounding the creation of the Deed. I have already noted the comments of Greenwood J in Falkenhagen at [99] which concerned the Deed and what is required to be pleaded in relation to it, and I respectfully agree with those observations.

Breaches of the Australian Consumer Law 86 Paragraph 35 of the proposed ASOC contains a bare allegation that certain pleaded conduct of the respondents was unconscionable, and misleading and deceptive within the meaning of ss 18 and 20 of the Australian Consumer Law. 87 However, the proposed ASOC does not plead the matters contained in s 18 of Sch 2 of the Competition and Consumer Act 2010 (Cth) (ACL) which are necessary to constitute a cause of action for misleading or deceptive conduct. 88 Further, the proposed ASOC does not plead all of the matters which are necessary to constitute a cause of action for unconscionable conduct within the meaning of s 20 of the ACL.

Prayer for relief 89 The paragraphs containing the prayer for relief are also problematic. 90 For example, [40] of the proposed ASOC seeks an account of the profits obtained by the respondents from the "use, sale or licence of the Applicant's intellectual property rights recorded in [the AU Patent and US Patent Applications] during the period that the Second Respondent held the IP rights on constructive trust pursuant to s. 22 of the Patent [sic] Act 1990 (Cth)". 91 However, s 22 of the Patents Act 1990 (Cth) is irrelevant. Further, no material facts are pleaded to give rise to a conclusion that there was a constructive trust. 92 As liability will be the subject of a separate hearing and determination, a detailed analysis of the relief sought in the prayer for relief is not necessary at this stage and can be deferred. I note that Greenwood J adopted a similar approach in Falkenhagen at [100].

CONCLUSION 93 For the reasons stated above, the proposed ASOC does not plead the material facts that are necessary to give the respondents fair notice of the case to be made against them at trial, in accordance with r 16.02(1)(d) of the Rules. I refer in particular to the allegations surrounding the alleged illicit creation of the Deed or the facts relied upon to allege that it is "void or voidable". 94 Further, the proposed ASOC contains numerous ambiguous or irrelevant allegations which are likely to prejudice or delay the proceeding and cause embarrassment. 95 Further, legal conclusions are pleaded (such as alleged breaches of the agreement or alleged breaches of the ACL) but without the material facts having been pleaded to sustain the legal conclusions, which leads to the prospect of the respondents being taken by surprise at trial or the applicant being shut out from advancing part of its case. In any event, such a pleading would be deficient in that it fails to disclose a reasonable cause of action as required by r 16.02(2)(e) of the Rules. 96 Further, there appears to be a gap between the applicant's case as represented by the applicant's counsel during the hearing of the application (being, for example, that the assignment of the IP Rights was limited in scope) and what has been pleaded. This indicates that the applicant's case is either not exposed in the proposed ASOC in a way which provides fair notice to the respondents of the case alleged against them, that aspects of the applicant's case are only contained in affidavits filed in the proceeding or something else. 97 For these reasons, if the proposed ASOC was filed, substantial parts of it would be struck out and the residue which was not struck out would be confusing. It follows from this that it would be liable to be struck out in its entirety. 98 The application for leave to file and serve the proposed ASOC is therefore refused. 99 Costs of the application should follow the event. I certify that the preceding ninety-nine (99) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Downes.

Federal Court Rules 2011(Cth)rr 16.02, 16.03, 16.04, 16.21

At a glance

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Judgment (13 paragraphs)

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Legislation Cited (5)

Cases Cited (9)