Fielding v Vagrand Pty Ltd

WESTERN AUSTRALIA DISTRICT REGISTRY WAG 23 of 1997

BETWEEN: EXECUTIVE DIRECTOR OF THE DEPARTMENT OF CONSERVATION AND LAND MANAGEMENT

REASONS FOR JUDGMENT The applicant ("CALM") has applied by motion for orders under O 13 r 2 of the Federal Court Rules ("the Rules") for leave to amend the application and statement of claim filed in this matter and under s 500(2) of the Corporations Law for leave to join Nericon Pty Limited (In Liquidation) ("Nericon") as fourth respondent in the proceedings. In the statement of claim, CALM has alleged that the respondents and Nericon have infringed a patent granted to CALM in respect of a solar-assisted drying system for the commercial drying of timber ("the CALM Kiln"). Nericon is said to be the successor of the first respondent in a business which, inter alia,manufactured and sold products which, it is claimed by CALM, were acts of infringement of its patent. In June 1996 the applicant obtained an order under O 15A r 6 of the Rules that the first and third respondents and Nericon provide preliminary discovery before the commencement of proceedings. The proceedings were not commenced until February 1997. Meanwhile the affairs of Nericon had been placed in the hands of an administrator. In April 1997, Nericon was wound up by a creditors' resolution. The liquidator of Nericon has given CALM an undertaking that he will refrain from disposing or selling or otherwise dealing with the specifications, the goodwill, the advertising and promotional material and the files and records relating to the business making the alleged infringing product. The liquidator has agreed to give seven days notice of any intention to withdraw the undertaking. In its application CALM seeks damages, or alternatively an account of profits in addition to declaratory orders and mandatory injunctions. Section 500(2) of the Corporations Law requires the leave of the Court to be obtained before an action may be commenced against a company in liquidation. The purpose of such a provision is to prevent a company in liquidation being subjected to actions that are expensive and, therefore, carried on at the expense of the creditors of the company and, perhaps, unnecessarily: Fielding v Vagrand Pty Ltd (In Liquidation) (1993) 11 ACLC 172 at 174; Ogilvie Grant v East (1983) 1 ACLC 742 at 744; Maher v Taylor (1984) 8 ACLR 931 at 934; Re A J Benjamin Ltd (In Liquidation) (1969) 90 WN (Pt 1) (NSW) 107 at 110. In determining whether leave should be granted, the Court considers whether the balance of convenience lies in allowing the applicant to proceed by way of action to judgment, or whether the applicant should be left to pursue his claim by lodging a proof of debt with the liquidator. The matter is one of discretion and the onus is on the applicant to demonstrate why it is more appropriate, in respect of a particular claim, to proceed by way of action: Fielding v Vagrand at 174; Ogilvie Grant v East at 744; Stewart v Intercity Distributors Limited (1960) NZLR 944 at 946. For leave to be granted, it must be shown that there is a serious or substantial question to be tried: Oceanic Life v Insurance & Retirement Planning Services Pty Ltd (In Liquidation) (1993) 11 ACLC 1157 at 1159; Olgilvie Grant v East at 744; and a real dispute between the parties: Fielding v Vagrand at 175; Zempilas v J N Taylor Holdings Ltd (In Provisional Liquidation) (No 4) (1991) 9 ACLC 297 at 298; Capita Financial Group Ltd v Rothwells Ltd (No 2) (1989) 7 ACLC 634 at 637. Leave will not be granted where the applicant does not have a genuine claim or where the claim would be futile. Hence, leave has been refused where the claim has been for unliquidated damages arising otherwise than by reason of a contract, promise, or breach of trust, on the basis that by virtue of the joint application of s 82(2) Bankruptcy Act 1966 (Cth) ("Bankruptcy Act") and s 553(2) of the Corporations Law (or equivalent provisions), such a claim would not be provable in the winding up of an insolvent company unless judgment had been entered prior to the order for winding up: Re Autolook Pty Ltd; O'Brien v Bills (1984) 2 ACLC 30 at 33, Re A J Benjamin Ltd (In Liquidation) at 110; Page v Commonwealth Life Assurance Society Ltd (1935) 36 SR (NSW) 85 at 99; In re Southern Cross Coaches Ltd (1932) 49 WN 230; Cutten and Harvey v Mount (1989) 50 SASR 81; Fielding v Vagrand at 176-177; cf Re Berkeley Securities (Property) Ltd [1980] 3 All ER 513. As a result of amendments to the Corporations Law in 1992 (see ss 553 and 553E), s 82(2) of the Bankruptcy Act is no longer imported into the Corporations Law, and a claim for damages against Nericon would no longer be futile for that reason. However, nonetheless it may be inappropriate in all the circumstances to grant leave in respect of such a claim. The orderly winding up of Nericon and the interests of Nericon's existing unsecured creditors must also be taken into account: Oceanic Life Ltd v Insurance and Retirement Planning Services Pty at 1159. In a situation such as the present, where the liquidator has no funds to conduct a defence and there is little prospect of funds becoming available and the company is not insured against the damages sought, there is strong reason for refusing leave: Maher v Taylor at 934; Re A J Benjamin at 109-110. Furthermore, claims against Nericon cannot be sustained unless CALM succeeds in its claims against the first and second respondents. With respect to the declaratory and injunctive relief, it is a factor in favour of granting leave that the relief cannot be obtained otherwise than by a successful application to the Court: Vagrand Pty Ltd (In Liquidation) v Fielding (1993) 11 ACLC 411 at 414; Fielding v Vagrand at 177; Wyley v Exhall Coal Mining Co Ltd (1864) 33 Beav 538. The real purpose of the application to join Nericon is to obtain orders that will bind it in the event that the claims against the first and second respondents are made out. Another matter to consider in granting leave is that the joinder would enable the liquidator to participate in the mediation process provided by this Court and being used by the existing parties. However, these purposes can be achieved without Nericon actively participating in the proceedings as a respondent. It is likely that the declaratory and injunctive relief sought by CALM against Nericon could be obtained by consent, if CALM succeeded against either the first or the second respondent. On the material before the Court it is apparent that at least the second respondent will contest the applicant's claims. In view of the undertaking given by the liquidator, CALM's position is protected as far as Nericon is concerned and no interlocutory proceeding against Nericon is required. If circumstances change CALM may apply to vary the order I propose to make. Meanwhile, if it considers it appropriate CALM may lodge a proof of debt with the liquidator. A grant of leave can be made subject to conditions directed at minimising interference with the orderly winding up of the company in liquidation: Oceanic Life Ltd v Insurance and Retirement Planning Services Pty Ltd at 1159. In the present case, it is appropriate in all the circumstances that leave be granted to join Nericon to the proceedings, the proceeding against Nericon being restricted to claims for declaratory and injunctive relief and not to include a claim for damages or account of profits. In addition, Nericon will not be required to participate in the proceeding by filing a defence or taking any other step. I will direct that the applicant file a minute of proposed orders and of an amended application and statement of claim that reflects the requirements of these reasons.

I certify that this and the preceding three (3) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Lee

Associate: Dated: 6 November 1997 R J McCormack Counsel for the Applicant:

Solicitor for the Applicant: Crown Solicitor for the State of Western Australia

Solicitor for the Fourth Respondent: Blake Dawson Waldron

Date of Hearing: 6 November 1997

Date of Judgment: 6 November 1997