Granitgard Pty Ltd ACN 007 427 590 v Termicide Pest Control Pty Ltd

REASONS FOR JUDGMENT 1 By an application filed 19 September 2007 the Applicant, Granitgard Pty Ltd ("Granitgard") instituted proceedings in this Court against the Respondent, Termicide Pest Control Pty Ltd ("Termicide") seeking declaratory and injunctive relief in respect of alleged breaches by Termicide of ss 52 and 53 of the Trade Practices Act 1974 (Cth)(TPA) arising from the sale and promotion by Termicide of a product known as "Termiglass". Granitgard and Termicide are competitors in a market for the supply to the Australian building industry of physical termite barriers for installation in conjunction with the construction of new buildings. 2 A statement of claim was filed with Granitgard's application. Paragraph 8 of that statement of claim makes the following allegations: 8 For the purposes of promoting "Termiglass", Termicide has and continues to represent that the installation of Termiglass: (a) forms "an impenetrable barrier" to termites; (b) provides a barrier that is "too hard to chew, too heavy to move and too small to crawl through"; (c) will satisfy the requirements of Australian Standard 3660.1-2000 'Termite Management - New building work' (the "Australian Standard"); and (d) provides a suitable physical barrier against subterranean termite entry. (collectively referred to as the "Representations") Particulars Termicide maintains a web site with the address www.termicide.com.au. That web site records the above Representations. Representations (c) and (d) are contained in a CSIRO Appraisal of Termiglass contained on the web site. That appraisal records, inter alia: "In the opinion of CSIRO Appraisals, Termiglass Termite Barrier System will satisfy the requirements of Australian Standard 3660.1-2000 'Termite management - New building work' as a suitable physical barrier against subterranean termite entry by use of screenings system, in conjunction with Quikstrip strip shielding, under the following conditions:" Certain conditions are then set out. 3 Paragraphs 11, 12, 13 and 14 of the statement of claim continue: 11 In making each of the Representations, Termicide has engaged in conduct that is misleading and deceptive or is likely to mislead or deceive the public, in particular, potential consumers or users of Termiglass. Particulars (a) Termiglass does not provide an effective barrier to termites. Scientific experiments performed on Termiglass in 2004 by Dr Don Ewart and by Dr John Holt in accordance with CSIRO protocols disclose that Termiglass provided no effective barrier to termites. Experiments were carried out on the same samples relied upon by CSIRO in issuing its appraisal for Termiglass. (b) Termiglass does not satisfy the performance criteria requirements of the Australian Standard in that: (i) it does not deter concealed entry to buildings by termites; (ii) it is not termite resistant. (c) Termiglass therefore does not: (i) form "an impenetrable barrier" to termites; (ii) provide a barrier that is "too hard to chew, too heavy to move and too small to crawl through"; (iii) satisfy the requirements of the Australian Standard; and (iv) provide a suitable physical barrier against subterranean termite entry. (d) Alternatively, the scientific experiments carried out by Dr Don Ewart and Dr John Hold, raise sufficient doubt about the effectiveness of Termiglass as a termite barrier, that by making the Representations without reference to such doubts, the Representations are misleading or deceptive or are likely to mislead or deceive the public, in particular, potential consumers or users of Termiglass. 12 In making the Representations, Termicide has thereby engaged in conduct that is the breach of section 52 of the Trade Practices Act 1974 ("the Act"). 13 In making each of the Representations, Termicide has falsely represented that Termiglass is of a particular standard, quality, value, grade, composition, style or model. Particulars The Representations are false in that Termiglass does not: (a) form "an impenetrable barrier" to termites; (b) provide a barrier that is "too hard to chew, too heavy to move and too small to crawl through"; (c) satisfy the requirements of the Australian Standard; and (d) provide a suitable physical barrier against subterranean termite entry. The Particulars (a) and (b) to paragraph 11 above are repeated. 14 In making the Representations, Termicide has breached section 53(1) of the Act. 4 Termicide has not as yet filed a defence to that statement of claim. Instead, Termicide brought an application by a Notice of Motion filed on 19 November 2007 for the dismissal of the substantive application, primarily on the basis that, pursuant to s 31A(2) of the Federal Court of Australia Act 1976 (Cth) ("the Act"), the Court should be satisfied that Granitgard had no reasonable prospect of successfully prosecuting the proceeding. The notice of motion sought, in the alternative, that Granitgard's statement of claim be struck out pursuant to O 11 r 16. The ground of challenge under the rules was not particularised. I did not understand that alternative to be pressed on the hearing of the notice of motion. In any event, there is no merit in the proposition that the statement of claim does not plead allegations of fact which disclose causes of action known to law. 5 The focus of Termicide's submissions on the hearing of the motion was on whether the substantive application itself should be dismissed in the exercise of the power conferred on the Court by s 31A(2) of the Act. Put another way, the focus was on the proceedings' prospects, not just with pleadings, on substance, not form: White Industries Australia Ltd v Commissioner of Taxation [2007] FCA 511 at [50] per Lindgren J. 6 A convenient starting point therefore is a consideration of the statutory power that Granitgard has sought to invoke. Insofar as material, s 31A provides: 31A Summary judgment (1) … (2) The Court may give judgment for one party against another in relation to the whole or any part of a proceeding if: (a) the first party is defending the proceeding or that part of the proceeding; and (b) the Court is satisfied that the other party has no reasonable prospect of successfully prosecuting the proceeding or that part of the proceeding. (3) For the purposes of this section, a defence or a proceeding or part of a proceeding need not be: (a) hopeless; or (b) bound to fail; for it to have no reasonable prospect of success. (4) This section does not limit any powers that the Court has apart from this section. 7 Section 31A was inserted into the Act by the Migration Litigation Reform Act 2005 (Cth). Notwithstanding the title of the amending act, it is quite clear that the statutory powers conferred by s 31A are not confined to migration matters. 8 Prior to the amendment, the granting of summary judgment, including summary dismissal on the basis of an absence of a reasonable prospect of success, was informed by what had been said on the subject in cases such as Dey v Victorian Railways Commissioners (1949) 78 CLR 62 at 91-92 and General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129-130. These authorities counselled great caution in relation to an exercise of a power of summary judgment (including summary dismissal), effectively restricting the exercise of that power to cases which were manifestly groundless or clearly untenable. In contrast, s 31A(3) expressly provides that, for the purposes of that section, a proceeding need not be either hopeless or bound to fail for it to have no reasonable prospect of success. Given such a clear expression of a remedial Parliamentary intent one must be especially careful in the determination of an application like the present to shut one's ears to the "muffled echoes of old arguments": Ex parte Professional Engineers' Association (1959) 107 CLR 208 at 276. Neither party endeavoured to create such echoes in its submissions as to relevant principle. 9 Beyond the exclusion of any requirement that a proceeding or defence must be hopeless or doomed to fail, the extent to which s 31A has liberalised an assessment of an absence of a reasonable prospect of success is perhaps moot. The expression "no reasonable prospect of success" may very well be one of those which, like "unacceptable risk", also warrants a warning against "striving for a greater degree of definition than the subject is capable of yielding": cf M v M (1988) 166 CLR 69, at 78. The expression appears in a power conferred on a court which exercises the judicial power of the Commonwealth. That context serves to remind one that access to court which is asked to conduct a hearing according to law of a matter in the exercise of that judicial power is an important feature of our system of government. Attempts to secure that ought not peremptorily to be terminated save in clear cases, i.e. in cases which, on judicial assessment, can be seen, truly, to have no reasonable prospect of success. Further, and at the risk of stating the obvious, what falls for assessment is a "prospect". On what is before the court on the hearing of the application under s 31A, which may well not comprise the whole of the evidence that the parties come to lead at trial, is there a reasonable prospect? If there is no such prospect either in law or in fact then the application must succeed. 10 In PZ Cussons (International) Limited v Rosa Dora Imports Pty Ltd[2007] FCA 1642 at [14] Kenny J provides a summary of observations that have been made in relation to the power conferred by s 31A. I gratefully adopt her Honour's summary: … the occasion for summary judgment must be clear before it will be granted: see Hicks v Ruddock [2007] FCA 299 at [13] per Tamberlin J. Summary judgment is inappropriate where there is a real dispute about the relevant facts and evidence: see Jianshe Southern Pty Ltd v Turnbull Cooktown Pty Ltd [2007] FCA 489 at [10] per Besanko J and Boston Commercial Services Pty Ltd v G E Capital Finance Australasia Pty Ltd [2006] FCA 1352 at [31] to [48] per Rares J; Australian and International Pilots Association v Qantas Airways Limited [2006] FCA 1441 at [23] per Tracey J; and Fortron Automotive Treatments Pty Ltd v Jones (No 2) [2006] FCA 1401 at [20] per French J. 11 As is evident from the particulars given under par 8 of its statement of claim, Granitgard's allegation is that the various representations were made either on Termicide's web site itself or in an appraisal of the Termiglass product made by the CSIRO to which one is directed by that web site. Some of the content of that website became Exhibit 1 on the hearing of the application. Other website content was exhibited to an affidavit sworn by Termicide's Mr PA Jeynes which was read at that hearing. So, too were the CSIRO appraisal (Technical Assessment 313 of December 2003) and the Australian Standard referred to in par 8(d) of the statement of claim. 12 Termicide advanced two reasons why the proceeding should be dismissed pursuant to s 31A: (a) it was not shown that it made the alleged representations; and (b) it was not shown that Termiglass did not provide an effective barrier to termites. In particular, it is contended that there was no evidence that the Termiglass product as launched into the market by Termicide had been subjected to scientific experiments by Drs Ewart and Holt (the gentlemen to whom reference is made in the particulars given under par 11 of the statement of claim). 13 The first of these may be dealt with shortly. The web site extracts evidence the making by Termicide of statements in the terms alleged in pars 8(a) and 8(b) of the statement of claim. An examination of the CSIRO appraisal which Termicide incorporates by reference on its website discloses that the statements alleged in pars 8(c) and 8(d) of the statement of claim are made in that document. In those circumstances I do not see any occasion for the first of the reasons advanced by Termicide for the exercise of the power conferred by s 31A of the Act. 14 Dr JRJ French is a scientist whose principal field of study and related consulting has been subterranean termites and methods or systems of preventing or controlling termite infestation. At the request of Termicide, a company with which he is associated, Ecospan Consulting Services Pty Ltd ("Ecospan"), came in late 2003, using his services, to evaluate the effectiveness of sintered glass screenings as a physical barrier against subterranean termites. This sintered glass constitutes a type of graded particle barrier in terms of the Australian Standard pleaded. For the reasons that he detailed in a report that he prepared on 29 February 2004 Dr French concluded that a medium sintered glass substrate (2.4-1.7 mm) was an effective barrier which prevented penetration by Coptotermes acinaciformis subterranean termites. Coptotermes acinaciformis, he deposed, is the most economically important subterranean termite which attacks timber-in-service in South East Queensland and, indeed, throughout Australia. Termiglass, as Termicide's director Mr PA Jeynes deposed, comprises sintered glass particles of size in the range between 2.4 and 1.7 mm. It is that product which Termicide launched into the market. The market launch of Termicide is said by Mr Jeynes to have occurred in 2004. 15 Dr French also tested the effectiveness of the sintered glass supplied to him as a barrier to penetration by a different termite type, Mastotermes darwiniensis. Mastotermes darwiniensis is found in the Northern Territory and Northern Queensland. Each of the substrate sizes which he adopted in the tests, including medium (2.4 to 1.7 mm) failed. Mr Jeynes deposes that Termicide does not supply Termiglass in tropical areas of Australia. I note in passing that the material he exhibits from Termicide's web site refers to "termites", not to a particular species of termite. The "Ecospecifier" page in that web site contains the following entries: Issues of concern? No … State Availability ACT, NSW, NT, QLD, SA, TAS, VIC, WA. 16 I note that, in the CSIRO appraisal (page 4, affidavit of Mr PA Jeynes page 126), it is stated that "Termiglass is graded glass screenings. Particles range in size generally between 1.2mm and 3mm." That range of particle size is different to the particle range to which Mr Jeynes deposes constitutes Termiglass as marketed. How this affects the worth of the CSIRO appraisal and its incorporation by reference in terms of the causes of action pleaded is a matter for exploration at trial. 17 On behalf of Ecospan Dr French had submitted an earlier report to Termicide in November 2003 in which was detailed a protocol of laboratory and field evaluations of sintered glass as a physical barrier against subterranean termites. The commencement of Ecospan's trial of Termiglass is mentioned in the CSIRO appraisal. 18 Affidavits sworn by Drs DM Ewart and JA Holt respectively were filed on behalf of Granitgard and served on Termicide prior to the hearing of the application. They were read in Granitgard's case on the hearing of the application. These gentlemen are each also scientists specialising in termites. 19 Drs French and Ewart are known to one another. They had previously worked together both at the CSIRO and, as it happened, in Granitgard's business. Dr French had been co-supervisor of Dr Ewart's Ph D studies. The two scientists were apparently on sufficiently good terms one with the other for Dr French to have informed Dr Ewart, in the latter half of 2003 it seems, that he was considering taking a contract with Paul Jeynes (an officer of Termicide it will be recalled) who wanted to use glass instead of Granitgard. According to Dr Ewart, either then or in a later communication he had expressed an opinion to Dr French in words to this effect: I am fairly confident that in any tests you carry out the glass will fail. We tested different glass samples extensively and they all failed. 20 Dr Ewart deposed that, in mid-2004, he had had a telephone discussion with Dr French in the course of which Dr French said to him words to the following effect: I have carried out tests on two 'Termiglass' samples for Paul Jeynes. The first samples failed. However, the second sample was much better. I still have the leftovers from these samples and I will send them to you. 21 Dr Ewart deposed to his subsequent receipt of two bagged samples from Dr French. He further deposed that he had come to send samples of the material provided by Dr French to Dr Holt. These samples were repackaged in bags by Granitgard's laboratory staff under his instruction for transport to Dr Holt. The bags were clean and unused and had come from a quarry operated by what was once Granitgard's parent company. The bags had originally been intended for gypsum product and hence had the label "GYP dust" on them. 22 In turn, Dr Holt deposed to his receipt of a bag marked "GYP Dust" from Dr Ewart. Dr Holt obtained Coptotermes acinaciformis termites and then subjected the product he had received to testing in accordance with protocols that he details in his affidavit and, in a less elaborate way, in a report dated 14 September 2004 that he furnished to Granitgard. The result of the tests that Dr Holt undertook was that the product he received failed to provide a barrier to upward termite movement. These tests disclosed that the termites had transported large amounts of material up through the sample product and used that material to construct foraging galleries on the surface of that sample product. 23 Having been given no particular name for the sample product that he tested other than that shown on the outside of the bag, Dr Holt initially inserted the name "GYP dust" in the "Material tested" space on his laboratory test sheets. He later spoke to Dr Ewart about this, who informed him, "That is simply a spare bag that I had to put the Termiglass in." Dr Holt then crossed out "GYP dust" and inserted "glass beads supplied by Don Ewart". He then called it "glass beads" in his laboratory notes. 24 Much was made in Termicide's submissions as to whether what Dr Ewart received from Dr French was indeed "Termiglass". A consequential absence of product identity was said to infect and render irrelevant the conclusions to which Dr Holt made in respect of the product he received from Dr Ewart. Somewhat surprisingly, given the nature of Termicide's submissions, there was no evidence from Dr French as to what, much less exactly what, he sent to Dr Ewart. 25 What is stated by Dr French in his (Ecospan's) report of 29 February 2004 submitted to Termicide is that he received two different types of product from that company for testing. Initially, as he came to be informed by Termicide in a letter of 19 December 2003 to which he refers in that report, he received sample material quite unrelated to Termicide's product specification. Later, and presumably with or following the receipt of this letter, he received material of the correct product specification. It was this which was sieved to achieve different target particle sizes. One of these was medium (2.4 to 1.7 mm). 26 What and exactly what was sent to Dr Ewart by Dr French is a subject for exploration at trial. There are other such subjects. 27 Dr Ewart carried out his own, informal testing of the two samples provided by Dr French. A lack of resources prevented his subjecting the samples to testing in accordance with the CSIRO protocol. He deposes that "both samples" were ineffective at impeding termites although the "second sample" did have slightly better resistance than the first. He cannot now locate his notes of these tests but does recall his forming the opinion that Dr French's test may have failed properly to challenge the product tested. 28 Another test that Dr Ewart came to conduct was of product obtained by Granitgard's Mr E Bain from yet another Granitgard employee, Mr Stan Butts. In turn, Mr Butts had obtained the material in early 2004 from a job site on the Gold Coast and, it seems, ascertained that the product was that known as Termiglass. There were no affidavits from these gentlemen attesting directly to this information. Rather, these were matters to which Dr Ewart deposed. When assessing whether a proceeding has a reasonable prospect of success, the present absence of such direct evidence ought not, in my opinion, be gainsaid in circumstances where a source from whom that direct evidence might be given at trial is identified. Dr Ewart did subject this sample product to testing in accordance with the CSIRO protocol. He made notes of these tests but cannot locate them now. He recalls ascertaining that this sample product did not provide an impediment to termite entry. 29 In his affidavit Dr Ewart offers a detailed critique of Dr French's report of 29 February 2004 highlighting many matters which might come to affect the validity of testing or reliability of the results mentioned in that report. It is not necessary to detail all of these criticisms for present purposes. One he mentions is the importance of ensuring the vigour of the termites used in any test and the absence, as he opines, of an adequate description of the post-collection handling, transport and housing of the termites. Termites, he states, are susceptible to atmospheric shock. "Stressed" termites, he opines, perform poorly, possibly causing a candidate barrier to be given a false passing grade. Dr Holt also opines with respect to the importance of having healthy, active termites when carrying out experiments on termite barriers and with respect to the rapid desiccation of termites when exposed to the air for 10 minutes or more with a consequential detriment to their effectiveness in any experiment on the effectiveness of a physical barrier. These opinions do not depend for their validity on the correspondence of what either of these gentlemen tested with the product that came to be marketed as Termiglass. Whether and to what extent the considerations they mention have any impact on the conclusions reached by Dr French about the effectiveness of the medium glass barrier is a subject for trial. 30 In the same way, the weight, if any, to give to the conclusions to which Dr Ewart came in either or each of the tests that he conducted is a matter for evaluation in the course of and after a trial in these proceedings. Such as they presently are they do, in my opinion, offer another reason why it cannot be concluded that the proceeding has no reasonable prospect of success. 31 Evidence was also given of the very many installations of Termiglass in South East Queensland since 2004 and of the absence of the receipt by of any complaints concerning a termite breach by Termicide. Dr Ewart opined that it was quite possible that longstanding drought in the area meant that little of the material was being tested by termites, rather then the Termiglass installed to date withstanding repeated termite attacks. The impact which such considerations have either alone or in conjunction with other evidence in relation to whether any or all of the reaches of the TPAalleged is a matter for assessment at trial. So, too, is the weight to give to the results of subsequent later testing of the Termiglass product by Mr CE Langley. In his affidavit he swore to having concluded that the Termiglass product complies with the requirements of the Australian standard and of the Building Code of Australia. 32 For these reasons I find myself unable to conclude that these proceedings do not have a reasonable prospect of success. There is a genuine controversy of fact, which includes a controversy of opinion. Giving full measure to remedial intent evident in the section, this is not a case for the exercise of the power of dismissal conferred by s 31A of the Act. 33 That is quite different to concluding that Granitgard has proved each or even any of the allegations it makes in the statement of claim. I have made no such conclusion. It would be improper and premature so to do. There has been no trial. None of the persons whose affidavits were read on the hearing of the application have been cross-examined. The evidentiary cases for each party have not yet closed. 34 Termicide's application must be dismissed. I shall hear from the parties as to costs and the directions that should be made for the further conduct of the proceeding. I certify that the preceding thirty-four (34) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Logan.