Guttershield v LBI Holdings

Supreme Court of NSW|2004-10-25|Before: Campbell J

CITATION : Guttershield v LBI Holdings [2004] NSWSC 941 HEARING DATE(S) : 27/9/04 - 30/9/04, 5/10/04 JUDGMENT DATE : 25 October 2004 JURISDICTION: Equity JUDGMENT OF : Campbell J DECISION : Plaintiff entitled to become registered as one-third owner of patents, subject to conditions.

CATCHWORDS : CONTRACTS - construction of particular contract concerning ownership of intellectual property - INTELLECTUAL PROPERTY - patents - where two or more patentees - rights of one of the patentees to deal in goods embodying the invention - TRUSTS - constructive trusts - attaching to intellectual property to ensure that agreement relating to ownership of intellectual property adhered to - appropriate conditions for grant of equitable relief Copyright Act 1968 (Cth) LEGISLATION CITED : Patents Acts 1990 (Cth) Supreme Court Act 1970 Codelfa Construction Proprietary Limited v State Rail Authority of New South Wales (1982) 149 CLR 337 Carson v Wood (1994) 34 NSWLR 9 CASES CITED : NZI Capital Corporation Pty Ltd v Child (1991) 23 NSWLR 481 Watson v Foxman; Commonwealth Bank of Australia v Foxman Holdings Pty Ltd (Receiver and Manager Appointed) (2000) 49 NSWLR 315 Blanco White, Patents for Inventions, 4th ed (1974) Lahore, Patents, Trade Marks and Related Rights Guttershield Systems Australia Pty Ltd - First Plaintiff/First Cross-Defendant Guttershield Pty Ltd - Second Plaintiff/Second Cross-Defendant PARTIES : LBI Holdings Pty Ltd - First Defendant/First Cross-Claimant Leafbusters Pty Ltd - Second Defendant/Second Cross-Claimant Bruce Wickett - Third Cross-Defendant FILE NUMBER(S) : SC 5724/02 COUNSEL : G Grinter - Plaintiffs/Cross-Defendants D E Grieve QC; S Reuben - Defendants/Cross-Claimants SOLICITORS : John Brent & Co - Plaintiffs/Cross-Defendants Denes Ebner - Defendants/Cross-Claimants

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION EQUITY LIST

5724/02 GUTTERSHIELD SYSTEMS AUSTRALIA PTY LTD & ANOR v LBI HOLDINGS PTY LTD & ANOR JUDGMENT HIS HONOUR: Nature of the Case 1 The plaintiffs' summons claims a declaration that they are beneficially entitled to a one-third share in five particular Australian patents, an order that the defendants do whatever is necessary to enable the plaintiffs to become registered as owners of that one-third share, and consequential orders aimed at informing the plaintiffs about what use the defendants have made of those patents, and requiring the defendants to pay an appropriate proportionate share of the profits made by exploitation of the patents. 2 The defendants have filed a cross-claim. The only live claims in it are for a declaration that the first defendant is the sole beneficial owner of the five patents in question, a declaration that the plaintiffs have wrongly used the benefit of those patents, and an injunction restraining the plaintiffs from further infringement. 3 The plaintiffs are two companies of which Mr Bruce Wickett is, and at all material times has been, the sole director and shareholder. The defendants are two companies effectively controlled by Mr Paul Groom and Mrs Thea Groom. Background to Formation of the Alliance 4 In 1992, and the early part of 1993, Mr and Mrs Groom and Mr Jeroen (known as Jerry) De Graaf lived in Adelaide, and worked for Gold Seal Home Improvements Pty Limited ("Gold Seal"). Mr Bruce Wickett was, in the period from July 1992 to January 1993, the General Manager of Gold Seal. 5 One of the activities of Gold Seal involved installation on buildings of a device to keep leaves and other debris out of the rain gutters and roof valleys of the building. So far as gutter protection went, the technique involved stretching a mesh from a lower part of the fall of the roof to the outermost edge of the gutter, and fixing it in place. Water would flow through the mesh to be taken away by the gutter, but leaves and other debris would stay on the upper surface of the mesh, and slide off or be blown off by the wind. 6 Mr Wickett, the Grooms and Mr De Graaf all stopped working for Gold Seal in early 1993. They then each became involved in businesses which installed gutter protection, which used the same broad principle as that of Gold Seal. Mr and Mrs Groom and Mr De Graaf initially went into business together in South Australia, but in July 1993 Mr and Mrs Groom moved to Victoria, and set up a business there. Mr Wickett's business came to adopt the name "Guttershield". Mr and Mrs Groom's business came to adopt the name "Leafbusters"'. Mr De Graaf's business came to adopt the name "Leafshield". 7 Over the years from 1993 to 1999 there was sporadic contact between the Grooms, Mr Wickett, and Mr De Graaf. Their respective companies each came to use a type of mesh manufactured by Kinnears Pty Ltd ("Kinnears"), called oyster mesh because it was used by oyster farmers. Kinnears had its head office in Melbourne, but also had an office in New South Wales. 8 Over the years from 1993 to 1999 there was some interchange between the Grooms, Mr Wickett and Mr De Graaf of the text of advertising materials which they used, of price lists, and technical information. Mr Wickett purchased some of the clips he used in affixing the mesh from Mr De Graaf's company. 9 The Grooms, Mr Wickett, and Mr De Graaf each faced competition in their respective markets. Not only was there competition from organisations which provided gutter protection using different techniques to the screening technique, but as well there was competition from organisations which used a broadly similar technique to that which had been used by Gold Seal. There were three manufacturers of plastic mesh which could be used for gutter screening - Kinnears, Nylex Corporation Pty Limited ("Nylex") and Sarlon. 10 Each of the Grooms, Mr Wickett and Mr De Graaf was aware of the marketing advantage that there would be in having an exclusive product line. From at least as early as November 1996 the Grooms were in discussion with Kinnears about the possibility of Kinnears making a product to the Grooms' specification, which would be branded with the Grooms' own brand name, and would be exclusive to them. On 3 March 1998 Kinnears entered an agreement with Mr Wickett, expressed to be with his trading entity Guttershield Systems Australia ("Guttershield"), which gave it exclusivity in relation to non-standard, selvedged, Gutter Mesh labelled product. Selvedged mesh was mesh which had, running along one edge, underneath the mesh, an extra thickness of plastic material, which assisted in attaching the mesh to the gutter edge. It was a necessary implication of the 3 March 1998 agreement that Kinnears reserved the right to sell its standard Gutter Mesh labelled product, and any product sold under a different brand, to purchasers other than Guttershield. Hence the degree of exclusivity granted to Guttershield was not great. 11 On 16 March 1998 Mr and Mrs Groom and Mr De Graaf together met with Kinnears and explored, amongst other things, the possibility of Kinnears manufacturing a product exclusively for them. In June 1998 Mr Groom also made some enquiries of another manufacturer, Nylex, about whether it could manufacture a particular design of mesh, the holes in which were square. After that initial enquiry, nothing seems to have been done to further relations with Nylex at that time.

12 In the course of 1998, the Grooms made some preliminary enquiries about the possibility of franchising their business, but did not proceed with that idea at that time. Proposals for Formation of the Alliance 13 On 1 February 1999 Mr and Mrs Groom and Mr De Graaf met with Kinnears in Melbourne. Kinnears put a proposal to them that their respective companies and Mr Wickett's company should form an Alliance to distribute the Gutter Mesh products. Kinnears proposed that each of them should set up a distribution company to sell their own brand of mesh to their existing businesses, and also to sell a generic brand of mesh to all other installation companies. In other words, Kinnears were suggesting that the members of the proposed Alliance should have a product which was exclusive to them collectively, and should act as the distributors of the generic Kinnears product to the companies with which the members of the proposed Alliance were in competition. Kinnears proposed that, in return, the members of the Alliance should buy only from Kinnears. 14 On 8 February 1999 Mr Wickett sent to Mr and Mrs Groom a written proposal for how such an Alliance would operate. Part of that proposal said: "As a united group, our combined resources are: the use of the Leafscreener name through the Melbourne registration, the exclusivity of the selvedged mesh to Guttershield, and developed Franchise systems and intellectual property (contracts and systems) currently in use in NSW… Territory and intellectual property contracts would need to be activated by the three parties under mutually agreed terms, with all legal costs being shared by the three parties." 15 A meeting was set for 22 March 1999, in Melbourne, between representatives of the three prospective Alliance members and Kinnears, to discuss the proposal further. 16 As part of the preparation for that meeting, Mrs Groom sent a fax to Mr Wickett on 4 March 1999. It was a draft of some clauses for an agreement between the members of the proposed Alliance. That fax included the following clauses: "b) Each member of The Alliance shall give full support to The Alliance, both financially and intellectually for the following categories: i) Group purchasing of all gutter protection systems materials used within The Alliance from the chosen Joint Venture Company, ii) Advertising materials and product promotion campaigns, iii) Legal challenges to The Alliance member business structures, product rights, or any legal challenge which may affect the function of The Alliance, iv) To act fully and efficiently in dealing with any legal challenges to The Alliance that are required to protect The Alliance members' rights due to breach of material supply, contracts, infringements or trade marks, patents, intellectual property or common law rights of The Alliance members, v) To Always strive to improve the system by way of research and development of new meshes, fastening systems or any development that will improve the function of The Alliance members businesses within The Alliance, vi) The Alliance members will share equally all costs associated with the development of contracts, patents, trade marks or any intellectual property developed by The Alliance. c) All intellectual and real property developed by The Alliance shall always remain the common property of the members of The Alliance."

Mr Wickett says that this fax had its text composed by Mrs Groom. Mrs Groom says that, while she typed it, the portion which I have quoted is words which she typed from Mr Wickett's dictation over the telephone. She says she added some other clauses of her own composition, then faxed the entire document back to Mr Wickett. I do not think that this dispute has any effect upon the resolution of the case. However, in case the Court of Appeal takes a different view to me concerning that matter, I prefer Mrs Groom's evidence on that topic. The Agreement of the Alliance 17 By 10 March 1999 Mr Wickett had drawn up a document, the terms of which are as follows: " AGREEMENT OF THE ALLIANCE DATE 10-3-99 TERMINOLOGY THE ALLIANCE: The grouping of the six companies to act as a united body for all future business dealings within the gutter protection industry. ALLIANCE MEMBERS: Guttershield Systems Australia Pty Ltd Gutterscreen Materials Pty Ltd Leafbusters Pty Ltd Polymesh Australasia Pty Ltd Leafshield Gutter Protection Pty Ltd Gutter Mesh Distributors (Australia) Pty Ltd ALLOCATED TERRITORIES: Guttershield Systems Aust P/L = NSW, QLD, & ACT Gutterscreen Materials P/L = NSW, QLD, & ACT Leafbusters P/L = VIC TAS & NZ Polymesh Australasia P/L = VIC TAS & NZ Leafshield Gutter Protection P/L = SA NT & WA Gutter Mesh Distributors P/L = SA NT & WA 1. Each member of the Alliance agrees to restrict all mesh sales and fitted gutter protection system sales to within the boundaries of their allocated territories. 2. Each member of the Alliance agrees to give support to the Alliance, both financially and intellectually for the following categories, as governed by paragraphs five and six: A. Group purchasing of all gutter protection systems materials used within the Alliance. B. Advertising materials and product promotion campaigns. C. Legal challenges to the Alliance members business structures, product rights, or any legal challenge that will affect the function of the Alliance. D. Legal challenges by the Alliance that are required to protect the Alliance members rights due to breach of material supply contracts, infringement of trade marks, patents, intellectual property or common law rights of the Alliance members. E. Research and development of new meshes, fastening systems or any development that will improve the function of the Alliance members businesses within the Alliance. F. All costs associated with the development of contracts, patents, trade marks or any intellectual property developed by the Alliance. 3. All intellectual and real property developed by the Alliance remains the common property of all members of the Alliance. 4. Each member of the Alliance agrees to attend all meetings called by any two members of the Alliance and at least one general meeting each year. Meetings may be held by telephone conference. 5. Each member of the Alliance agrees to abide by the terms and conditions of the resolutions passed at each meeting by the Alliance. 6. Resolutions will only be declared as passed if the majority of members present at the meeting agree to that resolution. 7. Minutes of each meeting are to be recorded and supplied to each member of the Alliance. 8. Use of the Guttershield product fastening strap system by the Alliance members is agreed to by way of signing this agreement by the owner of the system, Guttershield Systems Australia P/L and is available to the Alliance members and their associated mesh distribution companies only as long as they remain a member of the Alliance, and the product is sold to the market as an installed only product. 9. Use of the product name "Leafscreener " by the Alliance members is agreed to by way of signing this agreement by the owner of the name, Leafbusters P/L and is available to Alliance members and their associated mesh distribution companies only as long as they remain a member of the Alliance. 10. Use of the product name " Leafshield " by the Alliance members is agreed to by way of signing this agreement by the owner of the name, Leafshield Gutter Protection P/L and is available to Alliance members and their associated mesh distribution companies only as long as they remain a member of the Alliance. 11. If any member of the Alliance sells the company or part thereof (excluding franchises), the remaining members of the Alliance have the right to agree to the new member being appointed and also the right to reject any such person that the remaining members believe to be undesirable to the ethics of the Alliance. The new purchaser is to honour all commitments made by the previous owner of the business to the Alliance by signing a copy of this agreement with the Alliance or a new agreement if required by the on going members of the Alliance. Where a business is sold without this agreement in place, Alliance membership and all rights under the Alliance agreement would be forfeited. 12. Should any Alliance member company resign from the Alliance or knowingly breach the terms of this agreement, they agree to surrender their rights to mesh distribution and all intellectual property developed through the Alliance, including the inherited rights through the Alliance membership to use the product names "Leafshield" and "Leafscreener" and the Guttershield product strap (selvedge) fastening system." 18 Mr Wickett produced multiple copies of the document, signed them himself on behalf of his two companies, and on 10 March 1999 sent them off to Mr De Graaf to sign and send on to the Grooms. 19 Of the six companies named in that Agreement as members of the Alliance, the first two companies were ones associated with Mr Wickett, the next two were ones associated with Mr and Mrs Groom, while the final two were ones associated with Mr De Graaf. 20 The "Guttershield product fastening strap system", referred to in Clause 8 of the document, was the system of attaching the mesh to a gutter using selvedge, which had been developed by Mr Wickett. 21 On 17 March 1999 a three-way telephone conference call was held between Mr Wickett, Mr De Graaf and the Grooms. That telephone call was the beginning of the Alliance. Mr Wickett recognised it as such - he described this call, in a letter he wrote to the Grooms on 10 March 1999, as "our first Alliance meeting". That telephone call was tape recorded (with the consent of all participants), and a transcript is in evidence. In connection with the draft Alliance agreement, Mr De Graaf suggested that the provision relating to legal challenges should relate only to "legal challenges pertaining from today onwards", on the basis that "the alliance didn't occur until now, right" - a proposition to which all other participants agreed. The only mention of patents in that conversation was when Mr Wickett informed the others of some patents which he had taken out. Nothing was said about what should happen to the ownership of those patents. 22 On 21 March 1999 Mr Wickett, Mr De Graaf and the Grooms met in Melbourne, in preparation for the meeting with Kinnears the next day. Mr De Graaf brought with him multiple copies of the "Agreement of the Alliance", signed on behalf of his two companies and Mr Wickett's two companies. The Grooms signed the "Agreement of the Alliance" on 21 March 1999, on behalf of their two companies which were parties to the Agreement. 23 At the meeting with Kinnears on 22 March 1999 an agreement in principle was arrived at to appoint the Alliance as exclusive distributor of a particular range of gutter protection products, to differentiate the products of the Alliance, and concerning other matters. It is not necessary to deal with this agreement in principle in any detail, because it was never consummated. 24 In June 1999, when it seemed that negotiations with Kinnears were not progressing satisfactorily, Mr Groom opened discussions with an alternative manufacturer, Nylex. Nylex already manufactured an oyster mesh, and Mr Groom wished to investigate whether that oyster mesh could be developed into a suitable product for gutter protection. In conjunction with Nylex, a new mesh came to be developed, and was purchased, marketed and used by the Alliance members. 25 In September 2000 the members of the Alliance had a meeting at Thredbo, over several days. By that time there was a proposal for the Alliance to enter the United States market. Mr De Graaf announced that he did not wish to be part of the American development. It was agreed that the American development would proceed as a venture between the Grooms and Mr Wickett. An American patent, and an American trademark have each been acquired, at the joint expense of companies of Mr Wickett, and of companies of the Grooms. No relief is sought in the present proceedings concerning those American rights. The End of the Alliance 26 On 4 December 2000 there was a telephone conference call between the Grooms and Mr Wickett, which purported to be a meeting of the Alliance. They resolved to remove Mr De Graaf's companies from the Alliance. On 5 December 2000 Mr Groom wrote a letter to Nylex, saying: "At the Alliance meeting held on Monday 4th December, it was carried that Leafshield Gutter Protection Pty Ltd and Guttermesh Distributors Pty Ltd (Adelaide companies under the control of Jerry De-Graaf) shall no longer be a part of the Alliance Group of companies. As the Director and inventor of the second generation mesh I therefore, with support of 4 of the other Alliance companies direct you that you shall no longer supply Leafshield or Guttermesh as at 5th January 2000. Leafshield will be supplied stock directly from Leafbusters Pty Ltd. You shall now regard and supply only the following companies for the products developed by myself in conjunction with you: Leafbusters Pty Ltd Victoria Signature [P Groom] Polymesh Australasia Pty Ltd Victoria Signature [P Groom] Guttershield Systems Aus Pty Ltd NSW Signature [B Wickett] Guttershield Pty Ltd NSW Signature [B Wickett] Yours faithfully, Paul A Groom Director "

Mr Wicket signed that letter, in the place appropriate for each of his Guttershield companies to sign. 27 On 6 December 2000 Mrs Groom wrote to Mr De Graaf to inform him that he was no longer a member of the Alliance, but offering to continue to supply him with the second generation product. 28 There is evidence from Mrs Groom that, a few days later, she rang Mr Wickett, told him that she had withdrawn the letter to Nylex, and that the meeting which had removed Mr De Graaf's companies was illegal, so that Mr De Graaf's companies were still part of the Alliance. She says that Mr Wickett agreed with those propositions. Mr Wickett denies that the conversation took place, and says that at no time did Mr De Graaf contact him about still being part of the Alliance, and at no time did either Mr or Mrs Groom say they had spoken to Mr De Graaf in a conversation where he said that he had received solicitors' advice. Mrs Groom was a most unsatisfactory witness, who took every opportunity available to her in the witness box to cast Mr Wickett in a bad light, regardless of whether any such comment was called for by the question she had been asked. There is no documentary confirmation of a conversation like that to which Mrs Groom deposes. Mr De Graaf was cross-examined as follows:

"Q. And it is your understanding, is it not, that as from receipt of that letter you were no longer a member of the Alliance? A. The content of the letter would suggest that to be the case. I had reservations that that was the true situation."

That response is not consistent with there being any consensual readmission of his companies to the Alliance, or a consensual recognition that his companies had never validly been removed from the Alliance. For these reasons I do not accept Mrs Grooms' evidence on this topic. 29 On 5 and 6 July 2002 Mr Wickett was in Melbourne. He and the Grooms attended a meeting on 5 July with Nylex, at which Nylex put a proposal that it should purchase additional manufacturing equipment and make diamond mesh for other purchasers. Mr Wickett regarded this proposal by Nylex as a betrayal; Mrs Groom regarded it as offering an interesting commercial possibility. They had a serious disagreement about that matter, in consequence of which Mrs Groom made it clear to Mr Wickett on 7 and 8 July 2002, that she and Mr Groom had decided that the Alliance was over. 30 On 26 August 2002 Lucas Neale, the Groom's solicitors, sent Mr Wickett a letter enclosing a draft agreement which made provision for dissolving the Alliance, and for Mr Wickett's companies to have ongoing supply of the products which the Alliance had previously dealt in. Mr Wickett rejected this proposal. By a letter of 9 October 2002, he required that: "all patents relating to the current heavy weight mesh and the new lightweight mesh be transferred into all Alliance members names as governed by Paragraph 3 of the "Agreement of the Alliance"." 31 By letter dated 7 November 2002 the Grooms' solicitors notified Mr Wickett that an Alliance meeting was to be held on 18 November, by conference telephone call. On 18 November 2002 a telephone conference call took place, between Mr and Mrs Groom, Mr Wickett, and Mr Dr Graaf. It purported to be a meeting of the Alliance. The Grooms and Mr De Graaf between them secured the passing of resolutions: 1. "That the Alliance be dissolved effective from the close of this meeting."

"That upon such dissolution all rights conferred on Alliance members cease, and"

"That the assets and liabilities of the Alliance be taken into account, and the net equity distributed equally between Alliance members, or the net deficit be paid immediately equally by the Alliance members."

Mr Wickett objected to these resolutions on the ground that such resolutions required unanimous support. He did not, it seems, object on the basis that Mr De Graaf was not entitled to participate. 32 Whether or not the resolutions of 18 November 2002 were valid ones, from that date it was clear that the Alliance did not exist. 33 From the resolution of 4 December 2000 (para [26] above) the Alliance in its original form had ceased to exist. However, the Grooms and Mr Wickett treated the Alliance as continuing in existence after that date, though with Mr De Graaf's companies removed. In other words, they treated the Agreement of the Alliance as binding as between their respective companies. That state of affairs continued until 7 July 2002. 34 By letter dated 15 November 2002 Mr Wickett's solicitors required that the five patents the subject of this action be not dealt with by the Grooms' companies, that they undertake to not cause Nylex to stop supply of the patented products to any of the Alliance members, and that they acknowledge that the patents were held for all of the six original Alliance members. 35 These proceedings were begun on 29 November 2002. 36 On 18 December 2002 Young CJ in Eq granted interlocutory injunctions restraining the defendants from granting any licences or otherwise assigning any rights relating to the five patents, and restraining the defendants from withdrawing the authority of Nylex to supply the plaintiffs with products which are the subject of the patents, until further order. Construction of the Agreement 37 The plaintiffs contend that the five patents fall within Clause 3 of the Agreement of the Alliance. It is not disputed on the part of the defendants that the patents count as "intellectual … property" within the meaning of Clause 3. The plaintiffs contend, and the defendants deny, that each of the five patents was "developed by the Alliance". The plaintiffs also contend, and the defendants also deny, that each patent "remains the common property of all members of the Alliance", notwithstanding that for all practical purposes the Alliance has ceased operating. 38 In construing Clause 3, the principle laid down by Mason J in Codelfa Construction Proprietary Limited v State Rail Authority of New South Wales (1982) 149 CLR 337 at 352-3 can be applied: "The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning. Generally speaking facts existing when the contract was made will not be receivable as part of the surrounding circumstances as an aid to construction, unless they were known to both parties, although, as we have seen, if the facts are notorious knowledge of them will be presumed. It is here that a difficulty arises with respect to the evidence of prior negotiations. Obviously the prior negotiations will tend to establish objective background facts which were known to both parties and the subject matter of the contract. To the extent to which they have this tendency they are admissible. But insofar as they consist of statements and actions of the parties which are reflective of their actual intentions and expectations they are not receivable … Consequently when the issue is which of two or more possible meanings is to be given to a contractual provision we look, not to the actual intentions, aspirations or expectations of the parties before or at the time of the contract, except insofar as they are expressed in the contract, but to the objective framework of facts within which the contract came into existence, and to the parties' presumed intention in this setting … There may perhaps be one situation in which evidence of the actual intention of the parties should be allowed to prevail over their presumed intention. If it transpires that the parties have refused to include in the contract a provision which would give effect to the presumed intention of persons in their position it may be proper to receive evidence of that refusal. After all, the court is interpreting the contract which the parties have made and in that exercise the court takes into account what reasonable men in that situation would have intended to convey by the words chosen. But is it right to carry that exercise to the point of placing on the words of the contract a meaning which the parties have united in rejecting? It is possible that evidence of mutual intention, if amounting to concurrence, is receivable so as to negative an inference sought to be drawn from surrounding circumstances…" 39 Mr Grinter, counsel for the plaintiffs, sought to rely upon different types of extrinsic evidence, which he identified as follows:

The Grooms did not have an exclusive distribution agreement with Kinnears.

The bringing together of the three sets of companies was necessary to enable an agreement to be reached with Kinnears.

There was to be a product created by members of the Alliance peculiar to it, for the purposes of preserving their commercial interests and to prevent competition from other mesh installers.

The Grooms and Mr Wickett specifically discussed obtaining an exclusive product.

Intellectual property was something specifically considered by both the Grooms and Mr Wickett - they realised they needed to control intellectual property if they were to control the market and keep out competition.

The parties had in mind the creation of new products to deal with mesh and fastening systems. 40 Before any of these matters can be used as aids to construction, it must be shown that they were known to all of the contracting parties. The extent of knowledge of the companies associated with Mr De Graaf has not been explored in the evidence. I am not satisfied that any of the aids to construction relied upon by Mr Grinter were known to Mr De Graaf (or anyone else on behalf of his two companies), save to the extent that they are stated in the text of the Agreement of the Alliance itself. In saying that, I am not making a finding that the various matters relied upon by Mr Grinter are true. Nor am I assuming that they are all the sort of background facts which can be taken into account in construing a contract. 41 Mr Grieve QC, for the defendants, pointed to some differences between the text of the fax which Mrs Groom sent to Mr Wickett on 4 March 1999 (para [16] above), and the Agreement of the Alliance itself. He pointed out that para (c) of the fax said that intellectual and real property developed by the Alliance "shall always remain" the common property of members of the Alliance, while Clause 3 of the Agreement of the Alliance substituted the word "remains" for "shall always remain". He also points out that another part of the fax (a part which it is common ground is of Mrs Groom's composition) says: "All intellectual property, systems, marketing, distribution, designs, trade marks, registrations, data bases and all property shall always remain the property of The Alliance. Once a member leaves by resignation or sale or by breach of contract that member shall always keep all knowledge in the gutter protection business by The Alliance confidential."

That clause has no counterpart in the Agreement actually executed. While, consistently with the principle stated by Mason J in Codelfa , it is possible for a deliberate exclusion from a precedent or draft to be a useful aid to construction ( NZI Capital Corporation Pty Ltd v Child (1991) 23 NSWLR 481), the matters to which Mr Grieve QC points cannot be used as aids to construction when it is not demonstrated that anyone on behalf of Mr De Graaf's companies was aware of them. 42 The plaintiffs submit that intellectual property is "developed by the Alliance" if any member of the Alliance develops it, for purposes which are within the scope of the activities of the Alliance, while the Alliance is in existence. That construction seems to me to be right. The opening phrase of the Agreement, whereby the six companies were to "act as a united body for all future business dealings within the gutter protection industry" did not leave room for any of them to have dealings within the gutter protection industry, concerning the type of activities which the Alliance was to carry out, other than as part of the Alliance. While the members were not partners, they agreed to form a joint venture for the carrying out of the types of activity listed in Clause 2 of the Agreement. Clause 2D specifically contemplated co-operation concerning "legal challenges by the Alliance" (not, I note, by an individual member of the Alliance) "that are required to protect the Alliance members rights" (not, I note, the rights of one member of the Alliance but not of other members of the Alliance) "due to breach of … patents … of the Alliance members". 43 Clause 2E contemplated co-operation on research and development of new meshes and fastening systems. When the Alliance was not a corporate body, it could not, if one applied strict legal analysis, develop intellectual property itself. Nor, when the Alliance members did not constitute a partnership, could it have been intended that there would be the mutual agency which partners have, so that any action which a partner carries out within the scope of the partnership business is in law the action of all the partners. The home bases of the Alliance members were geographically dispersed, in Adelaide, Melbourne and Sydney, so it could hardly have been expected that there would be joint activity of all Alliance members required before intellectual property could be said to be "developed by the Alliance". The document is loosely worded, and (as all parties to it knew) not drafted by lawyers, so strict legal analysis is inappropriate when deciding what is intellectual property "developed by the Alliance". A significant purpose of the Alliance was to obtain an exclusive product or products they could all use - if work done on developing such a product resulted in intellectual property, that was, it seems to me, the "intellectual … property developed by the Alliance" that Clause 3 talked about. 44 The next question of construction concerns what is to happen to intellectual property "developed by the Alliance" once the Alliance ends. In my view, the statement that such property "remains the common property of all members of the Alliance" means that, even after dissolution, it is their common property. That is, it seems to me, the ordinary meaning of those words. Further, there are some provisions in the Agreement which state expressly that, in certain identified circumstances, particular rights are not able to be used once someone has ceased to be a member of the Alliance. Clauses 8, 9 and 10 relate to certain intellectual property rights which existed prior to the entry of the "Agreement of the Alliance", concerning which members are allowed rights of use only as long as they remain a member of the Alliance. Further, Clause 12 provides for rights to intellectual property "developed through the Alliance" to be surrendered if a member company resigns or knowingly breaches the terms of the Agreement. Those circumstances do not exhaust the circumstances in which a member of the Alliance might cease to be a member of the Alliance - and in particular, do not cover the situation in which the present plaintiffs find themselves. When these clauses identify particular circumstances in which rights of a member in intellectual property will cease upon their ceasing to be a member of the Alliance, that provides, it seems to me, a reason in favour of construing Clause 3 as providing for intellectual property developed by the Alliance to continue to be the common property of all members of the Alliance, even after they have ceased to be members, in circumstances other than those specifically provided for in Clauses 8, 9, 10 and 12. 45 In my view, the expression "common property" in Clause 3 refers to an actual right of property, not a mere right of use. 46 In construing a commercial document, the Court should strive to avoid constructions which are uncommercial in their effect. I do not see the construction of Clause 3 which I have just outlined as one which has uncommercial effects of such a magnitude that I should reconsider whether that view of the construction of Clause 3 is right. Sections 16 and 17 Patents Acts 1990 (Cth) provide: 16(1) Subject to any agreement to the contrary, where there are 2 or more patentees: (a) each of them is entitled to an equal undivided share in the patent; and (b) each of them is entitled to exercise the exclusive rights given by the patent for his or her own benefit without accounting to the others; and (c) none of them can grant a licence under the patent, or assign an interest in it, without the consent of the others. (2) Where a patented product, or a product of a patented method or process, is sold by any of 2 or more patentees, the buyer, and a person claiming through the buyer, may deal with the product as if it had been sold by all the patentees. (3) This section does not affect the rights or obligations of a trustee or of the legal representative of a deceased person, or rights or obligations arising out of either of those relationships. 17(1) Where there are 2 or more patentees, the Commissioner may, on the application of any of them, give such directions in accordance with the application as the Commissioner thinks fit, being directions about: (a) a dealing with the patent or an interest in it; or (b) the grant of licences under the patent; or (c) the exercise of a right under section 16 in relation to the patent. (2) If a patentee fails to do anything necessary to carry out a direction under subsection (1) within 14 days after being asked in writing to do so by one of the other patentees, the Commissioner may, on the application of one of those other patentees, direct a person to do it in the name and on behalf of the defaulting patentee. (3) Before giving a direction, the Commissioner must give an opportunity to be heard: (a) in the case of an application by a patentee or patentees under subsection (1) - to the other patentee or patentees; and (b) in the case of an application under subsection (2) - to the defaulting patentee. (4) The Commissioner must not give a direction that: (a) affects the rights or obligations of a trustee or of the legal representative of a deceased person, or rights or obligations arising out of either of those relationships; or (b) is inconsistent with the terms of an agreement between the patentees. 47 If a patent had been developed by the Alliance, and was jointly held, then each of the joint owners could use the patented invention, after the end of the Alliance, for their own benefit. Further, if any of them unreasonably dealt with their rights under the patent, the Commissioner's powers under section 17 provide a potential source for a remedy. Any such decision of the Commissioner is reviewable in the Administrative Appeals Tribunal: section 224(1)(a) Patents Act 1990. If the members of the Alliance were to have worked on developing a market for a product which was patented under a patent which had been developed by one of their number during the period of the Alliance, and none of the circumstances existed where it had been expressly agreed that rights to use intellectual property associated with that product would cease once that person stopped being a member of the Alliance, that member could continue to sell the product in question. It seems sensible that the agreement work so that effort put into market development while the Alliance was on foot should not be lost if the Alliance ended other than through resignation or knowing breach. It would be a consequence of section 16(1)(c) Patents Act 1990 that (subject to section 16(2)) none of the former Alliance members could grant a licence to use the patent without consent of the others, and this might potentially restrict all of them in franchising a business which involved exploitation of the invention (cf section 13 Patents Act 1990), unless a Commissioner's direction under section 17 could be obtained to require consent to such franchising activities. However, I do not see this as such a disadvantage as to suggest that the construction which the agreement on its face appears to bear is not the correct construction. The particular form of franchising which was involved could affect whether the activities of the franchisee in dealing with the product fell within the notion of exploiting the invention, or whether they fell within the scope of the implied licence that any purchaser of a patented product has to exercise all the normal rights of the owner of a chattel, including to resell and repair it, unless the terms of the contract of sale restrict these rights: Lahore, Patents, Trade Marks and Related Rights, para [24,005]; Blanco White, Patents for Inventions, 4th ed, (1974) para 3-219, 10-104. Section 16(2) makes clear that that sort of an implied licence, arising from sale, can be given by only one of several patentees. The Patents in Suit 48 There are five patents in dispute in the present case, which are as follows: Patent No Type Issue date Application Date Brief Description 716209 Petty 24/2/00 13/5/99 Square mesh 741254 Standard 14/3/02 11/11/99 2G mesh 743332 Standard 9/5/02 8/10/01 Formula 718355 Petty 13/4/00 11/8/99 Velcro 749747 Standard 17/10/02 21/2/00 Velcro

Each of those patents is registered in the name of LBI Holdings Pty Ltd (" LBI "). Each of them names Mr Groom as the inventor. 49 In early 1999 Mr and Mrs Groom were again considering whether they should franchise their business. They received advice from their accountant that they should ensure that inventions and trademarks were held in a separate company which did not trade, as then, if there were to be any dispute with franchisees the assets would be protected. Following that conversation, LBI was incorporated on 9 June 1999, as trustee of a discretionary trust, the potential beneficiaries of which were members of the family of Mr Groom. LBI has at all relevant times had Mr Groom as its sole director and shareholder. 50 While the following account of the inventions may not incorporate everything which would be relevant in a suit concerning the validity of the patents, it seeks to identify the core of each invention. Square Mesh Patent 51 This involves a mesh made from strands of a material like polyethylene. It is made up of a set of parallel strands of that material, overlaid by another set of parallel strands of that material which lies at right angles to the first. It is important that each of the strands of material occupies its own plane, so that one set of strands sits on top of the other - the strands are not interwoven. A range of dimensions is specified for each of the strands themselves, their pitch, and the clearance of the holes between the strands. It is important that the mesh is laid so that the uppermost set of strands run parallel to the length of the gutter. Laying it that way produces greater turbulence in water flowing over the mesh and causes the water to pass more quickly and easily through the mesh. The 2G Mesh Patent 52 The specification for this patent recognised that the upwardly extending ridges which stuck up from the upper face of the mesh and ran parallel to the gutter edge, in the configuration of the square mesh patent, created a significant resistance to the removal of debris from the mesh. As well, water flow through the mesh could be restricted by water running along the underside of the mesh - a problem referred to as "sheeting". A further problem with the square mesh was that pine needles and finer leaf matter could get through the holes in the mesh. 53 The invention involved in the 2G Mesh Patent was embodied in a mesh which was flat on its upper surface. However, it was moulded so that its underside comprised strands which ran parallel to the gutter and had a trapezoidal cross-section, while the strands which ran perpendicular to the gutter had a semicircular cross-section. Further, the strands which ran parallel to the gutter were of greater thickness than those which ran perpendicular to the gutter. This meant that there were a series of ribs, running parallel to the gutter and protruding on the underside of the mesh, which broke the surface tension of the water and thus assisted in preventing water sheeting on the underside. The holes in the mesh were ones which fell within a specified range of sizes, and were roughly oval in shape, with the length of the oval running perpendicular to the gutter. This feature was said to strengthen the mesh, and also reduce the incidence of entry of pine needles and finer leaf matter. 54 Another novel feature was that the edge of the mesh which ran along the length of the gutter was not perforated. The lack of perforation assisted in reducing its resistance to tearing and/or splitting. 55 Another aspect of the invention was that the mesh was produced by a "co-extrusion process", under which the strands which ran in one direction were moulded from a more flexible material than the strands which ran perpendicular to them. This meant that the mesh was stiffer if you tried to bend it in the one direction than if you tried to bend it in a direction at right angles. 56 Another aspect of the specification was that the mesh was fixed to the gutter using a mating pair of strips of a "textile hook and loop fastening system". A common example of such a hook and loop fastening system is the material marketed under the tradename Velcro. Formula Patent 57 This patent is a divisional of the 2G patent. It describes in greater detail the use of different materials to form the strands which run perpendicular to the gutter and those which run parallel to the gutter. It identifies a suitable material for moulding the strands perpendicular to the gutter as being high density polyethylene, and for moulding those running parallel to the gutter as being low density polyethylene, and also says that bonding between the two strands is improved if a small proportion of low density polyethylene is blended with the high density polyethylene and/or a small proportion of the high density polyethylene is blended with the low density polyethylene. Velcro Petty Patent 58 This patent involved using a textile hook and loop fastening system to attach the square mesh to a gutter edge. It also modified the square mesh so that it had a flat strip running along the edge which was intended to be attached to the gutter. Velcro Standard Patent 59 This patent is a divisional of the Velcro petty patent. The invention disclosed is identical to that in the Velcro petty patent, but the claims to monopoly are stated more extensively. Development of the Five Patented Inventions The Square Mesh Patent 60 Mr Groom invented a square mesh which worked on the same principle as the patented square mesh prior to May 1998. In May 1998 Mr and Mrs Groom instructed a Melbourne patent attorney, Mr Morcom, to prepare a confidentiality agreement for potential manufacturers of the mesh to sign. In July 1998 Mr Morcom, on Mr Groom's instruction, prepared a draft provisional patent specification relating to the square mesh. This instruction to Mr Morcom was prompted by Mr Groom having discovered, as a result of his initial approach to Nylex, that Nylex was not interested in making Mr Grooms' square mesh, because it was already making a square mesh for other customers. 61 The Grooms did nothing to advance the lodgement of the patent until May 1999, when Mr Groom instructed Mr Morcom to prepare and file a petty patent application for the invention which was the subject of the draft provisional specification which he had prepared in July 1998. That application was lodged on 13 May 1999, and the Letters Patent issued on 24 February 2000. 62 There was some consideration by the Alliance members of marketing a square mesh. Kinnears had, at the beginning of 1999, a square holed oyster mesh without selvedge. The Alliance members discussed with Kinnears the possibility of modifying that mesh to become a new product. Mrs Groom's agenda for the meeting with Kinnears on 22 March 1999 (which she sent to Mr Wickett and Mr De Graaf) included the item: "Mesh Alliance Company to develop 3 mesh styles - (a) Diamond shape (current - gutter guard) to be called Leafscreener Mk 1 - by Kinnears (b) Square mesh to be called Leafscreener Mk 2 - by Kinnears (c) Redesign the selvedge for the Premium market, making it more visibly different." 63 Kinnears prepared, and sent to "the Alliance" a document setting out its understanding of the in principle agreement which was arrived at on 22 March 1999. It included: "Kinnears will agree to: - 1 Appoint the Alliance as the exclusive distributor of a range of diamond mesh Gutter Protection products (currently 3R heavy weight but excluding Gutterguard sold to retail outlets … 4 Develop a square mesh substitute for the lightweight diamond mesh and then withdraw the latter from the marketplace altogether. 5 Make the square mesh product available to the Alliance and other existing distributors, for twelve months from launch date of square mesh. Thereafter appoint the Alliance as in (1) above." 64 In April 1999 Kinnears prepared a sample of a square mesh gutter guard, using their existing production equipment, and sent it to, amongst others, Mr Wickett. Mr Groom on 6 May 1999 sent to a Kinnears officer a proposed pricing structure and mesh specifications. Those specifications were ones prepared by Mr Wickett, which referred to the product as "Alliance New Square Mesh". On 10 May 1999 a Kinnears officer gave some indicative prices to Mrs Groom for a square mesh, and the question of the colours in which square mesh would be available was raised between Kinnears and Mrs Groom. 65 By mid-June 1999 the Grooms were apprehensive about Kinnears' intentions concerning manufacture of square mesh, and consulted Ebsworth & Ebsworth Solicitors in Melbourne. Ebsworths sent a letter to Kinnears, which said: "I act for Leafbusters Pty Ltd and interstate companies associated with my client. I have been handed a copy of the Confidential Disclosure Agreement made between your company and my client on 10 August 1998 and signed by you for and on behalf of Kinnears Australia Pty Ltd. My client is concerned that you may have the intention of breaching your obligations under the Confidential Disclosure Agreement in connection with the " square mesh " and also the " strapping systems ". My client has patents pending in connection with each of these items of Intellectual Property."

It went on to threaten action if Kinnears engaged in any breach of its obligations under the Confidential Disclosure Agreement, or infringed rights "under its Patents Applications" . 66 There was further disputation, the details of which it is not necessary to go into, between the Grooms and Kinnears about whether Kinnears were entitled to produce a square mesh. 67 It has not been demonstrated that the sample of square mesh which Kinnears produced in April 1999, or Mr Wickett's specification which was sent to Kinnears on 6 May 1999, is an embodiment of the precise form of square mesh which is contained in the patent application. It is, however, clear that it was the discussions with Kinnears about square mesh which provided the occasion for Mr Groom's instruction to Mr Morcom to prepare and file the petty patent application for square mesh. 68 These factual circumstances show, in my view, that the square mesh patent counts as "intellectual … property developed by the Alliance", within the meaning of Clause 3 of the Agreement of the Alliance. The granting of a patent involves the bringing into existence of a species of intellectual property. While the invention to which the patent relates might, from the time of its creation, have the status of being one type of intellectual property, namely confidential information, the rights of the holder of confidential information differ significantly from the rights of the holder of a patent. The process of turning an invention into a patent involves not only the making of the invention, but also its reduction to the appropriate written form for patent applications (section 29 Patents Act 1990), its filing, its examination, its advertising (section 53 Patents Act 1990), any opposition proceedings there might be, and its eventual grant. If an applicant for a patent puts effort into any of these steps, that is, in my view, effort expended in the development of the patent. 69 In the present case, even though the creative intellectual work of making the invention of a square mesh occurred before the Alliance was formed, there was still development of the intellectual property which came to be the square mesh patent during the period of the Alliance. The modification of the draft provisional specification into the specification for the petty patent itself involved some redrafting. In the present case, comparison of the draft provisional specification and the petty patent specification shows differences of the following types:

(a) The sizes stated for the diameter, the pitch and the clearance of the strands in the mesh are different in the specification as lodged to those in the draft provisional specification.

(b) The specification as lodged includes a statement "in localities with a high fire danger, the material is preferably a self-extinguishing fire retardant mesh" , a statement which did not appear in the draft.

(c) The petty patent specification contains (at p 4-5) a description of how the mesh in question differs from flywire mesh, which does not appear in the draft.

(d) The specification as lodged lists claims defining the invention, whereas the draft contains no claims at all.

(e) The diagrams which accompany the specification as lodged have been re-drawn and tidied up.

(f) The draft contains two passages in bold and square brackets, where Mr Morcom explains what he is doing, or requests instructions. 70 There is no requirement in Clause 3 that intellectual property be developed from start to finish by the Alliance before Clause 3 applies to it. In my view, the steps in development of the square mesh patent which were taken while the Alliance was on foot, and in connection with its activities, are sufficient for that patent to be one "developed by the Alliance". 2G Patent 71 On 15 October 1999 four rolls of a new design of mesh were sent by Nylex to the Grooms, and four rolls were also sent by Nylex to Mr Wickett. Each of the rolls in a group of four was made from polyethylene of a different formulation. The rolls had been produced at a time when Mr Groom was at the Nylex factory, and suggesting different formulations of the ingredients to make up the mesh. Mr Wickett carried out tests on the various samples which were provided to him, and reported on what he had found to Mr Groom. I am not sufficiently confident of Mr Wickett's evidence to accept in full the detail of his accounts of the testing and reporting which he engaged in, but I accept its general drift - namely, that he received, at some stage in the latter part of 1999, samples of material produced by Nylex, and reported back that there were problems with its hole size and pliability, and that Mr Groom caused Nylex to make modifications until a suitable mesh was found. 72 By the end of November 1999 a particular formulation had been found to be suitable by the Grooms. I accept that Mr Wickett also tested mesh made with that formulation, and found it to be suitable. In this instance, it seems to me that Mr Wickett's evidence, to the effect that I have just stated, is corroborated by the inherent circumstances - Mr Groom is hardly likely to have told Nylex to put that formulation into production without knowing that Mr Wickett found it suitable. As well, there is evidence of Nylex sending a roll of the material, described as "Option "C"" to Mr Wickett on 22 November 1999. 73 In early 2000 that mesh, manufactured by Nylex, came to be referred to by Alliance members as "2G", meaning second generation. Production runs of the 2G Mesh became available from March 2000. Mr Wickett placed his first order for the new style of mesh in mid-January 2000. 74 On 11 November 1999 Mr Morcom lodged a provisional patent application on behalf of LBI which described two inventions, namely a smooth faced mesh and a co-extrusion formulation of mesh suitable for application as gutter screening. On 13 November 2000 Mr Morcom lodged a complete patent application in Australia on behalf of LBI which claimed priority from the date of lodgement of the provisional application. Letters Patent relating to the 2G patent were issued on 14 March 2002. 75 As stated earlier, Mr Wickett had some involvement in the testing of the mesh which ultimately became the subject of the 2G patent. It has not been shown that the testing which he carried out made any difference to the patent as ultimately lodged and granted, but neither has it been shown that the testing he carried out did not make any such difference. Quite apart from Mr Wickett's involvement, however, the mesh was developed in circumstances where it was intended to be a product made available for use by the Alliance. Further, the patent was lodged with at least part of the objective being to ensure that the mesh remained one available exclusively to the Alliance. This patent is one "developed by the Alliance" within the meaning of Clause 3. Formula Patent 76 On 8 October 2001 Mr Morcom lodged a divisional application for a patent in respect of the composition or formula used in the construction of mesh. This claimed a priority date of 11 November 1999, from the disclosures in the provisional application lodged on that date relating to the 2G Mesh. The Letters Patent were issued on 9 May 2002. The composition or formula to which this patent related was the composition or formula which had been developed for the purpose of the making of the 2G Mesh. There was no separate experimentation involved in arriving at the composition or formula which is disclosed in the formula patent - it had all been part of the process of development of the 2G Mesh. Mr Wickett had had the limited type of involvement which I have already described in that development. 77 Even though the application for this patent was made after the De Graaf companies had been expelled from the Alliance, there are two separate reasons why this patent is one within Clause 3 of the Agreement of the Alliance. The first is that the experimental work was done during a time when the Alliance with all six members was on foot, and that is a necessary part of the development of the intellectual property consisting of the patent. The second is that the further step of development of the intellectual property involved in applying for the patent, and its issue, occurred during the time that the modified Alliance, between the Groom companies and the Wickett companies, remained on foot, ie prior to 7 July 2002. Velcro Petty Patent 78 During July and August 1999 Mr Groom experimented with using Velcro to attach the mesh to the gutter edge. On 11 August 1999 Mr Morcom lodged an application for a petty patent relating to the use of Velcro to attach gutter mesh. The petty patent issued on 13 April 2002. Mr Wickett had no involvement in the inventive steps involved in that invention, or in testing the resulting product. He was told about it by Mr Groom in July or August 1999, and was unenthusiastic about the idea (see paras [84] and [85] below). Even so, this patent is one where both the inventive steps, the application, and the grant occurred during the time the Alliance was on foot, and in connection with the type of product to which the Alliance related. It also falls within Clause 3 of the Agreement. Velcro Standard Patent 79 On 21 February 2000 Mr Morcom lodged a divisional application for a standard patent for gutter screens using Velcro to attach mesh to the gutter. This claimed a priority date of 11 August 1999, from the disclosures in the Velcro petty patent application. A standard patent was issued on 17 October 2002. The only difference between the situation of this patent and that of the Velcro petty patent is that this patent was issued after the Alliance had come to an end. That is not a sufficient difference from the situation of the Velcro petty patent. The Velcro standard patent also falls within Clause 3 of the Agreement. The Claims of Oral Declaration of Trust 80 Mr Wickett gives evidence of several conversations with Mr Groom relating to ownership of the patents. He gives evidence of having had involvement in the design of the mesh being manufactured by Nylex, and of discussing with Mr Groom the need to "protect our design", that Mr Groom said he would investigate "getting registered patents for our designs and specifications for the mesh and the methods of fixing the mesh to roofs and gutters", that Mr Groom informed him some months later that patents had been lodged, and that on a later occasion Mr Groom informed him that the patents for the mesh had come through, and that he had put the patents in the name of LBI. According to Mr Wickett, the following conversation then ensued: WICKETT: "Why did you do that?" GROOM: "It is a separate company outside the Alliance Members. If something financially goes wrong with any Alliance Member the patents cannot be touched." WICKETT: "Good as long as the patents are held on behalf of the Alliance Members". GROOM: "Of course the Patents are held on behalf of the Alliance Members. A licence will be given to Nylex to manufacture".

Mr Groom agrees that he told Mr Wickett that there was a patent pending for the 2G Mesh, and that the patent was in the name of LBI, and that he explained the reason for that as being to do with asset protection. He denies saying "Of course the Patents are held on behalf of the Alliance Members" . 81 Mr Wickett gives evidence that he met with Mr Hindson from Kinnears in May/June 1998, and that Mr Hindson said to him: "I suggest that you, Mr and Mrs Groom and Mr De Graaf use a square mesh. Kinnears are able to make a square mesh from our existing machinery."

Mr Wickett says that he spoke to Mr Groom about that conversation to the following effect: WICKETT: "Kinnears are talking about being able to manufacture a square mesh. We need to protect the square mesh idea by making application for Patent ourselves before Kinnears release it to our opposition." GROOM: "I will do this on behalf of the Alliance."

Mr Groom denies that any such conversation occurred. 82 On 12 June 1999 Mr Wickett sent a document to other Alliance members, entitled "Proposal regarding all future mesh development". It included the following: "Considering past problems with Kinnears and potential problems with any manufacturer that we source in the future for the manufacture of our mesh, it has become evident that it is most important to protect our interests and intellectual property other than the patents pending that are in place. Considering that these patents could take several years to be approved, thus not being able to be enforced until approved, plus, because of any ambiguity that the manufacturer may claim through our confidentiality agreements, I feel the best way to protect the Alliance is to have each potential manufacturer sign a mesh development contract with the Alliance."

The memorandum went on to consider the negotiation tactics for obtaining such a contract from a manufacturer, and suggested conditions for such a contract. One of the suggested conditions was: "Any development of meshes associated with the Alliance development programme would remain the property of the Alliance, whether or not the Alliance chooses to accept that manufacturer for the supplier of the premium grade mesh."

In further consideration of the negotiation tactics to adopt concerning that agreement, the memorandum suggested, "If Kinnears are unwilling to sign, all development of products for Alliance are to cease …" . 83 Mr Wickett says that within one or two days of sending that letter he had a telephone conversation with Mr Groom to the following effect: GROOM: "I read your letter and I agree. We need to protect the intellectual property of the Alliance. We need a new product protected by Patent." WICKETT: "It is most important we have in place a Patent for the Alliance."

Mr Wickett says that Mr De Graaf also said he agreed. Mr Groom denies having a conversation of the type attributed to him. 84 Mr Wickett says that around July or August 1999 Mr Groom spoke to him about using Velcro to attach the mesh to the gutter edge, and that a conversation to the following effect took place: GROOM: "I've got the idea of attaching the mesh to the gutter edge with velcro." WICKETT: "I don't think it would be strong enough." GROOM: "I will make a Patent Application with the other Patents for the Alliance." 85 Mr Groom agrees that he had a conversation with Mr Wickett around that time in which he informed him of the notion of attaching mesh to the gutter edge using Velcro, but denies that he said words to the effect of 'I will make a Patent Application with the other Patents for the Alliance". 86 Mr Wickett gives evidence that, at some indeterminate time, he had a conversation with Mr Groom to the following effect: GROOM: "You know the LD and HD polyethylene is new. I have spoken to Mr Morcom and he said a Patent should be obtained." WICKETT: "Yes, go ahead. The more legal protection we get the better."

Mr Groom denies any such conversation took place. 87 There was an occasion in May 2001 when Mrs Groom visited the plaintiffs' premises in Gosford and addressed the plaintiffs' staff. Her talk was videotaped, so that it could be used in future as an aid to staff training. In the course of her talk, Mrs Groom said: "We work closely hand-in-hand. So we have got group buying power. When it comes to patents and trademarks, we do that altogether. We are locked in, you have seen the new system, you have been fitting the system, you have been selling it, that is locked in with a twenty-year patent." 88 I am not persuaded that it is more likely than not that any of the conversations which I have just recounted, which Mr Wickett asserts, and Mr Groom denies, actually occurred. When Mr Wickett's evidence was tested in cross-examination, his recollection proved to be poor. He accepted, in cross-examination, that the account that he had given in the first affidavit which he swore in these proceedings of the timing of events was significantly awry. There are no notes of the conversations which Mr Wickett deposes to, nor any other contemporaneous confirmation that they occurred. While the inherent probabilities of the situation, in which the various patents were coming into existence, are such that it is likely that Mr Wickett believed that the coming into existence of the various patents would be for the benefit of the Alliance, and that nothing said by the Grooms dissuaded him from that view, that inherent probability does not stretch so far as to make it likely that Mr Groom told Mr Wickett that the patents would actually be owned by the Alliance. The fact that the American patent and trademark were paid for fifty/fifty by Groom companies and Wickett companies lends some support to Mr Wickett's version of events concerning conversations about the Australian patents, but is not enough, in my view, to enable a positive finding to be made. Mr Wickett has to overcome the inherent difficulties of proving such statements, when the conversations in question were some years ago, and there is no contemporaneous corroboration: cf Watson v Foxman; Commonwealth Bank of Australia v Foxman Holdings Pty Ltd (Receiver and Manager Appointed) (2000) 49 NSWLR 315. He has not done so. 89 There is a particular improbability about the conversation to which Mr Wickett deposes as having occurred in May/June 1998 (para [81] above), as the Alliance was neither formed, nor named, at that time. 90 While the statement of Mrs Groom in the staff training session, set out in para [87] above, indisputably occurred, it does not involve a statement about who owned the patents. 91 In all these circumstances, I do not find, in any of the oral conversations to which Mr Wickett deposes, any separate basis for his companies succeeding in the claim. Appropriate Relief 92 The plaintiffs submit that when it was the common intention of the parties that the beneficial interest in the patents would be held in the manner stated by Clause 3 of the Agreement, it would be unconscionable for LBI now to assert that it holds the patents on any different terms: cf Carson v Wood (1994) 34 NSWLR 9. The defendants accepted that in an appropriate case, where it would be unconscionable and a subversion of the intention of the written agreement between the parties, it could be appropriate to declare a constructive trust. The defendants argued that the present was not such a case. The reasons I have given so far lead to a rejection of that submission. 93 Mr Grieve QC submits that, even if a breach of Clause 3 were to be established, equitable relief, in the form of requiring a one-third interest in the patents to be transferred to the plaintiffs, should be refused. The first reason why he submits equitable relief should be refused is that, notwithstanding their obligations under Clause 2F of the Agreement, the Wickett companies did not pay any of the costs of development of the patents in question. 94 While it is true that the Wickett companies paid no part of those development costs, they were never called upon to do so at the time. As well, the Wickett companies were themselves carrying out some development work on intellectual property, including obtaining some patents and a registered design, and did not ask the Grooms or their companies to make any payment towards the development cost of those items of intellectual property. The failure of Mr Wickett's companies to pay for development costs during the course of the Alliance is, in these circumstances, not so egregious as to lead to a refusal of equitable relief altogether. However, any equitable relief should be conditional upon the plaintiffs paying their appropriate share of the development costs of the various patents. If those costs cannot be agreed upon, there will need to be an inquiry to ascertain their quantum. 95 A second reason which Mr Grieve QC advances why equitable relief should be refused is that Mr Wickett has not offered to make available to other Alliance members the benefit of the intellectual property developed by him during the period of the Alliance. During Mr Wickett's cross-examination he accepted that a petty patent number 22319/00 (applied for on 15 March 2000) was held in trust for the other four members of the Alliance. At a later point in the cross-examination, however, he said it was not his intention to transfer the title to various patents he had acquired into the names of the six companies that signed the Alliance Agreement, on the ground that, now, the Alliance consisted of only his two companies. 96 So far as the evidence discloses, the question of Mr Wickett transferring an interest in his patents or other intellectual property rights to other Alliance members had not been raised at any time before Mr Wickett was cross-examined about it. I regard the reason he gave for not intending to transfer them as untenable - the Alliance no longer exists. I do not regard his answers in cross-examination as amounting to a final and considered refusal to do equity. In my view, it is, however, appropriate that any equitable relief be conditional upon Mr Wickett and his companies undertaking to transfer to such of the Groom companies, or De Graaf companies, as might want them, an appropriate proportionate interest in the intellectual property which he or the Wickett companies hold and to which Clause 3 of the Agreement applies, upon payment to him or the Wickett companies of the appropriate proportion of the cost of development of that intellectual property. It is appropriate to impose this condition on Mr Wickett, even though he was not in his personal capacity a member of the Alliance. Just as LBI holds on constructive trust for the Alliance members intellectual property developed by the Grooms which falls within Clause 3 of the Agreement, so would Mr Wickett hold on constructive trust intellectual property he developed which falls whin Clause 3 of the Agreement. That condition should apply in relation to intellectual property developed up to 7 July 2002. Even if Mrs Groom's statement on that day, that the Alliance was over, did not end it as a matter of contract law (a matter concerning which I need not decide) it sufficed to disentitle the Groom companies from the benefit of any constructive trust over intellectual property which was wholly developed by Mr Wickett or his companies after that day. 97 Further consideration would need to be given about the time at which the plaintiff companies are required to elect whether they will accept these terms upon which relief was granted, and as to the time at which the Groom and De Graaf companies which were members of the Alliance are required to elect whether they wish to pay the price at which they would be entitled to a transfer of a proportionate interest in the relevant intellectual property of the plaintiffs or Mr Wickett. 98 Mr Grieve QC thirdly submits that equitable relief should be denied because it has no utility. So far as the patents concerning the 2G Mesh are concerned (the 2G Mesh patent itself, and the Formula patent) the factual foundation for that submission is that the Wickett companies are now predominantly marketing a different mesh, which they call 3G. There is a registered design relating to that new mesh, though not a patent. Mr Wickett has been marketing that new mesh since around 20 August 2003. The Wickett companies obtain supplies of that mesh from a New Zealand company. 99 Mr Wickett agreed, in cross-examination, that the proportion of Nylex product which is now sold by him is less than five percent of his total sales. However, he says he would like to have the Nylex product available for sale, but that when his right to continue access to that product is uncertain, because these proceedings are undecided, he has withdrawn the Nylex product from sale until such time as the legal uncertainties are cleared up. Mr Wickett is of the view that the 3G Mesh is a superior product to the 2G Mesh, but wishes to have access to both products so that he can market one as a premium product, and the other as a mid-range product. In these circumstances, I do not accept that granting the plaintiffs equitable relief concerning those two patents would lack utility. 100 No separate submission was made about lack of utility concerning the other three patents. 101 While the summons sought orders aimed at informing the plaintiffs about what use the defendants have made of the five patents, and requiring the defendants to pay an appropriate proportionate share of the profits made by exploitation of the patents, those orders were not pressed. Mr Grinter accepted that, if the plaintiffs were to become joint registered holders of the patents, the effect of section 16 Patents Act 1990 was that the plaintiffs would not be entitled to such orders. The Cross-Claim 102 LBI and Leafbusters filed a cross-claim which sought additional relief to that relating to the patents (outlined at para [2] above). The additional relief was, in broad terms:

(a) A declaration that Guttershield Systems has infringed the copyright of the cross-claimants in:

(i) cross-section diagrams for the affixing of gutter mesh, and

(b) A declaration that Guttershield Australia has passed off its business and goods as the business and goods of the cross-claimants.

(c) Declarations that Guttershield Australia has engaged in misleading and deceptive conduct, and that Mr Wickett has aided, abetted, counselled or procured that contravention, or induced or been directly or indirectly knowingly concerned in, or party to the contravention. 103 The cross-claim sought the following orders:

(a) That Guttershield Systems be restrained from advertising or dealing in gutter mesh or gutter protection products infringing the five patents.

(b) That Guttershield Systems be restrained from infringing copyright in either the cross-section diagrams for the affixing of the gutter mesh, or the advertising copy.

(c) Damages for infringement of copyright (together with additional damages under section 115(4) Copyright Act 1968 ), and damages for conversion under section 116 Copyright Act 1968 .

(d) An injunction restraining Guttershield Australia from:

(i) passing off its business or goods as that of the cross-claimants.

(ii) using "any advertising copy, labels or identifying designs or patents which are substantially identical or deceptively similar to those used by or licensed by the Cross-Claimants" , and

(iii) representing that it was the inventor of the gutter mesh protection system that is the subject of the patents.

(g) Alternatively, that an account of profits be taken.

(i) Interest pursuant to section 94 Supreme Court Act 1970 .

(j) Costs. 104 An Amended Cross-Claim, claiming all these remedies, was filed at the commencement of the hearing. It was only in the course of addresses that the cross-claimants abandoned the claim to the declarations which I have summarised as (a)(i), (b) and (c), restricted the claim to order (b) to an order relating to the advertising copy, and abandoned the claim for all other orders save (a) and costs. 105 The cross-defendants, for their part, in the course of address, proffered an undertaking to the Court that the cross-defendants would not reproduce any of the wording contained in the advertisement which was the subject of complaint. 106 In those circumstances, the only live matter remaining for consideration, concerning the cross-claim, relates to the ownership of the patents. It follows from the earlier parts of this judgment that the cross-claimant is not entitled to the relief it claims concerning those patents. I have mentioned the procedural history of the cross-claim as it may bear upon questions of costs. Orders 107 Uninstructed by argument from counsel, the type of orders which presently seem appropriate to give effect to these reasons for judgment are along the following lines:

In these orders "the Five Patents" mean Australian patents number 716209, 741254, 743332, 718355 and 749747.

Note the undertakings of the plaintiffs to the Court: (a) to pay to Leafbusters Pty Ltd and Polymesh Australasia Group Pty Ltd one-third of the cost incurred by those companies in development of the Five Patents (as ascertained by inquiry before the Master, or as agreed between the plaintiffs and Leafbusters Pty Ltd and Polymesh Australasia Group Pty Ltd), (b) That if Leafbusters Pty Ltd and Polymesh Australasia Group Pty Ltd undertake to the court to pay one-third of the cost incurred by the plaintiffs or Mr Bruce Wickett in development of patents or registered designs or other items of the intellectual property (not including the Guttershield Product Fastening Strap System), relating to the gutter protection industry, concerning which the plaintiffs or either of them or Mr Bruce Wickett performed development work during the period 17 March 1999 to 4 December 2000 (such cost being as ascertained by inquiry before the Master or as agreed between the plaintiffs and Leafbusters Pty Ltd and Polymesh Australasia Group Pty Ltd), then the plaintiffs will cause Leafbusters Pty Ltd and Polymesh Australasia Group Pty Ltd to become registered with the Australian Patent Office as holder as tenant in common of a one-third interest in the said patents, registered designs or other items of intellectual property so developed by the plaintiffs or either of them or Mr Bruce Wickett on the basis that the cost of obtaining such change in registration is borne by the plaintiffs. (c) That if Leafbusters Pty Ltd and Polymesh Australasia Group Pty Ltd undertake to the court to pay one-half of the cost incurred by the plaintiffs or Mr Bruce Wickett in development of patents, registered designs or other items of the intellectual property (not including the Guttershield Product Fastening Strap System), relating to the gutter protection industry, concerning which the plaintiffs or either of them or Mr Bruce Wickett performed development work during the period 4 December 2000 to 7 July 2002 but did not perform any development work during the period 17 March 1999 to 4 December 2000 (such cost being as ascertained by inquiry before the Master or as agreed between the plaintiffs and Leafbusters Pty Ltd and Polymesh Australasia Group Pty Ltd), then the plaintiffs will cause Leafbusters Pty Ltd and Polymesh Australasia Group Pty Ltd to become registered with the Australian Patent Office as holder as tenant in common of a one-half interest in the said patents, registered designs or other items of intellectual property so developed by the plaintiffs or either of them or Mr Bruce Wickett on the basis that the cost of obtaining such change in registration is borne by the plaintiffs. (d) That if Leafshield Gutter Protection Pty Ltd and Gutter Mesh Distributors (Australia) Pty Ltd undertake to the court to pay one-third of the cost incurred by the plaintiffs or Mr Bruce Wickett in development of patents, registered designs or other items of the intellectual property (not including the Guttershield Product Fastening Strap System), relating to the gutter protection industry, concerning which the plaintiffs or either of them or Mr Bruce Wickett performed development work during the period 17 March 1999 to 4 December 2000 (such cost being as ascertained by inquiry before the Master or as agreed between the plaintiffs and Leafshield Gutter Protection Pty Ltd and Gutter Mesh Distributors (Australia) Pty Ltd), then the plaintiffs will cause Leafshield Gutter Protection Pty Ltd and Gutter Mesh Distributors (Australia) Pty Ltd to become registered with the Australian Patent Office as holder as tenant in common of a one-third interest in the said patents, registered designs or other items of intellectual property so developed by the plaintiffs or either of them or Mr Bruce Wickett on the basis that the cost of such change in registration is borne by the Plaintiffs.

Upon the said undertakings, order that the first defendant do all such things and execute all such documents as may be necessary to enable the Five Patents to be registered in the name of the plaintiffs with the Australian Patent Office as to a one-third share with the first defendant as tenants in common, on the basis that the cost of such change in registration is borne by the first defendant.

Reserve further consideration, including concerning the ordering of such inquiries and accounts as might be necessary to give effect to these orders.

Otherwise, other than as to questions of costs, summons dismissed.

Upon the cross-defendants by their counsel undertaking to the Court that the cross-defendants will not reproduce any of the wording contained in the advertisement in the Southern Farmer dated August 2001 which constitutes attachment "A" to the Cross-Claim filed herein, dismiss the Cross-Claim save as to any questions of costs. 108 As the orders which would be required are unusually complex, I do not propose to make orders without hearing from counsel. The only order that I shall make is to direct the parties to make an appointment with my Associate, within 14 days of the date of handing down of these reasons for judgment, for a date to bring in Short Minutes of Order. **********

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Judgment (55 paragraphs)

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