Larkden Pty Ltd v Lloyd Energy Systems

Judgment 1HIS HONOUR: These are proceedings under s 35 of the Commercial Arbitration Act 2010 (NSW) ("the Commercial Arbitration Act") for recognition and enforcement of an arbitral award ("the Award") made on 20 September 2011 by Mr Stephen Wallace White ("the arbitrator"). In the arbitration Lloyd was the claimant and Larkden the respondent. 2This judgment should be read in conjunction with Larkden Pty Ltd v Lloyd Energy Systems [2011] NSWSC 268 ("the first judgment") in which I ruled on a challenge by Larkden to the arbitrator's jurisdiction and Larkden Pty Ltd v Lloyd Energy Systems [2011] NSWSC 1305 ("the second judgment") which contains the reasons why on 5 October 2011 I granted leave to Larkden under s 440D(1) of the Corporations Act 2001 (Cth) ("the Corporations Act") to bring and continue these proceedings against Lloyd which was then under voluntary administration. 3The factual background to the substantive dispute is set out in the first judgment. Additional factual background relevant to the present proceedings appears in the second judgment. Save where otherwise stated, defined terms in the first judgment and the second judgment have the same meaning here. 4As the second judgment reveals, the Award followed the arbitrator's draft reasons published on 7 September 2011. As at the date of the draft reasons, Solfast was a wholly-owned subsidiary of Lloyd. 5For ease of reference I set out the terms of the Award: (1)The Tribunal determines and declares that, pursuant to clause 5.4(a) of the Licencing Agreement dated 16 November 2001 between the Claimant and the Respondent ("the Head Licence"), the Respondent is entitled to be made owner of, and have assigned to it, all the rights, title and interest in the inventions embodied in: (a)the Solfast Patent Application (being PCT/AU2009/001278) ("the Solfast Patent Application"); and (b)the patent applications ("the Assigned Patent Applications") set out in Exhibit C to the Patent Assignment and Settlement Agreement dated 4 March 2010 between Ausra Inc and the Claimant ("the Ausra Settlement Agreement") as may be amended from time to time in accordance with the Ausra Settlement Agreement. (2)The Tribunal determines and declares that the Claimant holds on constructive trust for the Respondent all its rights, title and interest in Solfast Pty Ltd (including its Solfast Pty Ltd shares) on behalf of the Respondent. (3)The Tribunal determines and declares that the Claimant holds on constructive trust for the Respondent all its rights, title and interest in the inventions embodied in the Assigned Patent Applications. (4)The Tribunal orders, pursuant to section 33A of the Commercial Arbitration Act 2010 (NSW), that the Claimant specifically perform clause 5.4(a) of the Head Licence by: (a)immediately procuring Solfast Pty Ltd to execute a deed of assignment in the form of the Annexure A to these orders; (b)taking all necessary steps to file and prosecute the Solfast Patent Application in the name of the Respondent; (c)irrevocably nominating the Respondent as the Nominated Assignee of the Assigned Patent Applications and forthwith notifying Areva Inc in writing of the irrevocable nomination; and (d)taking all necessary steps to ensure that the Respondent's interests in the prosecution of the Assigned Patent Applications are protected and secured. (5)The Tribunal orders that the Claimant perfect the Respondent's interest in the Assigned Patent Applications by: (a)irrevocably nominating the Respondent as the Nominated Assignee of the Assigned Patent Applications and forthwith notifying Areva Inc in writing of the irrevocable nomination; (b) taking all necessary steps to ensure that the Respondent's interests in the prosecution of the pending Ausra Patent Applications are protected and secured. (6)The Tribunal orders that the Claimant furnish the Respondent with all necessary assistance as requested by the Respondent from time to time, in relation to any proceedings the Respondent may take against Solfast and/or Areva including, without limitation, any proceedings under sections 32 and 36 of the Patents Act 1990 (Cth), such assistance to include (without limitation) providing the Respondent with all documents in the possession, custody or control of the Claimant necessary for the Respondent to prosecute any claims against Solfast and/or Ausra under sections 32 and 36 of the Patents Act 1990 (Cth). (7)Costs Reserved. (8)Liberty to Apply 6By Summons, supported by a Commercial Arbitration List Statement, sued out of the Court on 26 September 2011, Larkden now seeks the following orders: (2)An order pursuant to section 35(1) of the Commercial Arbitration Act 2010 (NSW) recognising and enforcing the interim award made on 02 September 2011 by Stephen Wallace White (the Interim Award ) against the Defendant by making declarations and orders in the form set out in the Interim Award, namely: (a)a declaration that, pursuant to clause 5.4(a) of the Licencing Agreement dated 16 November 2001 between the Plaintiff and the Defendant (the Head Licence ), the Plaintiff is entitled to be made the owner of, and have assigned to it, all the rights, title and interest in the inventions embodied in: (i)the Solfast Patent Application (being PCT/AU2009/001278) (the Solfast Patent ); and (ii)taking all necessary steps to file and prosecute the Solfast Patent Application in the name of the Plaintiff; (iii)irrevocably nominating the Plaintiff as the Nominated Assignee of the Assigned Patent Applications and forthwith notifying Areva Inc in writing of the irrevocable nomination; and (iv)taking all necessary steps to ensure that the Plaintiff's interests in the prosecution of the Assigned Patent Applications are protected and secured; (e)an order that the Defendant perfect the Plaintiff's interest in the Assigned Patent Applications by: (i)irrevocably nominating the Plaintiff as the Nominated Assignee of the Assigned Patent Applications and forthwith notifying Areva Inc in writing of the irrevocable nomination; (ii)taking all necessary steps to ensure that the Plaintiff's interests in the prosecution of the pending Ausra patent Applications are protected and secured; and (f)an order that the Defendant furnish the Plaintiff with all necessary assistance as requested by the Plaintiff from time to time, in relation to any proceedings the Plaintiff may take against Solfast Pty Ltd or Areva Inc, or both, including, without limitation, any proceedings under sections 32 and 36 of the Patents Act 1990 (Cth), such assistance to include (without limitation) providing the Plaintiff with all documents in the possession, custody or control of the Defendant necessary for the Plaintiff to prosecute any claims against Solfast Pty Ltd or Ausra Inc, or both, under sections 32 and 36 of the Patents Act 1990 (Cth). 7The Assigned Patent Applications referred to are those defined in para 1(b) of the Award. 8On 5 October 2011, I made directions for Lloyd to serve any affidavit evidence upon which it intended to rely by 14 October 2011 and to provide brief written submissions by 21 October 2011. It did not serve any evidence. Lloyd relied only on the evidence led by it on the leave application. Written submissions were received on 1 November 2011. 9In the period between the date of the grant of leave under s 440D(1) of the Corporations Act and the present hearing, Lloyd's creditors resolved that it enter into a DOCA. The effect is that the administration has terminated and control of Lloyd has been restored to one of its former directors. Lloyd, in its own right, appeared to oppose the relief sought by Larkden. 10Mr J.C. Sheahan SC, together with Mr T. M. Mehigan of counsel, appeared for Larkden. Mr I.R. Pike SC, instructed by new solicitors, appeared for Lloyd. 11Section 35 of the Commercial Arbitration Act provides as follows: Recognition and enforcement (1)An arbitral award, irrespective of the State or Territory in which it was made, is to be recognised in this State as binding and, on application in writing to the Court, is to be enforced subject to the provisions of this section and section 36. (2)The party relying on an award or applying for its enforcement must supply the original award or a copy of the original award. (3)If the award is not made in English, the Court may request the party to supply a translation of it into English. 12Section 36 of the Commercial Arbitration Act provides as follows: Grounds for refusing recognition or enforcement (1)Recognition or enforcement of an arbitral award, irrespective of the State or Territory in which it was made, may be refused only: (a)at the request of the party against whom it is invoked, if that party furnishes to the Court proof that: (i)a party to the arbitration agreement was under some incapacity, or the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication in it, under the law of the State or Territory where the award was made, or (ii)the party against whom the award is invoked was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present the party's case, or (iii)the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be recognised and enforced, or (iv)the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties or, failing such agreement, was not in accordance with the law of the State or Territory where the arbitration took place, or (v)the award has not yet become binding on the parties or has been set aside or suspended by a court of the State or Territory in which, or under the law of which, that award was made, or (b)if the Court finds that: (i)the subject-matter of the dispute is not capable of settlement by arbitration under the law of this State, or (ii)the recognition or enforcement of the award would be contrary to the public policy of this State. (2)If an application for setting aside or suspension of an award has been made to a court referred to in subsection (1) (a) (v), the Court may, if it considers it proper, adjourn its decision and may also, on the application of the party claiming recognition or enforcement of the award, order the party to provide appropriate security. 13On 17 March 2011, Lloyd executed a charge over the Solfast shares in favour of Graphite Energy Pty Ltd (GEPL). On 3 June 2011, GEPL assigned its interest in that charge to Graphite Energy NV (GENV). On 8 September 2011, GENV gave notice of an event of default under the charge and effected transfer of Lloyd's shares in Solfast to GENV. In a First Circular to Creditors dated 15 September 2011, the administrators stated that GEPL and GENV are related parties of Lloyd. Larkden has foreshadowed a challenge to the validity of the charge on the basis that it is void under s 267(1) of the Corporations Act which provides as follows: (1)Where: (a)a company creates a charge on property of the company in favour of a person who is, or in favour of persons at least one of whom is, a relevant person in relation to the charge; and (b)within 6 months after the creation of the charge, the chargee purports to take a step in the enforcement of the charge without the Court having, under subsection (3), given leave for the charge to be enforced; the charge, and any powers purported to be conferred by an instrument creating or evidencing the charge, are, and are taken always to have been, void. 14The notice of default was served on Lloyd and Solfast by GENV within 6 months of the creation of the charge and Larkden maintains that both companies are controlled by Mr Geoffrey Kinghorn and Mr Nick Bain who were, at material times, directors of Lloyd. 15Larkden asserts that the purported transfer of the Solfast shares to GENV is void and that those shares remain held by Lloyd on constructive trust for Larkden. 16In resisting the relief sought, Lloyd invoked only ss 36(1)(a)(iii) and 36(1)(b)(ii) of the Commercial Arbitration Act. It has brought no application to set aside or suspend the Award. 17Firstly, Lloyd put that insofar as the Award concerns the status of the Solfast shares and requires Larkden to take steps with respect to them, the Award does not fall within the terms of the submission to arbitration as contemplated by s 36(1)(a)(iii) of the Commercial Arbitration Act. 18It submits that to this extent the Award does not resolve a dispute arising in connection with the Licencing Agreement but rather resolves a dispute in connection with the Solfast shares. 19This submission is untenable. 20Clause 19(b) of the Licencing Agreement provides as follows: All disputes arising in connection with this Licence, which are not adjusted by Licencing Agreement between the parties concerned, shall be finally settled by arbitration. The arbitration shall be held before a single arbitrator appointed by the parties or in the absence of agreement by the Chair of the Law Society of New South Wales, and conducted in accordance with and under the Commercial Arbitration Act 1984 of New South Wales. Judgment upon the award rendered may be entered in any court having jurisdiction, or application may be made to such court for a judicial acceptance of the award, or an order of enforcement as the case may be. 21Under cl 5.4(a) of the Licencing Agreement, if Lloyd develops any improvements or modifications to the Technologies, it must allow Larkden to own such improvements and modifications. In simple terms, Larkden's assertion, which was accepted by the arbitrator and reflected in the terms of the Award, is that Lloyd had done this through the vehicle of Solfast. This is clearly resolution of a dispute in connection with the Licencing Agreement. 22Secondly, Lloyd puts that recognition and enforcement of a number of the paragraphs of the Award would be contrary to the public policy of this State as contemplated by s 36(1)(b)(ii) of the Commercial Arbitration Act. 23It says that recognition and enforcement of order 2 would be contrary to public policy because it is futile given that the Solfast shares are no longer owned by Lloyd having been transferred pursuant to the charge in favour of GENV and that transfer has not been set aside or declared void by a Court. 24It says that recognition and enforcement of orders 4(d), 5(b) and 6 of the Award would be contrary to public policy because they are vague and uncertain in that: (a)in the case of orders 4(d) and 5(b), they require Lloyd to take steps to ensure that Larkden's interests in the prosecution of the assigned patent applications and the Ausra patent applications are protected and secured without defining what those steps are; and (b)in the case of order 6, they require Lloyd to furnish Larkden with all necessary assistance as requested by Larkden without articulating or defining that assistance. 25Because, for the reasons which follow, I do not consider that these complaints have substance, it is not necessary to consider whether, if they did, recognition and enforcement of the Award would be contrary to public policy. I have significant doubt that it would. The complaints do not seem to me to pertain to the State's basic notions of morality and justice with which public policy is more appropriately concerned; see Resort Condominiums International Inc v Bolwell (1993) 118 ALR 655 at 676 per Lee J; see too Deutsche Schachtbau-und Tiefbohr-Gessellschaft mbH v Ras Al-Khaimah National Oil Co [1990] 1 AC 295 at 316 per Lord Donaldson MR. 26It is also not necessary to consider a submission by Lloyd that if any part of the Award was objectionable, the Court was bound to refuse to recognise and enforce all of it on the grounds that the Commercial Arbitration Act contemplates only the enforcement of an Award in its entirety (except where s 36(1)(a)(iii) of the Commercial Arbitration Act allows part of the Award to be recognised or enforced). 27As to order 2, the Court is not presently in a position to determine (and neither is this the occasion upon which to do so) whether Lloyd beneficially owns the shares or is otherwise, having regard to any legitimate interests of GENV (which was not a party to the arbitration and is not a party to these proceedings) in a position to recover them. In the leave application the administrators gave an undertaking to the Court that, subject to further agreement between the parties, they would not deal on behalf of Lloyd with the rights, title and interest in the inventions embodied in the Solfast Patent Application and the Assigned Patent Application and Larkden's shares in Solfast Pty Ltd to the extent that it owns those shares or is successful in recovering them from GENV. Order 2 is declaratory only. If, by reason of the supervening events, Lloyd no longer has any right, title or interest in Soflast, the order will be empty. The relevant issues will undoubtedly be determined in any further enforcement proceedings. 28Order 4(d) is an ancillary part of the arbitral tribunal's principal order 4 that Lloyd specifically perform cl 5.4(a) of the Licencing Agreement. Order 5(b) is an ancillary part of principal order 5 that Lloyd perfect Larkden's interest in the Assigned Patent Applications. I do not consider the terms of either order 4(d) or 5(b) to be vague, uncertain or exceptional in any way. Orders in similar terms are commonly made in suits for specific performance; see for example Neville and Ashe , Equity Proceedings with Precedents (New South Wales) (1981), p 256, Precedent 6(10). Whether a particular step is necessary will be objectively ascertainable and any issue in this regard will properly be the subject of any further enforcement proceedings. 29Clause 5.6 of the Licencing Agreement requires Lloyd "in good faith, to the extent that [it] is able, promptly and regularly [to] supply assistance to [Larkden] following a request for same...". Order 6 is reflective of this obligation and is predicated upon a request from Larkden. I do not consider this to be vague, uncertain or exceptional in any way. As with the other orders under attack, whether there has been compliance or not will properly be the subject of any other further enforcement proceedings. 30I make orders and declarations in accordance with prayers 2(a), (b), (c), (d), (e) and (f) of the Summons. The orders are to be entered forthwith. 31The exhibits are to be returned. 32After hearing submissions on costs, his Honour ordered Lloyd to pay Larkden's costs of the proceedings including the costs of the application for leave under s 440D(1) of the Corporations Act.