McHutchison v Western Research and Development Ltd

application to strike out statement of claim 3 The respondent's motion seeks to have the statement of claim dated 10 November 2003 struck out. In response and in accordance with directions given on 30 July 2004 the applicant has filed a minute of proposed amended statement of claim to which the respondent has filed an outline of objections. 4 The respondent raises the objection that the proposed claim does not make evident how the respondent acquired the inventions. On the applicant's case, the property in the inventions passed from him to the respondent but no assignment is pleaded. It is also evident that the consideration for the assignment of the property in the inventions was the issue of shares in the respondent to the applicant or his nominee ('the Sale Agreement'). No such agreement is pleaded. Each is said to be an essential link in the chain of causation and a material fact which must be pleaded. I consider these are valid objections, although they are matters which are remediable. 5 The respondent next objects that the proposed claim pleads evidence. I consider this is a valid objection to proposed pars 7, 8, 10 and 11. However, par 13 goes to the state of the knowledge of the applicant and his wife which is material to the issue of their understanding of the representations pleaded in par 17. I would not therefore allow the objection to par 13. 6 The respondent also objects to the relief claimed in par 1 and par 2 of the application. These seek the re-transfer of the patent applications to the applicant. However, once the applicant recognises the existence of the Sale Agreement, he must also seek the recision of that agreement. Unless appropriate amendments are made in that respect, the respondent would be entitled to the strike out of the relief. Such relief could not be granted by a court without avoidance of the Sale Agreement. 7 That is not the end of the matter. The Sale Agreement resulted in C M McHutchison Pty Ltd receiving shares in the respondent as the applicant's nominee. The rescission of the Sale Agreement will require divestiture of those shares. I therefore agree with the respondent that C M McHutchison Pty Ltd must be joined as a party to the proceedings if the applicant is to obtain the principal relief sought. 8 As the terms of the Sale Agreement are material facts relevant to whether the alleged representations were misleading or deceptive, the respondent maintains that those terms must be pleaded. I agree. 9 References are made in pars 5(b) and 5(c), 16(a), 17(a) and 19(a) of the proposed claim to Eastland Technology Australia Pty Ltd which is now called Eastland Technology Australia Ltd. I agree that for the avoidance of doubt the proposed claim should be amended to acknowledge this. 10 In par 5(c) of the proposed claim it is pleaded that 'Mr Sims said to the applicant that Eastland was proposing to contribute the intellectual property in retractable needle devices ('the Eastland Inventions') then being developed by Eastland to the new venture'. The respondent argues that it is not clear what is meant by 'intellectual property in retractable needle devices then being developed'. It contends the description is vague and embarrassing. In particular it is argued that the pleading does not make clear what is meant by 'intellectual property', 'retractable needle devices', 'being developed', or 'then'. The pleading could clearly be made more precise. However, I am not satisfied that it is so lacking in precision as to occasion embarrassment if a trial was conducted in relation to it. 11 A similar point is made by the respondent in relation to the use of the word 'contribute' as it appears in pars 5(c), 16(a) and 17(a), all relating to the contribution of the Eastland Inventions. Reading the pleading as a whole and noting that the same word is used in par 5(d) and par 5(f) without objection, I do not accept the objection. 12 Then the respondent turns to the meaning of the word 'control' as it appears in pars 5(f), 16(b), 17(b) and 19(b). These all relate to the retention of 'control' by the applicant over his invention. The word, however, is not vague and ambiguous - see Macquarie Dictionary, 2nd edn, at p 390. The pleadings are made in circumstances where the applicant alleges he does not have any control. The pleading of falsity in par 19(b) is to be read in its full terms and with reference to the pleaded particulars. I do not accept the pleading in this respect is embarrassing. 13 Next the respondent's objections turn to the allegation by the applicant that the respondent represented that the applicant (or C M McHutchison Pty Ltd) would have a majority shareholding in the respondent: par 17(c). It is submitted by the respondent that it is not clear whether this is the same as the alleged representations concerning control and, if it is, it should be struck out. In my view the pleading of an alleged representation is clearly additional to the pleading in relation to the representation concerning control and the respondent faces the pleading in those terms. 14 In par 16(c) it is pleaded that at no time prior to the lodgement of the patent applications did the respondent make any statement to the applicant that the applicant or C M McHutchison Pty Ltd would not have a majority shareholding in the respondent either before or as a result of the Agreement. The respondent submits that there are insufficient facts from which such a representation can be implied. However, par 16(c) pleads the absence of any representation in the terms pleaded. 15 The respondent also contends that no factual basis is pleaded for the alleged representation in par 17(c). In particular it is said there is no reference to C M McHutchison Pty Ltd in the discussions pleaded in par 5. There is, however, reference to that company in par 11. The factual basis pleaded is 'the premises pleaded in paragraphs 5 to 16'. There is a factual basis pleaded in respect of C M McHutchison Pty Ltd, namely, that there had been arrangements discussed on behalf of that company. 16 The respondent then argues that it is not clear how the lack of control enjoyed or shareholding held by C M McHutchison Pty Ltd is relevant to the falsity of a representation as to the 'control' enjoyed or shareholding held by the applicant. It is said that its relevance must depend upon whom the directors and shareholders of that company are and also the relevant terms of the trust deed. As these are material facts, it is said they must be pleaded, failing which reference to the company should be struck out. I agree. 17 In par 17(b) it is pleaded that prior to the applicant allowing the respondent to lodge the patent applications in its name the respondent represented that 'the applicant would have control over the Applicant's Invention if the applicant allowed the respondent to lodge the Patent Applications in its name'. The respondent says this is a pleading of a future matter so that the pleading of misleading and deceptive conduct in par 19(b) concerning the effects of absence of control could not establish a cause of action. This is because whether such a representation is misleading or deceptive will depend upon whether, at the time of the representation, the representor honestly believed the representation to be true upon reasonable grounds. It is also the case that in order to enable the respondent to plead to the matters of honest belief and reasonable grounds, it is necessary for the applicant to identify precisely when the representation in par 17(b) was made. I agree with the respondent that therefore both par 17(b) and par 19(b) should be struck out as embarrassing. 18 By application of the same logic pertaining to future matters, par 17(b) and par 19(c) should be struck out as embarrassing. 19 I agree with the respondent that par 21 addressing a complaint of incongruity between the discussions pleaded in par 5 and the Sale Agreement is irrelevant to the pleaded causes of action. I do not agree that pars 23 - 26 are irrelevant because they have relevance to the interlocutory relief sought in the application. 20 The pleading of unconscionable conduct is founded upon 'the matters referred to in pars 4 to 22'. The respondent contends this pleading is defective, requiring separate and distinct pleading, with specification of the unwritten law referred to in s 51AA of the Trade Practices Act 1974 (Cth). I agree with the respondent's submissions, so that pars 22A to 22C should be struck out. 21 The proposed claim contains allegation that the respondent has sold and assigned the patent applications to In-Vivo Systems Ltd and that consequently the applicant has suffered loss and damage: pars 34 to 40. The respondent states that the relevance of these paragraphs is not clear because they neither constitute an independent cause of action nor particularise the loss and damage in respect of the bankruptcy claim (at pars 27 to 33 of the proposed claim). I agree with the respondent that the relevance of pars 34 to 40 is unclear. It is not pleaded in them that the alleged assignment by the respondent occurred wrongfully; only that the assignment occurred without notice to the applicant. As these paragraphs stand they should be struck out. In any event the particularisation of par 40 refers to the respondent holding the consideration for the assignment on trust for the applicant, a particular not relevant to the allegation of loss and damage. 22 Paragraphs 34 to 37 also have the effect, were they to endure, of making unattainable the principal relief sought by the applicant, namely the return of his inventions. The allegation of sale and assignment of the patent applications to In-Vivo Systems Ltd, if made out, is inconsistent with the relief sought. 23 Likewise the allegations of sale and assignment to In-Vivo Systems Ltd is inconsistent with the claim in par 4 of the application that the applicant is an eligible applicant pursuant to s 15 of the Patents Act 1990 (Cth). 24 The result is that pars 7, 8, 10, 11, 17(b), 19(c), 21, 22A - 22C and 34 - 40 should all be struck out. 25 Not all the references to C M McHutchison Pty Ltd have been struck out. It follows that in the event the action is to proceed on the present or a further pleading, that company should be joined as an applicant.

application for a declaration relating to estoppel 26 The respondent also seeks a declaration that judgement given on 8 April 2004 does not give rise to an issue estoppel in relation to the question of whether ETA entered into the consultancy agreement dated 7 September 2001 as agent for its subsidiaries, including the respondent. 27 Examination of the reasons for judgment shows that the relevant issue there decided was that the respondent had not discharged the onus of establishing that it was 'another party to the arbitration agreement' within s 53(1) of the Commercial Arbitration Act so that the preconditions for the application of the power to stay court proceedings were not met. The issues addressed to reach that position were contentions for the respondent that it was encompassed within the description 'and its subsidiary companies' used in the consultancy agreement with respect to ETA; the question whether a resolution entered into by ETA to enter into the consultancy agreement bound its subsidiaries and the definition of 'party' in s 4(1) of the Commercial Arbitration Act. In those circumstances I do not consider it can be concluded that the issue decided by the Court in those reasons in any way estops argument on the proposed agency argument. That argument was neither clearly addressed nor finally determined. The respondent is therefore entitled to the declaration sought.

costs on motion to restrain solicitor 28 By a motion dated 13 February 2004 ('the restraint application') the respondent sought orders restraining Mr Ashdown from acting for the applicant and restraining the applicant from retaining him. By a facsimile dated 26 March 2004 Mr Ashdown conceded that it was inappropriate for him so to act ('the solicitor's concession'). Therefore, at a special appointment on 29 March 2004 the motion was adjourned with costs reserved so that it could be disposed of by agreement. On 22 April 2004 new solicitors advised of their appointment for the applicant and indicated that they were instructed not to consent to orders which included a disposition of the motion to restrain. Consequently, by a motion dated 1 July 2004 the respondent sought to have the restraint application re-listed. At a directions hearing on 30 July 2004 as the consequence of undertakings then before the Court, that application was dismissed with the issue of costs reserved to a special appointment. The respondent seeks an order that the applicant pay the costs of the respondent and of ETA of and occasioned by the motion to restrain the solicitor, including the costs reserved on 29 March 2004 and the costs reserved on 30 July 2004, forthwith and on an indemnity basis. Costs sought are described as the 'pre-adjournment costs' and 'post-adjournment costs'. The former are the costs incurred by the respondent and ETA between the time the applicant should reasonably have notified the respondent of the concession and adjournment of the restraint application, including the half an hour of the special appointment which was attributable to the restraint application. The latter are the costs incurred by the respondent and ETA subsequent to the adjournment of the restraint application up to and including the hearing on 30 July 2004. 29 The respondent submits that by way of the undertakings, the respondent and ETA obtained the relief sought in the restraint application so that costs should follow the event. In the circumstances, including in particular the applicant's failure to accept his solicitor's concession, I agree it is appropriate to apply the principle of costs following the event. 30 The motion for restraint was filed on 13 February 2004 and signed by a solicitor stated to be acting for the respondent and for ETA. The affidavit of Mr Jones sworn in support was filed on behalf of the respondent and ETA. The latter is not a party to the action. However, on 30 January 2004 the Court directed that ETA have liberty to join in the applications referred to in par 1 and par 2 or those orders, par 1 of which related to the restraint application and par 2 of which related to the stay application. ETA was not required by the direction to apply to join the proceeding. It is clear that by the filing of the motion and the affidavit it exercised the liberty to join in the application. It is therefore appropriate that it also be a beneficiary of any costs order. 31 The circumstances upon which the respondent relies in its application for indemnity costs are as follows. In relation to the pre-adjournment costs it is contended that there was delay by the applicant in providing the concession. The concession was provided on the grounds that the applicant was alleged to be privy to legal advice obtained by ETA in relation to proceedings against others. The applicant was a director of the respondent, a subsidiary of ETA, and design consultant for the respondent and ETA during the course of those proceedings. The solicitor Mr Ashdown acted for those other parties in that other proceeding. The subject matter in that litigation overlaps considerably with the subject matter of this proceeding. The objection to Mr Ashdown acting was raised on 1 December 2003. Initially, he asserted that there were no common issues. The concession was eventually made on 26 March 2004 and received the following day, the date of the special appointment. 32 The authorities on the discretion to award indemnity costs are well known: Fountain Selected Meats (Sales) Pty Ltd v National Produce Merchants Ltd (1988) 81 ALR 397 at 400-401; Botany Municipal Council v Secretary, Department of the Arts, Sport, the Environment, Tourism and Territories (1992) 34 FCR 412 at 415; Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225 at 230-234. It is not established here that this is a case of an ulterior motive activating the approach of the applicant. Nor is it established there was a wilful disregard of known facts. The time period involved from December to March would not allow it to be inferred that there was undue prolongation of the proceeding. In my view the circumstances pertaining to the pre-adjournment costs do not justify the exercise of the Court's discretion to grant indemnity costs. 33 In relation to the post-adjournment costs, the respondent contends that the following conduct of the applicant supports the award of these costs on an indemnity basis. The applicant generally resiled from the position which he had taken and which had led to the adjournment. He asserted the Court had no jurisdiction or power to grant the relief sought. He asserted it had not been conceded that it was inappropriate for Mr Ashdown to act for the applicant. He said there was no need for any undertaking or orders and the restraint application should be dismissed and costs reserved. As a consequence the respondent was forced to enter into further correspondence, apply to have the matter re-listed and attend the hearing at which the undertakings were given. It is submitted that the applicant was thus involved in misconduct when he should have known, properly advised, that he had no prospects of success on the issue. 34 In my opinion the applicant's actions in not maintaining the effect of the concession made by his solicitor are circumstances which justify this Court departing from the usual course and awarding solicitor and client (or 'indemnity costs') in respect of the post‑adjournment costs. The post-adjournment costs should therefore be paid on that basis. 35 The period of time of likely deprivation of costs appears likely to be lengthy. In those circumstances I agree with the respondent's submission that the costs here in issue should be paid forthwith.

conclusion 36 For the above reasons I consider that the Court should make the orders attached to these reasons. I certify that the preceding thirty-six (36) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice RD Nicholson.

Solicitor for the Applicant: Redding & Associates until 10 September 2004