McHutchison v Western Research and Development Ltd

REASONS FOR JUDGMENT 1 These reasons address three interlocutory issues, namely an application to strike out the statement of claim, an application for a declaration in relation to an alleged issue estoppel and an application for costs on an application to restrain the applicant's solicitor. 2 The issues raised in the principal proceeding concern claims by the applicant to have invented a Tamper Evident Packaging and to have certain patents transferred to him. In reasons delivered on 8 April 2004 (McHutchison v Western Research and Development Ltd [2004] FCA 419) the Court dismissed a notice of motion brought on behalf of the respondent seeking to stay the action pursuant to s 53(1) of the Commercial Arbitration Act 1985 (WA) or the inherent jurisdiction of the Court. Those reasons set out the terms of a consultancy agreement dated 7 September 2001 purporting to be made between Eastland Technology Australia Ltd ('ETA') and its subsidiary companies on the one part and the applicant (described as 'the consultant') of the other part. ETA was the company to which the applicant contends he contributed his inventions. However he claims that the respondent and those acting on its behalf engaged in misleading and deceptive conduct in not reserving to the applicant control over his patents in the circumstances.

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.