Pennon Publishing Pty Ltd and Ors v Main and Ors [2002] VSC 505

5. As far as I can glean from an examination of the further amended statement of claim, the plaintiffs allege that the first plaintiff is a publisher of books. The first defendant was once a director of, and a shareholder in, the first plaintiff, with the rights, duties and obligations that attached to him in those circumstances. It was his duty (among other things) to assist the first plaintiff in bringing two books to a state in which they could be published; and then in publishing them.

8. One of these books was to be called "The Ultimate Heroes"; the other, "The Encyclopedia" (to adopt the spelling, which may or may not be accurate, used in the further amended statement of claim). The first was to be written by the second defendant pursuant to an agreement made between the first plaintiff and the second defendant on 23 November 2001. By this agreement, copyright in the book was granted by the second defendant to the first plaintiff. On some unspecified date, however, the second defendant conferred - or purported to confer - on the third defendant the right to publish "The Ultimate Heroes" under the name "Fallen - The Ultimate Heroes". He also divulged to the third defendant certain confidential information. In doing so, he breached a duty of confidence owned by him to the first plaintiff. Although the plaintiffs through their counsel protest that this is not a copyright case,[1] it would ordinarily follow that if the second defendant granted copyright to the first plaintiff, then non-consensual publication by the third defendant of "Fallen - The Ultimate Heroes" would involve a breach of that copyright.

11. The first defendant's alleged delinquencies are wider in their scope. He too is said to have wrongfully divulged confidential information, but in addition he breached his duty as an officer and director of the first defendant. He also breached an agreement that he would not allow anyone to replicate the layout and design of "The Ultimate Heroes"; and not only induced the second defendant to engage in the wrongs laid at the second defendant's door, but also induced the third defendant to induce the second defendant to breach the second defendant's agreement with the first plaintiff.

14. The third defendant, having allegedly received confidential information from the other two defendants, was (it is alleged) thereafter under a duty of trust and confidence to the first plaintiff not to use that information without its consent. In breach of that duty, however, the third defendant designed, developed, manufactured, marketed and sold the book known as "Fallen - The Ultimate Heroes".

17. Order 13 of the Supreme Court (General Civil Procedure) Rules 1996 is headed "Pleadings". By r.13.02, every pleading shall contain in a summary form a statement of all the material facts on which the party relies, but not the evidence by which those facts are to be proved. The aim when drawing a pleading is to be as brief as possible: r.13.03. Accordingly, the precise words of a document or conversation shall not be pleaded unless those words are themselves material. The emphasis must also be upon clarity. Thus, while a party may in any pleading make inconsistent allegations of fact, it is a pre-condition to the exercise of that right that the pleading make it clear that such allegations are pleaded in the alternative: r.13.09. Similarly, while every pleading shall contain the necessary particulars of any fact or matter pleaded - r.13.10(1) - and while, for that reason, particulars must be given if they are necessary to enable the opposite party to plead, or to define the questions for trial, or to avoid surprise at trial - r.13.10(2) - particulars which are irrelevant, or confusing or disguise the issues to be determined at trial should not be included in the pleading.

20. The Rules make provision for dealing with a pleading which does not conform to the principles set out above. By r.23.01, the Court may stay a proceeding generally or in relation to any claim, or give judgment in a proceeding generally or in relation to any claim, where the proceeding or any claim made within it does not disclose a cause of action or is scandalous, frivolous or vexatious. Likewise, by r.23.02, the Court may order that the whole or part of a pleading be struck out or amended where it does not disclose a cause of action or where it is scandalous, frivolous or vexatious or where it might prejudice, embarrass or delay the fair trial of the proceeding.

23. The present application, which was initiated by a summons issued on 29 October 2002, was brought pursuant to both rr.23.01 and 23.02. But, as counsel for the plaintiffs correctly pointed out, one or other of these rules is applicable, but not both. The application may therefore generally be made in the alternative, but cannot be made cumulatively. At the hearing of the application, I accordingly gave the defendants leave to amend the summons by putting their claim for relief in the alternative.

26. This was, I think, a mistake. By the application, the defendants seek an order that the plaintiffs' further amended statement of claim, dated 18 October 2002 and issued following orders made by me by consent on 7 October 2002, be struck out. They do not seek a stay. Nor do they seek judgment in the proceeding generally, or in relation to any claim. The defendants should therefore be confined to such relief as they may be entitled to obtain pursuant to r.23.02.

29. I should perhaps add a word or two of further explanation. It is only r.23.02 which gives power to make an order of the kind that the defendants say they want. Moreover, r.23.01 is appropriate where the summary determination of the proceeding generally or any claim in the proceeding is sought. That is not the position here. The defendants put no argument to me to the effect that the plaintiffs do not have any arguable claim; their objection is to the manner of expression of that claim in the pleading. Accordingly, the applicable provision of the Rules is to be found in r.23.02. I will, for these reasons, confine any orders made as a result of the application to those which fall within the scope of that rule.

32. I have already noted that the first plaintiff is a publisher of books. The further amended statement of claim refers to its business as that of "producing literary works ...", an expression which is defined by s.10 of the Copyright Act 1968, and the employment of which adds to the numerous indicia pointing to this as a case involving an alleged breach of copyright. If this were not a claim for breach of copyright, the use of the word "books" might have resulted in less confusion.

35. The first defendant was one of the first plaintiff's founding directors. The statement of claim alleges not only that he was but also that he is the holder of that office. It also alleges that he ceased to be so on 8 February 2002. Doubtless that inconsistency can, in the entire scheme of things, be taken as minor. Doubtless the fact that the first defendant's directorship came to an end on 8 February this year will not be an issue.

38. The first defendant was also one of the first plaintiff's founding shareholders. The further amended statement of claim alleges that he stills enjoys that status, while at the same time alleging that on 24 February 2002 he transferred his shares to the second and third plaintiffs. Here is another minor inconsistency. Its ability to irritate is, I suspect, greater than its significance.

41. The claim arises, in part at least, out of the publication of a book entitled "Fallen - The Ultimate Heroes", and another entitled "The Encyclopedia of AFL Footballers". Each, so it is alleged by paragraph 6 of the further amended statement of claim, was published by the third defendant. It seems that the date of publication is alleged to have been February 2002. Paragraph 6 states that the third defendant was "from" that month the publisher of those works.

44. According to paragraph 7 of the pleading, the second and third plaintiffs entered into a "shareholder agreement" with the first defendant in or about January 2001. It was partly in writing, partly oral, and partly to be implied. The reader is not, however, favoured with any description of those of the terms which fall into the first of these categories. It is alleged that a document entitled "Business Plan" and dated January 2001 is the repository of the written terms. On the other hand, it is also alleged in particulars under paragraph 7 of the further amended statement of claim that insofar as the agreement was oral it was constituted by discussions the substance of which is set out in paragraph 8. That paragraph, in turn, purports to contain all the terms of the agreement save four which (as is alleged in paragraph 9) are said to be implied.

47. In the result, the reader is left to work out for himself or herself what parts of the "Business Plan" evidence what terms. Neither the plan nor the terms contained in it are referred to elsewhere in the pleading.

50. This is an unsatisfactory situation; but it may not matter much. As far as I can gather, the shareholder agreement is relevant only to the extent that it provided for the appointment of the first defendant as a director of the first plaintiff. There is no allegation in the further amended statement of claim of any breach of the shareholder agreement. To the extent that the further amended statement of claim sets out other terms of the shareholder agreement, it is therefore irrelevant, and should be deleted.

53. It is nevertheless necessary to examine, if only briefly, some of the terms of paragraph 8 of the further amended statement of claim. It alleges that each of the first defendant (Mr James Main), a person called Allan Cornwell (acting for the third plaintiff) and a person called Beverley Friend (acting for the second plaintiff) "were to become directors of a company which would be incorporated to carry on business under the name of 'Pennon Publishing'." The particular responsibilities of each of these individuals are set out in the pleadings as constituting terms of the shareholder agreement.

56. If the pleading accurately describes these responsibilities as they are embodied in the shareholder agreement, then its terms are loose. They speak of Friend being responsible for, among other things, "the ... publishing of the business", while the first defendant was responsible for "the editorial publishing work in respect of the business". Each of the three persons "were to establish, develop and promote the concept of literary works to be described as The Ultimate Heroes" (the further amended statement of claim sometimes encloses in quotation marks the titles to which it refers; and sometimes it does not).

59. If the difference between being responsible for publishing on the one hand, and "editorial publishing work" on the other is obscure, the meaning of the expression "to establish, develop and promote the concept of literary works to be described as The Ultimate Heroes" is more so. It may be that each of the three persons involved were to establish, develop and promote a concept of books [literary works], but not books as such. If this is a distinction which the pleading intended to make, it is one which leaves the definition of the expression "concept of literary works [books]" unclear to me. Or it may be that the word "concept" ought not to be there. If it has any meaning in this latter context, that meaning is not apparent to me either. Nor is the employment of the plural "works" clear. It may be that there is one work for every hero. Or it may be that I am concerned with nothing more than a typographical error. If so, the error may be explicable given the different forms which paragraph 8 has assumed during the course of its life across the original pleading and two sets of amendments. Nevertheless, it ought not be too much to hope that by the time of issue of a further amended statement of claim, mistakes of this kind would not appear in numerous places throughout the pleading.

62. There is another problem with paragraph 8 of the further amended statement of claim. Each of sub-paragraphs (k) and (l) plead an agreement to agree. Sub-paragraph (k) alleges that by the shareholder agreement the first defendant agreed that he "would enter into an agreement with" the first plaintiff in relation to "The Encyclopedia". Sub-paragraph (l) alleges that the third plaintiff would do the same thing, albeit in relation to a different subject matter. But the law does not, at least in general, recognise agreements to agree, and if it ever does it is more accurately described as recognition in some particular circumstances of an agreement to negotiate in good faith.[2] This would require much more careful and detailed pleading than is apparent in these sub-paragraphs. Sub-paragraph (l) suffers from the further problem that the subject matter of the agreement that the third plaintiff "would" enter into - an agreement with the first plaintiff "in relation to other literary works" - does not appear to have the slightest connection with any issue between the parties to this proceeding.

65. Paragraph 9 of the further amended statement of claim pleads four implied terms of the shareholder agreement. Each appear to be unremarkable, except that nowhere in the document is there any allegation of a breach of any of them. They are therefore irrelevant. They too should be deleted.

68. The next problematic paragraph is paragraph 11. It alleges that between 13 February 2001 and 8 February 2002 the first plaintiff "established developed and promoted inter alia literary work [singular; lower case and underlining as in the original] described as The Ultimate Heroes and The Encyclopedia and became entitled to publish each of these Literary Works" [plural; upper case and underlining as in the original]. Presumably, for "work" where first appearing one should read "works", or perhaps "Works". Be that as it may, it seems that the gravamen of this paragraph is to be found not so much in the allegation that between 13 February 2001 and 8 February 2002 the first plaintiff established, developed and promoted the books in question, but that that plaintiff then "became entitled to publish each of these Literary Works". Immediately and understandably the reader thinks again of copyright.

71. After pleading, in paragraphs 12 and 13, that as one of its directors the first defendant owed certain duties to the first plaintiff, the further amended statement of claim alleges (in paragraph 39) breaches by the first defendant of each of the duties described in the first of those two paragraphs - all of which duties arose "by reason of the operation of the Corporations Act, ss.180-183". The duties with which paragraph 13 is concerned, however, are not the subject of paragraph 39; and this, despite its opening words: "In breach of the duties referred to in paragraphs 12 and 13 thereof" [sic]. The sub-paragraphs of paragraph 39 that follow describe alleged breaches which correspond with the duties set out in paragraph 12. There is, however, no ready correspondence between any paragraph 39 breach and any of the duties set out in paragraph 13. Moreover, the latter contains the obviously unintended allegation that the first defendant "as a director owed fiduciary duties to [the first plaintiff] ... not to make improper use of his position as a director of [the first plaintiff] ... to disclose information relevant to the assets and operation of the business to the other directors." (My emphasis). Paragraph 39(h) contains an allegation that the first defendant (among other things) "failed" to disclose to the directors transactions involving the disposal of assets of [the first plaintiff]." (Again, my emphasis).

74. Attention is then directed to the second defendant, Mr David Allen. Paragraph 14 of the further amended statement of claim alleges that, on 23 November 2001, he entered into an agreement with the first plaintiff. It was partly in writing and partly to be implied. By it, the second defendant "agreed to write, complete, edit and deliver ... the original literary work being 'The Ultimate Heroes'", and to grant copyright in the book to the first plaintiff "for full terms of the copyright" [sic].

77. The terms of the agreement are set out at very considerable length in paragraphs 15 and 16. Once again, however, there is little correspondence between the terms as alleged and any alleged breach. So far as I can see from reading paragraph 36 of the further amended statement of claim, a paragraph which is headed "Breach of Author Agreement" (that is, breach of the agreement of 23 November 2001) the plaintiffs rely on breaches only of the term pleaded in paragraph 15(a) (and possibly of that pleaded in paragraph 15(h)) and of the implied terms pleaded in paragraph 16. What is worse, paragraph 36 alleges breaches of certain terms of the "Author Agreement" which are not to be found anywhere in the pleading. I refer, in this context, to sub-paragraphs (b), (h) and (i). I also note an inconsistency between paragraph 15(a) (which alleges a grant by the second defendant to the first plaintiff of the copyright in "The Ultimate Heroes") and paragraph 36(a) which alleges a grant of the same thing to the third defendant. The inconsistency arises from the circumstance that having made the first grant, and assuming that, as pleaded, that grant was effective, the second defendant no longer had it in his power to bestow the same favour on anyone else.

80. Paragraph 17 of the further amended statement of claim alleges each of what it describes as a threat, a suggestion and an indication. I can detect no relevance in any of them. Paragraph 18 suffers from the same problem. It alleges an offer to resolve a dispute ("the shareholder dispute"). That too is irrelevant, as is the additional detail alleged in paragraph 19. All three paragraphs should be deleted.

83. According to the plaintiffs, on 8 February 2002 the first defendant entered into an agreement with the second and third plaintiffs. The plaintiffs have called that agreement "the exit agreement". It provided, amongst other things, for the first defendant's resignation as a director of, and for the execution by him of a transfer to the second and third plaintiffs of his shares in, the first plaintiff. The other allegations in the paragraph appear to me to be irrelevant, save for the claim that the first plaintiff would cease any further work on "The Ultimate Heroes" and would pass "the content in the manuscript (text only)" to the first defendant "whereupon he was at liberty to recommission such work to be published by a further publishing house but that at all times the layout and design would in no way be able to be replicated by [the first defendant] or any other publishing house due to the retention of the copyright owned by [the first plaintiff]".[3]

86. One is left to assume that the "copyright" so retained is copyright in the layout and design. If there is such copyright, however, one wonders how it could be adversely affected by the publication of a book with a different text albeit that the design and layout were the same or similar. Assuming its relevance, one also wonders about the draftsmanship of a paragraph (paragraph 20) which reads as does this portion of it:

"Following the offer to resolve the shareholder dispute, the parties made an agreement on or about 8 February 2002 between Main, Cornwell and Fox, the parties agreed that: ... (e) each of Pennon and Main recognised that the layout design print negotiations, preliminary sales briefs, distribution to the book trade, negotiations for direct marketing of the book Media Relations in respect of the book known as The Ultimate Heroes were done by the directors or employees of Pennon for the benefit of Pennon."

90. This is the only reference to the book "Media Relations" in the entire pleading. But apart from that, the carelessness exhibited here is unacceptable, especially when it is replicated in the particulars to the same paragraph. I set these out exactly as they appear in the further amended statement of claim:

"The Exit Agreement was partly oral, partly in writing and partly to be implied. Insofar as it was writing it was constituted by a letter dated 31 January 2002 signed by Beverley Rae Friend and Allan Cornwell as directors of Pennon. In an email dated 5 February 2002 from Main to Cornwell, a letter executed by the parties dated 5 February 2002 signed by Main on 8 February 2002 setting out the terms of the abovementioned Exit Agreement. Insofar as it was oral it was constituted by conversations between Main, Friend and Allan Cornwell, the substance of which is to the effect alleged. Insofar as it was implied, it was implied in order to lend business efficacy to the relationship between the parties."

94. Not only do the particulars not make sense, but since the object (and presumably the result) of the exit agreement was to sever the relationship between the parties, it seems odd to imply terms which are necessary "to lend business efficacy to [that] relationship".

97. By paragraph 21 of the further amended statement of claim, the plaintiffs allege that "[a]t the time prior to the exit agreement and in breach of his obligations of confidence, directors duties and fiduciary duties [the first defendant] failed or neglected to disclose to the plaintiffs that he had already entered into an agreement, or alternatively had had discussions with [the third defendant], for the publishing of the [two books]." Paragraph 22 then alleges that if Friend and Cornwell had known about these "arrangements ... then they would not have entered into the exit agreement".

100. One may immediately note that Friend was not a party to the exit agreement. Then there is the unexplained and perhaps inexplicable slide from the "discussions" of paragraph 21 to the "arrangements" of paragraph 22. One may next wonder how it could be said that merely knowing of "discussions" between the first and third defendants could have so affected the second and third plaintiffs that they would not have become parties to the exit agreement. Indeed, there is nothing in the further amended statement of claim to suggest that the acquisition by the third defendant of the copyright in the "manuscript (text only)" of "The Ultimate Heroes" offended the exit agreement in any way. On the contrary, the impugned "arrangements" seem to advance its purposes. In these circumstances, the defendants are, in my opinion, entitled to be told why the specified knowledge would have led to the withdrawal of the relevant plaintiffs from, or their refusal to enter into, the exit agreement. Otherwise, they will not be able sensibly to plead to paragraph 22 of the further amended statement of claim.

103. In his oral submissions, put during the hearing of the present application, counsel for the plaintiffs described as a "fundamental misconception" the notion that this proceeding involves a breach of copyright. Yet paragraph 23 pleads an infringement before 8 February 2002 (the date on which the exit agreement is said to have been made) of the first plaintiff's:

"... right to publish in [sic] the literary work The Ultimate Heroes without license [sic] or authority of Pennon doing and or causing to be done and or authorising the doing of some or all of the following acts in Australia: (a) reproducing the literary work or one or other of them or substantial parts of them in a material form; (b) publishing or arranging for the publishing of the literary work one or more of them or substantial parts thereof."

107. Although the above is so inarticulate as to be almost incomprehensible, it seems to me that there is here a cause of action in breach of copyright or no cause of action at all. This conclusion is strengthened by resort to the prayer for relief, in which the plaintiffs claim a "permanent injunction restraining them and each of them [presumably "them" means the defendants] whether by themselves or their servants or agents from taking any steps to dispose of the intellectual property rights of Pennon in the literary works." And a return to paragraph 24 has the like effect. It is there pleaded that the third defendant "has infringed Pennon's right to publish in [sic] the literary work The Ultimate Heroes by, without licence or authority of Pennon, doing or causing to be done and or authorising the publishing of the literary work or substantial parts thereof."

110. Given the alleged terms of the exit agreement, it is a matter for speculation whether the plaintiffs have suffered any compensible damage from the publication of "Fallen - The Ultimate Heroes". At all events, no damage is pleaded under this head. Nor is it pleaded that any damage is threatened, and that an application for an injunction should therefore be granted.

113. The further amended statement of claim then moves to allege a duty of confidence. It is said by paragraph 25 to reside in Allan Cornwell and the first defendant; and by paragraph 26 to reside in the second defendant. Allan Cornwell thereafter disappears from this scene, and it is alleged (by paragraph 30) that the first and second defendants disclosed to the third defendant the following information about "The Ultimate Heroes":

"(i) the title and the work in general; (ii) the release date; (iii) the financial information including potential sponsors and bulk sales; (iv) partners who will assist in the publications; (v) the text; (vi) the art work and design including internal page pulls; (vii) the jacket design of the book; (viii) the quote for printing; (ix) the promotional activity and planned publicity; (x) contracts between co-author and any relative costs associated with the project."[4]

117. A breach of confidence is also alleged in relation to "The Encyclopedia". In its case, however, either the information or the disclosure was much more limited. It is alleged that the first and second defendants disclosed to the third defendant that the first plaintiff "would receive rights to publish the work". Otherwise, the relevant confidential information consisted (in the words of the particulars to paragraph 25) of "potential contract with the social club books deals [sic] in relation to the work." Precisely how the defendants "used [this] confidential information to design, develop and manufacture, market and sell and supply literary works known as 'Fallen - The Ultimate Heroes'"[5] is not explained. There is no allegation that the information in question assisted in the publication of "The Encyclopedia".

120. There is, however, an allegation (to be found in paragraph 35) that "by reason of the aforesaid breaches, [the third defendant] was [sic] at the time of the receipt or acquisition of the confidential information as the case may be held the same [sic] upon constructive trust in favour of [the first plaintiff]". The most recent of these "aforesaid breaches", however, involved the third defendant's use of the confidential information to design, develop, manufacture, market, sell and supply "Fallen - The Ultimate Heroes". It necessarily follows that, those breaches not having occurred "at the time of the receipt or acquisition of the confidential information", they could not be the "reason" for the creation of the constructive trust.

123. Much of the balance of the further amended statement of claim is concerned with allegations of breach of the agreements between, respectively, the second and third plaintiffs and the first defendant and the first plaintiff and the second defendant. I have already referred to the discordance between the terms as pleaded and the alleged breaches. The further amended statement of claim concludes with allegations to the effect that the first defendant induced the other two defendants to engage in wrongful conduct and is guilty of misrepresentation by silence. That misrepresentation arose, so the further amended statement of claim alleges, from the first defendant's failure to disclose to the plaintiffs that he had before 8 February 2002 entered into an agreement, or alternatively had had discussions, with the third defendant about "The Ultimate Heroes" and "The Encyclopedia": see paragraph 21. This again raises the question of the relationship between the exit agreement and the third defendant's use of the second defendant's text for "Fallen - The Ultimate Heroes". As for "The Encyclopedia", it is impossible to tell from the pleading how any misrepresentation by the first defendant might have deceived the plaintiffs in any way which was relevant to its fate.

126. In my opinion, the further amended statement of claim is frivolous and vexatious, and would prejudice, embarrass or delay the fair trial of the proceeding. It is, I think, beyond redemption in anything like its present form. The whole should therefore be struck out.

[1] In his oral submissions, counsel for the plaintiffs said (transcript p.18): "There is a fundamental misconception ... that my friend has based his claim about, and that is that there was a breach of copyright claim. There is no breach of copyright claim pleaded ..."

[2] In England, an amendment to negotiate in good faith is unenforceable: Walford v Miles [1992] 2 AC 128. The position in Australia, or at least in New South Wales, is not quite so clear, as is demonstrated by the decision of the NSW Court of Appeal in the majority judgment in Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (1991) 24 NSWLR 1.

[3] Further amended statement of claim, paragraph 20(f)

[4] Further amended statement of claim, particulars under paragraph 25

[5] Further amended statement of claim, paragraph 32