PHOENIX EAGLE COMPANY PTY LTD -v- TOM McARTHUR PTY LTD [No 7] [2022] WASC 345 (17 October 2022)

1. If declarations are made in those terms, the action will settle on orders agreed by the parties.
2. By O 32 r 4 of the Rules of the Supreme Court 1971 (WA), the court may order that any question or issue arising in a cause or matter, whether of law or fact or partly of law and partly of fact, and whether raised by the pleadings or by agreement of the parties or otherwise be tried separately from any other question or issue.
3. Neither party pleaded the Deed of Transfer of 14 February 2011, and the relief sought in the action does not expressly include the declarations now sought. But the plaintiff's ownership of the intellectual property developed by Mr McArthur and used by Tom McArthur Pty Ltd in its products is a central issue in the proceedings.[2]
4. I am satisfied that the separate issue raised by the parties in this application can be properly dealt with under O 32 r 4. That, in my opinion, is the procedural path by which this question is to be determined.
5. The factors that usually cause a court to be cautious about determination of a separate question are of limited relevance. If the court resolves the separate issue, it will resolve the proceedings.

1. A declaratory order is a discretionary remedy. It is also an exercise of judicial power. Before a declaration is made, the court must be satisfied that the declaration will effect a determination of rights by applying the law to facts which are either agreed or determined by reference to the evidence in the case.[3]
2. The court should, usually, be satisfied that there is a proper contradictor, 'someone presently existing who has a true interest to oppose the declaration sought'.[4] The requirement of a proper contradictor is capable of being satisfied in cases where the opposing parties had an interest in resisting the action but subsequently ceased their opposition to the declaratory relief.[5]
3. The defendants (including Tom McArthur Pty Ltd) defended the action with some vigour for about six years. I am satisfied that the requirement for a proper contradictor is met, even though the defendants do not now oppose the orders sought.

1. With one redaction, requested by the plaintiff to preserve confidential information, these were the facts agreed:[6]

1. On 24 June 2002, Thomas McArthur, Lynda McArthur and Mark Richardson signed an agreement, which came to be known as the Founders' Agreement, in contemplation of the incorporation of the plaintiff company for the purposes of promoting, developing and marketing the natural therapeutic and medical products (the products) discovered and yet to be discovered by Thomas McArthur: MR6. 2. The parties to the Founders' Agreement agreed that the plaintiff company, once formed, would own and hold the intellectual property and/or patents for the products and Thomas McArthur agreed, for monetary consideration paid to him by Lynda McArthur and Mark Richardson, to confer all rights to his intellectual property, both present and future, to the plaintiff company. 3. Thomas McArthur, Lynda McArthur and Mark Richardson each became directors of the plaintiff on incorporation. 4. The Founders' Agreement was confirmed and restated in terms not materially different, as regards the intellectual property of Thomas McArthur, on 9 May 2003, after incorporation of the plaintiff: MR14. 5. One of the inventions of Thomas McArthur, the intellectual property associated with which was assigned to the plaintiff, was the OPAL process for creating alkalised filtrates of fruit by adding between 1% and 40% sodium bicarbonate to pulped fruit which had been heated to between 40oC and 100oC. This process was patented by the plaintiff in 2003: MR17; MR18. In support of the patent application, on 18 July 2003, Thomas McArthur executed a Deed of Confirmation warranting that he was the inventor of the patented process, authorising the plaintiff to patent the invention, and undertaking to do everything necessary to assure the plaintiff's title to the invention and the patent: MR16. The Deed of Confirmation was also signed for the plaintiff by Lynda McArthur in her capacity as a director of the plaintiff. 6. In 2006, the plaintiff engaged the University of Sunshine Coast (USC) to manufacture a wide variety of OPAL variant filtrates using a range of temperature and alkalisation variables, in order to test the effects of those variables: MR36. Relevantly, those variants included an unheated pawpaw extract and a pawpaw extract made by the addition of 0.5% sodium bicarbonate, both of which were outside of the terms of the plaintiff's patent. 7. The samples produced by USC were tested by Thomas and Lynda McArthur in August 2006, and a report on the testing was produced by USC in November 2006: MR37. Relevantly, both Thomas and Lynda McArthur assessed an unheated variant made with 10% sodium bicarbonate as effective: MR37 at 441‑2. The results of that testing were confidential information of the plaintiff. 8. In May, June and July 2008, Thomas McArthur further experimented with unheated variations on the OPAL process: PDD229. At that time, he remained an employee of the plaintiff. 9. On 7 August 2008, Thomas McArthur resigned as an employee of the plaintiff. 10. On 6 October 2010, the first defendant was incorporated: PDD349. On incorporation, Thomas McArthur and the second defendant became directors and shareholders. 11. On 11 October 2010, at the home of Trevor and Laura Brickhill, Thomas McArthur made a fruit extract using an unheated process, which he designated as 'LJs' and he purported that they were made with a process that had been invented by Lynda McArthur working independently of Thomas McArthur. The extract was made using an unheated process and 10% sodium bicarbonate, such that the process was not relevantly different from the process used by USC to produce the variant for Phoenix Eagle that Thomas and Lynda McArthur had assessed as effective, as referred to in paragraph 7 above. 12. On 12 October 2010, Thomas McArthur and Trevor Brickhill met with Guy Provan to seek advice as to whether the 'LJs' process infringed the patents of the plaintiff. Thomas McArthur described the 'LJs' process, relevantly, as utilising an unheated process and 10% sodium bicarbonate addition: GWP-2. 13. Guy Provan subsequently advised that the lack of heating in the 'LJs' process distinguished it from the plaintiff's patented OPAL process, but that the process may still infringe the patent depending on the pH of the resulting product. 14. Thomas McArthur did not inform Guy Provan that the plaintiff had undertaken confidential experiments in 2006 with an unheated variant of the OPAL process using 10% sodium bicarbonate addition. Guy Provan did not advise on whether the 'LJs' process infringed the intellectual property of the plaintiff other than to the extent patented. 15. In the period shortly following receipt of Guy Provan's advice, and in any event before 18 April 2011, Thomas McArthur made further adjustments to the 'LJs' process to adjust the resulting product pH by reducing the quantity of sodium bicarbonate added: PDD148; PDD149; PDD150. 16. Those further adjustments led to the process ultimately used by the first defendant, which process was described by Thomas McArthur in following terms [Commercially confidential information redacted]. 17. On the basis of the above facts, the parties agree that the process used by the first defendant to produce fruit extracts for incorporation into its products was invented through the following inventive steps:

(a) the original OPAL process, using heating the fruit pulp to between 40oC and 100oC and adding sodium bicarbonate in the range of between 1% and 40% w/w, was invented by Thomas McArthur in or before 2002 and was assigned to the plaintiff on its incorporation;
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> (b) the plaintiff, with the involvement of Thomas and Lynda McArthur in testing, invented a variation to the OPAL process in 2006 to produce active filtrates using an unheated process with 10% w/w sodium bicarbonate addition;
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> (c) the plaintiff's invention of, and the efficacy of, the variant process referred to in subparagraph (b) was confidential information of the plaintiff that was known to Thomas and Lynda McArthur through their involvement in the plaintiff's testing work;
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> (d) the 'LJs' process demonstrated by Thomas McArthur in October 2010 was a variation on the process invented by the plaintiff in 2006, and was not a new and independent invention made by Lynda McArthur without use of the plaintiff's confidential information;
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> (e) the 'LJs' process was subsequently modified by Thomas McArthur to derive the process ultimately used by the first defendant; and
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> (f) as such, the process ultimately used by the first defendant was a process variation implemented by Thomas McArthur between October 2010 and 18 April 2011, modifying earlier inventions that were the property of the plaintiff by reason of the matters set out above.

1. To the extent that the process variation referred to in paragraph 16(f) above is a new invention made by Thomas McArthur, it is an invention within the scope of the assignments of future inventions and future intellectual property in the Founders' Agreement and in the document referred to in paragraph 4 above. 2. At all material times, Trevor and Laura Brickhill were told by Thomas McArthur that the process used by the first defendant was the invention of his late wife, Lynda McArthur. At no material time did Trevor or Laura Brickhill have any reason to doubt the truth of Thomas McArthur's statements. 3. By deed dated 14 February 2011, Thomas McArthur assigned certain intellectual property to the first defendant: THB99. To the extent that the assignment in that deed purported to include intellectual property that is the property of the plaintiff, by reason of the facts set out above, the parties agree that the assignment to the first defendant was ineffective.
2. Due to my long involvement as the case manager in this action, I am satisfied that the statement of agreed facts is one on which the court can act.
3. The Deed of Transfer of 14 February 2011 provided in cl 2.1:

Transfer of Property and Acknowledgement

2.1 Subject to the provisions of clause 2.2 below Tom McArthur agrees to transfer to the Company all the information (including but not limited to written material), intellectual property, formula, inventions, specifications, know-how and methods:

(a) he has developed, created, produced or possessed in the past;

(b) which he obtained through his late wife, Lynda Janette McArthur; and

(c) which he will develop, create, produce or possess in the future

in relation to any S, CP, TSP, TP and E.[7]

1. The agreed facts are sufficient to support the finding that the intellectual property and processes purportedly transferred to Tom McArthur Pty Ltd by cl 2.1 were owned by the plaintiff at the time of the purported transfer. The Deed of Assignment operates as an assignment of property and not the creation of new rights. There is no material before the court to suggest that any common law or statutory exception to the rule that no one can give a better title than he or she possesses applied. There is no other basis for a finding that the plaintiff has in some way lost its rights in the property. It follows that the plaintiff remains the owner of the rights the subject of the Deed of Assignment.
2. On the facts agreed I am satisfied that the court should make the declarations sought.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

[1] These matters are admitted on the pleadings except that the defendants say that the business assets did not include land and factory, furniture, fittings, plant and equipment.

[2] See Statement of Claim [124] ‑ [126].

[3] See Bass v Permanent Trustee Co Ltd [1999] HCA 9; (1999) 198 CLR 334 [56].

[4] Forster v Jododex Australia Pty Ltd [1972] HCA 61; (1972) 127 CLR 421, 437‑ 438.

[5] Church of the Foursquare Gospel (Australia) Ltd v New Hope Church Swansea Inc [2019] NSWSC 519 [16]; Australian Competition and Consumer Commission v MSY Technology Pty Ltd [2012] FCAFC 56; (2012) 201 FCR 378.

[6] I have reproduced them as filed. The references to evidence within the paragraphs are to the documents attached to the witness statements of Mark Richardson (MR), Guy William Provan (GWP), and Trevor Howard Brickhill (THB), and the Plaintiff's Discovery Documents (PDD).

[7] S, CP, TSP, TP and E are defined terms, being soap, cosmetic products, topical skin products, therapeutic products and extracts to be incorporated into those products.