3 Polyaire is a company which carries on business as a manufacturer and seller of airconditioning components from premises at 11 Kenworth Road, Gepps Cross in the State of South Australia. Polyaire was formerly known as A.C. Components Pty Limited. The name of the plaintiff was changed on 7 February 1995.

4 One of the components manufactured and sold by Polyaire was an airconditioning air outlet director or grille. In these reasons I will use the words "outlet director" and "grille" interchangably.

5 The plaintiff was the owner of a registered design under the Designs Act 1906 (Cth) with respect to an outlet director. The number of the registered design was 84267. The plaintiff manufactured and sold an outlet director which was designed in accordance with this registered design. I will refer to Registered Design Number 84267 as "RD1". The representations attached to the Certificate of Registration for RD1 are attached to these reasons and marked Appendix A. They show the outer frame, the neck section and the cruciform or cross-section. They show the four blade packs which were also referred to in the evidence as cores or "biscuits". In these reasons I will refer to these items as "blade packs" or "cores". The blade packs rest on the cruciform section and may be rotated in four different directions. The outlet director as assembled is inserted in the ceiling of domestic, commercial or industrial premises, and it regulates and controls the direction of the air pumped into the room by the airconditioning system.

6 The plaintiff is also the owner of a second registered design with respect to an outlet director part. The number of this registered design is 110628. The plaintiff manufactured and sold an outlet director part that was designed in accordance with this registered design. I will refer to Registered Design Number 110628 as "RD2". The representations attached to the Certificate of Registration for RD2 are attached to these reasons and marked Appendix B. It will be apparent that RD2 relates only to a blade pack.

7 The first defendant, K-Aire, is a company incorporated in South Australia on 12 July 1996. K-Aire was formerly known as Air Direct Products Pty Ltd. The name of the first defendant was changed on 25 October 1996. The registered office of K-Aire is care of accountants, Harris and Orchard, at 172 Fullarton Road, Dulwich. The principal business that K-Aire was incorporated to carry on was the manufacture and sale of airconditioning ducts. Since the incorporation of K‑Aire, the sole director of the company has been Mr Richard Colebatch who is the third defendant in this action.

8 The second defendant, Kemalex Pty Ltd ("Kemalex") is a company incorporated in South Australia on 29 March 1956. From the date of its incorporation to January 1998, Kemalex carried on a business involving the manufacturing of plastic moulded products from 7 Paul Street, St Marys. Mr Colebatch is the managing director of Kemalex and he has held that position since 1983. The ultimate holding company of Kemalex is Redgum Pty Ltd. Mr Colebatch, or interests associated with him, own and control Redgum Pty Ltd.

9 Mr Colebatch is the third defendant. I have already referred to his involvement in K-Aire and Kemalex.

10 The fourth defendant is Mr Bruce Benfield. Mr Benfield was a director of a company called Jadon Investments Pty Ltd ("Jadon Investments") from 1989 to 8 September 1992 and of a company called Heatshield Pty Ltd ("Heatshield") from 15 November 1985 to 24 May 1994.

11 The fifth defendant, K-Aire Sales Pty Ltd ("K-Aire Sales") is a company incorporated in South Australia on 3 December 1997. The registered office of K‑Aire Sales is also care of the accountants, Harris and Orchard, at 172 Fullarton Road, Dulwich. Mr Colebatch and Mr Benfield have been directors of K-Aire Sales since 3 December 1997.

12 It is common ground that K-Aire Sales was incorporated for the purpose of selling outlet directors including what has been referred to as the second K-Aire outlet. K-Aire Sales asserts that it was incorporated to sell outlet directors to companies and businesses which sell airconditioning systems and componentry by retail.

13 The sixth defendant, K-Aire Wholesale Pty Ltd, ("K-Aire Wholesale") is a company incorporated in South Australia. Like K-Aire Sales, it was incorporated on 3 December 1997. The registered office of K-Aire Wholesale is also care of accountants, Harris and Orchard at 172 Fullarton Road, Dulwich. Mr Colebatch and Mr Benfield have been directors of K-Aire Wholesale since 3 December 1997.

14 It is common ground that K-Aire Wholesale was incorporated for the purpose of selling outlet directors including the second K-Aire outlet. K-Aire Wholesale asserts that it was incorporated to sell outlet directors to companies and businesses which sell airconditioning systems and componentry by wholesale.

15 The seventh defendant, Connect Aire Pty Ltd ("Connect Aire") is a company incorporated in South Australia on 20 August 1997. The registered office of the company is also care of accountants Harris and Orchard, at 172 Fullarton Road, Dulwich. Mr Benfield has been a director, secretary and shareholder of Connect Aire since 20 August 1997.

16 It is common ground that Connect Aire was incorporated for the purpose of selling flexible airconditioning ducting. The plaintiff asserts that such ducting was to be used in connection with the first K-Aire outlet and the second K-Aire outlet. Connect Aire asserts that such ducting was to be used in the installation of commercial and domestic airconditioning systems.

17 The eighth defendant, T & S Manufacturing Pty Ltd ("T & S") is a company incorporated in South Australia on 20 August 1997. The registered office of the company is also care of accountants, Harris and Orchard, at 172 Fullarton Road, Dulwich. Mr Benfield has been a director of T & S since 12 April 2000.

18 It is common ground that T & S was incorporated for the purpose of manufacturing and selling flexible airconditioning ducting. The plaintiff asserts that such ducting was to be used in connection with the first K-Aire outlet and the second K-Aire outlet. T & S asserts that such ducting was to be used in the installation of commercial and domestic airconditioning systems.

19 The ninth defendant, Kemalex Plastics Pty Ltd ("Kemalex Plastics") is a company incorporated in South Australia on 13 June 1997. Mr Colebatch has been the sole director and the sole secretary of Kemalex Plastics since the date of its incorporation. Since July 1998, the company has carried on business as a manufacturer of plastic moulded products. In effect, Kemalex Plastics took over the manufacturing activities of Kemalex.

20 K-Aire, Kemalex, Mr Colebatch, K-Aire Sales, K-Aire Wholesale and Kemalex Plastics were represented by solicitors, Thomson Playford, and counsel, Mr D Catterns QC, and Mr K Nicholson. Mr Benfield, Connect Aire and T & S were represented by solicitors, Strachan Carr, and counsel, Mr R Whitington QC. From time to time in these reasons it will be convenient to refer to these two groups as the "Colebatch defendants" and the "Benfield defendants" respectively.

21 Brian Lane Engineering Pty Ltd became the registered owner of RD1 for a period of five years from 27 May 1981. The period of registration was extended for five years from 27 May 1986. On 8 December 1986, Brian Lane Engineering Pty Ltd assigned its right, title and interest in RD1 to the plaintiff.

22 The plaintiff commenced selling an outlet director designed in accordance with RD1. An outlet director manufactured in accordance with RD1 was tendered in evidence (Exhibit P8).

23 The short narrative which follows is taken from those parts of an affidavit of Mr Benfield sworn on the 11 September 1989 and tendered by the plaintiff in the course of its case.

24 Mr Benfield was a director of Heatshield. In 1989, Heatshield was involved in the sale by wholesale and retail of airconditioning components including grilles for ducted airconditioning systems. From the context I think it is clear that when referring to a grille Mr Benfield is referring to an outlet director. The majority of outlet directors were sold as part of a package or kit which included all of the components necessary to install a ducted airconditioning system.

25 Heatshield was selling aluminium outlet directors with variable louvres or blades, but these were expensive. Heatshield sold the plaintiff's plastic outlet directors which Mr Benfield recognised as a cheaper alternative to metal outlet directors. Mr Benfield decided that costs could be reduced if Heatshield manufactured and marketed plastic outlet directors. They were cheaper to produce and would provide a competitive advantage over aluminium products. However, Mr Benfield did not want to manufacture an outlet director which infringed the plaintiff's rights. In the second half of 1988 he sought advice from patent attorneys, Messrs Howard Schulze and Allan Thomas from Collison and Co and Mr Richard Catt from R K Maddern and Co in respect of a suitable design for the proposed product.

26 Mr Benfield first consulted Messrs Schulze and Thomas. Mr Thomas told Mr Benfield that his proposed design would not infringe RD1. Mr Schulze disagreed. As a result of this disagreement, Mr Benfield sought advice from Mr Catt. After discussions with Mr Catt, a design was prepared in December 1988 and steps were taken to produce plastic outlet directors on a commercial basis. Mr Benfield asserts that a Mr Patrick Weatherell was largely responsible for the design of the outlet director.

27 A joint venture was established involving the principals of Heatshield, Richmond Plastics Pty Ltd and Avair Pty Ltd (Mr Weatherell). As part of this joint venture, Jadon Investments Pty Ltd ("Jadon Investments") was incorporated. In December 1988 the joint venturers decided to manufacture their own plastic outlet director.

28 The proposal to manufacture and sell a plastic outlet director involved a major capital expenditure. Mr Benfield became a director of Jadon Investments and he provided funds to Jadon Investments. He borrowed the funds and lent them to Jadon Investments. He was required to give a mortgage over his family home in order to secure his borrowings.

29 The plastic outlet director was manufactured by Richmond Plastics on behalf of Jadon Investments which then onsold the outlet directors to Heatshield or Avair Pty Limited. Heatshield supplied the plastic outlet directors to wholesalers of airconditioning equipment and to purchasers of such equipment in South Australia. Avair Pty Limited distributed the outlet director in other States and territories of Australia and overseas.

30 With this background (which is undisputed) in mind I turn now to the allegations made by the plaintiff in this action.

31 The plaintiff claimed that Jadon Investments, Heatshield and Richmond Plastics Pty Ltd, without the authority or licence of the plaintiff, infringed the plaintiff's monopoly in RD1 by applying the said registered design or an obvious or fraudulent imitation of it to outlet directors and/or sold and/or offered or kept for sale such outlet directors to which RD1 or an obvious or fraudulent imitation of it had been applied.

32 The plaintiff claimed that Jadon Investments made outlet directors to the same design as RD1 and then sold such outlet directors to Heatshield. Jadon Investments had, since 7 August 1989, offered for sale such outlet directors by way of two brochures.

33 The plaintiff claimed that since 7 August 1989, Heatshield had offered for sale outlet directors to the same design as RD1 in its price catalogue. The plaintiff claimed that Heatshield sold such articles to W A and K D Poyner Pty Limited on or about 10 August 1989 and to Mannix Electrical and Airconditioning between about 7 August 1989 and 21 August 1989.

34 It became clear in the course of the evidence that the particular outlet director made by Jadon Investments and sold by Heatshield was known as the "Silentaire grille". It seems that Jadon Investments traded under the name "Silentaire Products" or applied that description to the products it sold. The Silentaire grille was sold in considerable quantities in 1989 generally as part of a ducting kit or package.

35 The plaintiff claimed that there were similarities between the Silentaire grille and RD1. A summary of the plaintiff's allegations is as follows:

"1. The plaintiff relies upon the overall close similarity of the appearance of the said articles when compared with RD1.

2. In particular, the said articles have a moulded plastic air diffuser body in one piece with four cruciform rectangular openings in each of which a blade box is fitted with blade assemblies to act as the diffusing agent.

3. In so far as there are differences between the design of the said articles and RD1 constituted by the protrusion of the blade assemblies and/or a bevel around the edge of the blade surrounds of the said articles, the plaintiff says that such differentia do not render the said articles to be other than an imitation of RD1. Further, the plaintiff says that such differentia were employed to disguise the copying of the said registered design."

36 In 1989 the plaintiff issued proceedings in this Court (Action Number 1810 of 1989) against Jadon Investments, Heatshield and Richmond Plastics Pty Ltd claiming damages and other relief for the infringement of its monopoly in RD1. Richmond Plastics did not defend the proceedings and may be put to one side.

37 The action came on for a hearing of the determination of liability only before Zelling AJ in 1992. On 2 June 1992, Zelling AJ entered judgment for the plaintiff in the action. He held that the outlet directors manufactured and sold by Jadon Investments and Heatshield (ie., the Silentaire grille) infringed the plaintiff's monopoly in RD1. His Honour's reasons for judgment are reported in AC Components Pty Ltd v Jadon Investments & Ors (1990) 59 SASR 265. His Honour held that the defendants' articles were a fraudulent imitation of RD1.

38 After judgment had been entered, negotiations took place between the plaintiff and Jadon Investments and Heatshield. Other parties were also involved in the negotiations. Although they had not been made defendants to the action, the plaintiff alleged that they were jointly liable for the infringement of the plaintiff's monopoly in RD1. One of these other parties was Mr Benfield. The plaintiff alleged that Mr Benfield was jointly liable for the tortious acts of Jadon Investments and Heatshield in infringing its monopoly in RD1. It is unnecessary to go into the details of the negotiations. The plaintiff had quantified its claim for damages at a very substantial figure. On the other hand, Jadon Investments and Heatshield said that they were going to appeal from the decision of Zelling AJ.

39 A settlement was reached between the plaintiff and Jadon Investments and Heatshield and other parties, including Mr Benfield. Various Deeds and Agreements were executed. It is the settlement between the plaintiff and Mr Benfield which is of importance in this case. The plaintiff and Mr Benfield entered into a Deed dated 8 September 1992. Mr Benfield is described in the Deed as the Covenantor. Clause 9 of the Deed provides:

"9(a) The Covenantor covenants with the Plaintiff that the Covenantor shall not for a period of four years hereafter undertake or carry on alone or in partnership or be employed or interested or involved in any way whatsoever directly or indirectly in any capacity or manner in any business of (or which includes) the sale and/or offer for sale and/or manufacturing of any plastic neck adaptor or any air diffusion outlet (except only those referred to in the Schedule) being a business which operates anywhere in Australia ("the territory").

(b) Reference to a business operating in sub-clause (a) includes without limiting the generality the business, by itself or its servants or agents -

• - establishing a place of such business (or operating such business from) any place within the territory (whether such place be a temporary or permanent place of business, a residence, or any other form of location of a business whatsoever, and whether the principal place of such business or not)

- conducting any promotion activities for such business whatsoever within the territory

• - carrying out actions within the territory with a view to soliciting for such business or
• - dealing with persons, firms or entities located within the territory.

(c) The above restrictions shall not apply to the re-sale by the Covenantor of articles purchased by the Covenantor from the Plaintiff or Jadon."

"(2) Articles referred to in Part C which may be sold/offered for sale/manufactured:

1. Any air diffusion outlet available for sale at the date of this Deed except for any such air diffusion outlet which infringes, or which the plaintiff claims infringes, the registered design

or

2. any new air diffusion outlet which may be first marketed during the period of 4 years referred to in Clause 9 and which the Plaintiff consents in writing to the Covenantor selling, offering for sale or manufacturing."

41 As part of the overall settlement, the plaintiff acquired Jadon Investments, and Heatshield entered into an agreement to purchase outlet directors from the plaintiff.

42 The plaintiff alleges in this action that between 8 September 1992 and 8 September 1996 Mr Benfield acted in breach of clause 9. The conduct which it identifies as being in breach of clause 9 may be summarised in the following way. First, Mr Benfield had discussions with Mr Colebatch in or about March 1996 with a view to establishing the business of K‑Aire and the terms of a partnership were formally recorded on 12 July 1996. In or about March 1996 Mr Benfield commenced the development of the tooling necessary to produce an outlet director to be sold by the business. In short, K‑Aire was undertaking or carrying on a business of the proscribed kind before 8 September 1996, and Mr Benfield was directly involved in that business.

43 Secondly, before September 1996, Mr Benfield was beneficially interested in a provisional patent application No. PL5049 which ultimately became Australian Registered Patent No. 48652/93. Thirdly, before 8 September 1996, Mr Benfield engaged the services of an industrial designer, Mr Andrew Rogers, in relation to the design and development of an airconditioning outlet. In particular, in 1994, Mr Benfield engaged the services of Mr Rogers to modify and develop a tool for the production of airconditioning outlet directors.

44 The plaintiff alleges that Mr Benfield's breach of clause 9 gives it the right to claim relief from Mr Benfield based on one of the following two causes of action or remedies:

1. Damages resulting from the breach of clause 9 which presumably will reflect the advantage Mr Benfield obtained by reason of the fact that he was able to start up his activities earlier than would have been the case if he had complied with clause 9. The parties in this action referred to these damages as "head start" damages and that is a convenient description for present purposes.

2. Damages and/or an account of profits for the infringement of the plaintiff's monopoly in RD1. The effect of the Deed is that a breach of clause 9 removes the shield Mr Benfield had in relation to his alleged involvement in the infringement of RD1. The plaintiff alleges that Mr Benfield is jointly liable with Jadon Investments and Heatshield for the infringement of RD1.

45 The plaintiff alleges that until judgment it has the right to elect between these two causes of action or remedies.

46 This is the first claim the plaintiff makes against Mr Benfield. If successful, it will result in an order against Mr Benfield for an assessment of damages in relation to the breach of clause 9, or an order for damages and/or an account of profits for the infringement of the plaintiff's monopoly in RD1.

47 The events in 1996 involving Mr Benfield are also relevant to the first claim against K-Aire, Kemalex and Mr Colebatch. The plaintiff alleges that these three parties procured or induced Mr Benfield to breach clause 9 of the Deed. The steps in this argument are first, that Mr Colebatch knew of the terms of clause 9. Secondly, as the sole director of K-Aire and a director and secretary of Kemalex, his knowledge of the terms of clause 9 should be attributed to those companies. Thirdly, Mr Colebatch, on behalf of K-Aire and Kemalex, engaged or involved Mr Benfield in an enterprise which included the manufacture of the K-Aire outlets by Kemalex and the sale of such outlets by K‑Aire.

48 The second claim against Mr Benfield, K-Aire, Kemalex and Mr Colebatch and the claim against the other defendants is that in one way or another they were involved in the manufacture and/or sale of one or both of what were called in evidence the first K-Aire outlet ("KA1") and the second K-Aire outlet ("KA2"), and that KA1 and KA2 infringe the plaintiff's monopoly in RD2. The Colebatch defendants tendered drawings of KA1 and KA2. Although it is clear that I must compare the accused articles with the registered design, it will assist the reader's understanding of the issues if I attach to these reasons some drawings of KA1 and KA2. The former are marked "C" and the latter are marked "D".

49 RD2 was registered in the name of the plaintiff for a period of one year commencing 21 March 1991. The application for registration was made on 30 July 1990 and that date is the priority date. The period of registration was extended for 11 years from 30 July 1990.

50 The plaintiff alleges that K-Aire and Kemalex, since the date of registration but before the date of issuing the summons in this action, and Kemalex Plastics, K-Aire Sales and K-Aire Wholesale, have since the date of registration, and after the issuing of the summons in this action, in Australia and without the authority or licence of the plaintiff, applied the design or an obvious or fraudulent imitation of it to outlet directors and/or sold and/or offered or kept for sale such outlet directors to which the design or an obvious or fraudulent imitation of it has been applied. In particular, the plaintiff alleges that Kemalex has manufactured and K-Aire has sold or offered for sale KA1 and KA2. Kemalex has manufactured and K-Aire Sales and K-Aire Wholesale have sold or offered for sale KA2. The plaintiff alleges that Mr Colebatch and Mr Benfield are liable because of their involvement in the activities of these companies. Connect Aire and T & S are liable because they aided and abetted the infringement, or were parties to a common design.

51 A summary of the plaintiff's allegations as to the similarities between RD2 on the one hand, and KA1 and KA2 on the other, is as follows:

(3) "In particular, in relation to both K-Aire outlets the plaintiff relies upon:

(i) The overall appearance of the blades;

(ii) The position of the blades relative to the frame;

(iii) The appearance of the ends of the blades including the spigots extending therefrom;

(iv) The external appearance of the external frame;

(v) The appearance of the external sides of the perimeter frame that receive the spigots of the blades;

(vi) The appearance of portions of the external frame in the vicinity of each of the spigot receiving portion;

(vii) The internal appearance of the internal configuration of the director part;

(viii) The internal appearance of the director part when viewing the manner in which the ends of the blades are coupled to the coupling bar and the external frame;

(xi) The appearance of the coupling bar."

(Paragraph 26 of the Fourth Amended Statement of Claim.)

(4) Insofar as there are differences, they do not render KA1 and KA2 anything other than imitations of RD2. Such differences were employed to disguise the copying.

52 The relief the plaintiff claims in relation to the infringement of its monopoly in RD2 is an injunction, an order for delivery up of the accused articles and damages and/or an account of profits.

53 It is convenient to start with Mr Benfield. Mr Benfield denies that he has acted in breach of clause 9 of the Deed. On the assumption (which he denies) that he has acted in breach of clause 9, he raises a number of defences. First, he alleges RD1 was not a new or original design and that it should not have been registered. Secondly, he alleges that the Silentaire outlet director manufactured and sold by Jadon Investments and Heatshield did not infringe the plaintiff's monopoly in RD1. Thirdly, he alleges that legal proceedings for the infringement of RD1 are barred by the Limitation of Actions Act 1936. Fourthly, Mr Benfield alleges that in relation to the breach of clause 9, the plaintiff had elected to pursue remedies for the infringement of RD1 and therefore can no longer pursue head start damages.

54 Mr Benfield raised various other defences which were abandoned during closing addresses. For completeness, I note that the following defences are not pursued:

(1) The defence that the restraint in clause 9 is unreasonably wide and contrary to public policy and is therefore void.

(2) The defence that any failure to comply with the restraint was trivial, insignificant and de minimis and the plaintiff is not entitled to any relief in relation to such failure.

(3) The defence that there has been substantial performance of the restraint and the plaintiff is not entitled to rescind the Deed in those circumstances.

(4) The defence that the remedy of rescission of the Deed for a breach of clause 9 constitutes a penalty and is therefore not open to the plaintiff.

55 Mr Benfield submits that there has been satisfaction by Heatshield of the liability which the plaintiff also claims against him, or at least that credit must be given for the benefit received by the plaintiff, but says that this argument will only be relevant if it becomes necessary to assess damages against him. Although not explored in argument before me, I assume this submission is based on principles discussed by the High Court in Baxter v Obacelo Pty Ltd [2001] HCA 66; (2001) 205 CLR 635.

56 K-Aire, Kemalex and Mr Colebatch deny that they procured or induced any breach of the restraint in clause 9 by Mr Benfield.

57 As to the claim that there has been an infringement of RD2, all defendants plead that RD2 was not a new or original design and therefore it should not have been registered. In addition, all defendants plead that neither KA1 nor KA2 infringe the plaintiff's monopoly in RD2.

58 On 10 May 1999, a Judge of this Court made an order that this action proceed first on a determination of liability only. The order made was as follows:

"That this matter proceed on a determination of all issues arising as to the liability (if any) of the defendants including the issues of breach of the Deed and infringement of registered designs numbered 84267 and 110628 (including the validity thereof) separately from and before all issues in the proceedings as to the liability (if any) of the defendants for damages and/or an account of profits and the quantum thereof."

59 During the course of the trial, I was required to make a number of rulings. When I did so, I said that I would publish my reasons later. The reasons for my ruling on the admissibility of Mr Benfield's written statement, the defendants' submissions of no case to answer and the plaintiff's application to amend the Statement of Claim are attached to these reasons and marked Appendix E.

60 It is convenient at this point to deal with the plaintiff's submission as to the significance which I should attach to the fact that neither Mr Colebatch, Mr Benfield or Mr Catt gave evidence in the trial.

61 I am prepared to find that Mr Catt is a person one would expect the defendants to call rather than the plaintiff. It was one or more of the defendants who engaged his services. I also find that the defendants provided no explanation for the failure to call Mr Colebatch, Mr Benfield or Mr Catt as witnesses. In those circumstances, I am entitled, but not obliged, to infer that the evidence of those witnesses would not have assisted the respective cases of the defendants.

62 I am entitled to take the failure to call evidence from those persons into account in deciding whether to accept any particular evidence which relates to a matter upon which they could have spoken, and to more readily draw any inference fairly to be drawn from the other evidence by reason of the fact that the defendants could have proved the contrary, had they chosen to call those witnesses or, as the case may be, give evidence themselves. However, it is not permissible for me to infer that the untendered evidence would have been damaging to the party not tendering it. Nor can I use the principle to fill gaps in the evidence, or to convert conjecture and suspicion into inference (Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298 per Kitto J at 308, Menzies J at 302 and Windeyer J at 320-321).

The Claim Against Mr Benfield for Breach of Clause 9 of the Deed and for the Infringement of RD1

The Proper Construction of Clause 9 of the Deed.

63 It is convenient to consider first the proper construction of clause 9.

64 The Deed between the plaintiff and Mr Benfield was prepared by the plaintiff's solicitors, Lynch Meyer. Mr Stephen Palyga, a legal practitioner in South Australia, prepared the Deed as well as the other Deeds and Agreements.

65 Mr Palyga was called as a witness by the plaintiff. He was an honest witness and I accept his evidence. Mr Palyga said that during the negotiations leading up to the execution of the various agreements including the Deed, Mr Benfield was represented by a solicitor and that no request was ever made by Mr Benfield or his solicitor to alter or vary the terms of clause 9 of the Deed. While I accept that evidence, it does not advance the matter in terms of the proper construction of clause 9. The Deed falls to be construed according to its terms. In fairness to the plaintiff, it should be said that at the time the evidence was called, the validity of the covenant was still in issue, and the plaintiff contended that Mr Palyga's evidence was admissible on that issue. The latter proposition may be arguable, but it no longer matters because Mr Benfield has abandoned his argument that the covenant is an unreasonable restraint of trade. Mr Palyga's evidence does not assist me in determining the meaning of clause 9.

• Mr Benfield is not, for a period of four years from 8 September 1992, to undertake or carry on alone or in partnership or be employed or interested or involved in any way whatsoever directly or indirectly in any capacity or manner,
• in any business,
• of (or which includes) the sale and/or offer for sale and/or manufacturing of any plastic neck adaptor or any air diffusion outlet (except only those referred to in the Schedule),
• being a business which operates anywhere in Australia ("the territory").

67 There is an issue as to how clause 9(b) affects the operation of clause 9(a). Do the examples referred to in clause 9(b) extend the meaning of "business" or "business which operates" to include the acts identified when they might not otherwise fall within the scope of the words, or do they extend the meaning of "business which operates anywhere in Australia" so that a business operating outside Australia will be taken to be operating in Australia if any one of the four matters referred to in clause 9(b) is established? The plaintiff submitted that the former interpretation was correct, whereas Mr Benfield submitted that the latter interpretation was correct.

68 In resolving this issue it is helpful to look at the authorities which throw light on the meaning of the words in clause 9(a).

69 In Hope v Bathurst City Council [1980] HCA 16; (1980) 144 CLR 1, Mason J (as he then was) said (at 8 - 9):

"In truth it is the popular meaning of the word as used in the expression 'carrying on a business' rather than the popular meaning of the word itself that is enshrined in the statutory definition. It is the words 'carrying on' which imply the repetition of acts (Smith v Anderson) and activities which possess something of a permanent character ...

I accept, then, that 'business' in the sub-section has the ordinary and popular meaning which it would be given in the expression 'carrying on the business of grazing'. It denotes grazing activities undertaken as a commercial enterprise in the nature of a going concern, that is, activities engaged in for the purpose of profit on a continuous and repetitive basis."

70 In Pioneer Concrete Services Ltd & Anor v Galli & Anor [1985] VicRp 68; [1985] VR 675, the Full Court of the Supreme Court of Victoria considered the proper construction of a restraint of trade covenant. Due to its length, I will not set out the covenant. It is enough to say that two parties were prohibited from directly or indirectly, carrying on, conducting, being engaged in, being concerned in, or being interested in the business of winning, crushing or supplying stone, gravel or quarry products. In that case, the covenantors had engaged in the following conduct during the period of the restraint:

(1) They had acquired two options to lease land which was believed to contain substantial deposits of basalt suitable for use in concrete and asphalt and as road material.

(2) They had caused the land to be marked out for the purpose of applications for licences to quarry and crush rock. Applications had been lodged.

(3) Meetings had been held with Victorian Railways and at these meetings the availability of a site for a depot to which quarry products could be delivered by rail had been discussed.

(4) They had caused holes to be sunk on the land for the purpose of obtaining samples for testing. Some percussion drilling on a grid pattern had been performed.

(5) Some tracks had been constructed on the land in order to enable the above work to be carried out.

71 On the other hand, it was clear by the time of trial that a number of things were unlikely to occur before the expiration of the period of the restraint including the following:

2. The obtaining of licences to extract materials, and town planning licences.

4. The establishment of a business entity to quarry the land which was the subject of the options.

72 The Full Court first considered the meaning of the word "business" and they referred to reasons for judgment of Mason J in Hope v Bathurst City Council and in particular the passage I have set out above. The Full Court said (at 705 - 706):

"But the difficulty in the present case is only partly answered by this definition. There is little doubt that if the respondents obtain the leases and start quarrying for sand and stone, as they indeed hope and intend to do, they will be carrying on one or more of the prescribed businesses. It is the question of whether one of these businesses is yet to come into existence which requires answering in the present case. The elements of continuity and repetition are not, in our opinion, satisfied. There is no commercial enterprise yet underway. There are no customers and there is no activity which will produce stone, gravel or other quarry products...

The present case is quite clear. The work carried out up to the trial was entirely exploratory and did not even amount to the direct preparation of any quarries. Although they had elements of repetition and continuity, there were no activities which formed part of profit making or other commercial transactions. That does not lead to the conclusion that, if similar activities were carried on during the operation of the business, those activities would not form part of or be incidental to that business. But before the business gets underway, those preparatory acts cannot be characterised as constituting or forming part of the business; nor can the participants be described at that stage as carrying on or conducting a business.

None of the activities alleged against the respondents had gone beyond the preliminary stages and could not be characterised as the preparatory stages of setting an identifiable business."

73 The Full Court next considered whether the phrases "engaged in", "concerned in" or "interested in" expanded the meaning of "business" when used in conjunction with that word. The Full Court answered that question in the negative. The Court said (at 707):

"To be 'engaged in', 'concerned in' or 'interested in' a business each involves a concept wider than carrying on or conducting the business but in our opinion they do not expand the meaning of 'business' when used in conjunction with that word, at least not so as to lead to the conclusion that, if one is shown to have engaged in or been concerned or interested in a business, the covenant is broken at an earlier point in time than if it were confined to carrying on or conducting a business."

74 The extent to which the carrying out of preparatory acts constitutes engaging in a business was considered by Hedigan J on an application for an interlocutory injunction in Bristol-Myers Squibb Pharmaceuticals Pty Ltd v Collins (1995) 31 IPR 488. He said (at 496):

"Guided by these statements, I have reached the conclusion that the preparatory acts here referred to do not amount to engaging in business within the meaning of the covenant, nor carrying on or conducting the business proposed.

It should not be ignored that what the plaintiff was seeking to protect itself against for a period of twelve months was competition by sale in the marketplace in which its products were being sold. The restraint was on engaging in a business. There was no restraint on performing acts preparatory to the business being conducted. It would be self evidently absurd to suggest that no active preparation in anticipation of starting up the business, might be embarked upon during the twelve month period, and indeed Mr Finkelstein did not adopt such a position. If it were so, then the benefit of the covenant would run for a period much greater than twelve months, since there may be a long period required to appropriately put in place all the arrangements relating to acquisition and marketing of products on an Australia-wide basis, that would be necessary."

75 Three propositions emerge from these cases. First, the word "business" ordinarily means a commercial enterprise in the nature of a going concern, that is, activities engaged in for the purpose of profit on a continuous and repetitive basis. Secondly, a distinction must be drawn between acts preparatory to conducting a business and conducting a business. Thirdly, the use of the phrases, "interested in" or "involved in" do not relevantly extend the meaning of the word "business". In other words, their use in conjunction with the word "business" does not bring within the meaning of the word any preparatory acts which would not fall within the meaning of that word if the only accompanying phrases were "carrying on" or "conducting" the business.

76 Looking only at clause 9(a) for the moment, it seems to me that the authorities to which I have referred suggest that there would be no breach before the point in time when there were activities engaged in for the purpose of profit on a continuous and repetitive basis and those activities involved one or more of the acts of sale, offering for sale or manufacturing the prohibited product.

77 I return to the question of the proper interpretation of clause 9(b). If the plaintiff's interpretation is correct, a person who proposes to establish a business after a restraint period has expired and does in fact do so would be in breach of clause 9 if before the expiration of the restraint he spoke to potential customers and told them he was proposing to establish a business and he spoke to them about the proposed attractions of his business (ie., he solicited for business or conducted promotional activities). That interpretation would give a very wide operation to the clause. Furthermore in some cases at least, a Court would need to look at events after the restraint had expired (ie., was there in fact a sale, offer for sale or act of manufacturing) in order to determine if earlier events fell within the restraint. I also note that it is difficult to give any sensible meaning to the fourth circumstance identified in clause 9(b) - dealing with persons, forms or entities located within the territory - unless it is applied only when there is an existing business in operation.

78 I think the wording of clause 9(a) and 9(b) is against the contention advanced by the plaintiff. The word "operates" is used only once in clause 9(a) and that is in connection with a reference to the territory (ie., Australia). I also note the reference to "such business" in three of the four circumstances identified in clause 9(b). To my mind, the use of those words suggests an existing business, not a proposed business. I also bear in mind that the direct damage from which the plaintiff was seeking protection occurs when there are actual acts of sale, offering for sale or manufacturing. Finally, I think I can take into account the fact that the clause was drafted by the plaintiff's solicitors and is to be construed contra proferentum.

79 Although the matter is not free from difficulty, I think Mr Benfield's interpretation is the correct one. I read clause 9(b) as providing examples of when a business established and operating outside Australia is to be taken as operating in Australia, rather than as expanding what would otherwise be considered the meaning of "business" or "business which operates". Therefore, the fourth element would read:

"4. being a business which operates anywhere in Australia ("the territory") and this includes establishing a place of business in Australia, conducting any promotion activities for such business in Australia, carrying out actions within Australia with a view to soliciting for such business or dealing with persons firms or entities located within Australia."

80 One argument put by counsel for Mr Benfield was that as this is a restraint of trade clause, if more than one construction is open the court should prefer a construction which results in the lesser restraint. I think the true principle was stated by Dixon CJ in Butt v Long [1953] HCA 76; (1953) 88 CLR 476 in the following terms (at 487):

"But the agreement should be interpreted for the purpose of ascertaining its real meaning independently of the rules prescribing the tests of reasonableness for the purpose of ascertaining its validity. If an evident ambiguity appears from its text it may be proper to take into account the law relating to the validity of covenants in restraint of trade in resolving the ambiguity but a restrictive interpretation of general words is not to be adopted simply to save a covenant or agreement from invalidity."

81 In this case, Mr Benfield made no submissions on the law relating to the validity of covenants in restraint of trade and in those circumstances I place no reliance on the principle stated by Dixon CJ.

82 There is a further issue concerning the proper interpretation of clause 9 which must be resolved, and that is, leaving aside the particular acts identified in clause 9(b), what acts which ultimately lead to a prohibited act (ie., sale, offer for sale or manufacture) are within the scope of the restraint. The authorities to which I have referred provide some guidance, but of course cases in this area tend to turn on their own particular facts.

83 I agree with counsel for Mr Benfield that there is much to be said for an interpretation which draws a clear line between compliance and non compliance with the clause. If I construe the covenant so that there is a business of the relevant character only when that business manufactures, offers for sale or sells a prohibited article then there is a clear line.

84 On the other hand, if the covenant reaches back to include acts before those acts, then there may well be uncertainty as to what preparatory acts fall within the terms of the covenant.

85 I should also take into account the fact that what in the ordinary course would cause direct damage to the plaintiff's business are not preparatory acts, but rather the acts of sale or offering for sale. I think the same may be said of the act of manufacturing because it is implicit in the notion of manufacturing that there will be large scale production of the prohibited product which will presumably be sold by somebody else. To my mind, the act of manufacturing does not include every act preparatory to manufacturing such as producing a drawing of the product, or producing a tool that could be used to manufacture the product.

86 I note that the Deed provides that the restraint does not apply to:

"any new air diffusion outlet which may be first marketed during the period of 4 years referred to in clause 9 and which the plaintiff consents in writing to the covenantor selling, offering for sale or manufacturing."

87 The consent which the plaintiff gives under this clause is a consent to the acts of selling, offering for sale or manufacturing. It would be odd if the plaintiff's consent was required for the carrying out of preparatory acts within the four year period in circumstances where it was clear that Mr Benfield would not be in a position to sell, offer for sale or manufacture until after the four year period had expired. Furthermore, the plaintiff's consent is to be given to a particular outlet director. One would have thought that some work beyond a mere idea must be carried out by Mr Benfield before consent would be sought, and that this would include the preparation of design drawings and perhaps the production of a sample. Mr Benfield may wish to protect his idea by a patent application before disclosing it to the plaintiff who is a competitor. On the plaintiff's side, it may not be able to consider in any meaningful way whether it should give its consent without design drawings, and perhaps a sample.

88 In my opinion, a business takes on the relevant character only when it sells, offers for sale or manufactures a prohibited outlet director.

89 I turn now to consider the evidence of Mr Benfield's conduct between 8 September 1992 and 8 September 1996. As I have said, Mr Benfield did not give evidence. The plaintiff called a number of witnesses who gave evidence about Mr Benfield's activities during this period. It also tendered a number of documents which throw light on that subject. The Colebatch defendants called Mr Andrew Rogers who is an industrial designer who trades under the business name, "Andrew Rogers Industrial Design" ("ARID"). It was Mr Rogers, of all the witnesses called, who was able to give the most complete picture of Mr Benfield's activities during the relevant period. Although I do not accept all of the evidence he gave, he assumes a prominent role in the statement of facts which follows, although at times I will need to refer to the details of the evidence given by other witnesses.

90 Except where I indicate otherwise, I make findings of fact in accordance with the statement set out below. As it happens, I think only a handful of the facts set out below are of crucial significance. Nevertheless, it is important that I make all relevant findings of fact.

1. THE CHINA OUTLET AND THE HEATSHIELD PATENT

91 Mr Rogers first met Mr Benfield in the late 1980s. He was engaged by Mr Benfield and Mr Weatherell, the general manager of Silentaire Products (ie., Jadon Investments) to do some design work in relation to airconditioning clips and other accessories.

92 Some time in late 1991 or early 1992 and during the course of carrying out design work for Silentaire Products, Mr Rogers came up with the idea of developing an airconditioning outlet which combined the register and the grille as a single unit.

93 In 1992, Mr Benfield instructed Mr Rogers to further develop the idea of an airconditioning outlet incorporating a one-piece register. It is unclear whether Mr Benfield was giving the instructions on behalf of Heatshield or on his own behalf. Mr Rogers believed that he was receiving instructions from Heatshield. Mr Rogers referred to the idea of a one-piece register as the "China outlet". For convenience only, I will use that description.

94 Mr Benfield thought an aspect of the China outlet might be capable of being the subject of a patent and he instructed Mr Rogers to prepare the necessary drawings. Mr Rogers prepared those drawings in July 1992 and a patent specific illustration was provided to R K Maddern and Co (Patent and Trademark Attorneys) on 17 August 1992.

95 In September 1992, Mr Rogers signed an Application for the Registration of a Patent entitled "Improvements in and relating to Air Diffusers". Mr Rogers was listed as the inventor of what he calls "The Heatshield Patent". In his evidence, Mr Rogers described the Heatshield Patent in the following terms:

"The Heatshield Patent relates to that aspect of the China Outlet which comprised a system of interlocking blade assemblies that could be connected on the ground to form a single unit and inserted into the register from below the ceiling.

In previous designs, in which four separate blade packs were housed in a multi-directional airconditioning ceiling outlet, the blade packs were supported by a cross piece in the face of the outlet."

96 The provisional patent application is numbered PL 5049 and it was filed on 28 September 1992. The applicant is Mr Steven Bruce Benfield who is Mr Benfield's son.

97 The complete patent application is numbered 48652/93 and it was filed on 28 September 1993. In due course it was accepted and advertised and it became Registered Patent No 48652/93.

98 Mr Rogers was cross-examined about his involvement in the patent application. I am satisfied that all the action he took in relation to the application (eg., preparing drawings, signing documents, etc.) was taken at the direction of Mr Benfield. Mr Rogers signed a Deed of Assignment dated 15 April 1994 wherein it is said that he had an agreement with Mr Steven Benfield and that he was engaged under a contract of employment to develop improvements in air diffusers. In fact, Mr Rogers had little contact with Mr Steven Benfield and he certainly never entered into an agreement with him. Nor was Mr Rogers in anyone's employment at the time he conceived the relevant idea. I am satisfied that at the direction of Mr Benfield, Mr Rogers was prepared to sign documents which were not wholly accurate.

99 In October 1992, Mr Rogers completed technical design drawings for the China outlet of various sizes (i.e. 200mm, 250mm, 300mm, 350mm, 400mm and 450mm). Some time not long after this, by using plastic pieces Mr Rogers was able to construct by hand a model of the unit.

100 Mr Rogers carried out various tasks for Mr Benfield probably in late 1992 in relation to what he referred to as the "China Project" with a view to the promotion and sale of the various airconditioning products in China including investigating tooling and sales opportunities for China and the preparation of promotional material targeted at companies operating in China.

101 The plaintiff tendered a letter dated 5 January 1993 from Heatshield under the hand of Mr Benfield to a Mr Z Xingen who is described as a senior engineer of a business in China. In the letter, Mr Benfield raises the possibility of a joint venture or investment arrangement in relation to (among other things) airconditioning "grilles". The plaintiff sought to place considerable weight on this letter. It argued that the letter showed that Mr Benfield was negotiating about engaging in activities which would infringe clause 9. Mr Rogers might refer to the China outlet and the China Project, but in reality Mr Benfield was looking to engage in activities which would constitute a breach of clause 9. I do not think it is necessary for me to consider what Mr Benfield's intention was at any particular point in time. For the purposes of determining if there has been a breach of the clause, it is Mr Benfield's conduct not his state of mind which must be considered.

102 In late 1993 or early 1994, Mr Benfield told Mr Rogers that he was considering a transaction which involved the transfer of the Heatshield Patent to Rib Loc Group Limited. Mr Benfield instructed Mr Rogers to arrange for the production of prototype tools for one size of the China outlet. In January 1994, Mr Rogers requested quotes from various toolmakers for the prototype tools for a 350mm size China outlet.

103 Mr Barry Denney provided a quote for the production of tools for the China outlet which was considerably less than the other quotes received by Mr Rogers. The quote was accepted by Mr Rogers and Mr Denney was given the job of producing a set of tools for the 350mm size China outlet. Heatshield paid Mr Rogers the sum of $20,000 on 18 January 1994 so that he could make an initial payment to Mr Denney. The technical drawings for a 350mm size China outlet were updated and on about 11 February 1994 they were provided to Mr Denney.

104 Mr Denney produced tools sufficient to produce prototypes of the 350mm size China outlet by about the middle of 1994. The tools produced were not to production standard in various ways which it is unnecessary for me to detail. Mr Rogers gave to Mr Benfield the moulded parts produced by the tools.

2. THE SALE IN 1994 OF THE SHARES IN HEATSHIELD TO RIB LOC GROUP LIMITED

105 Mr Benfield and his brother, Mr Peter Benfield, were the directors of Heatshield from 15 November 1985 to 24 May 1994. They were also the sole shareholders in the company.

106 On 6 May 1994 they sold their shares in Heatshield to Rib Loc Group Limited. The Sale Agreement was subject to a number of conditions precedent including a condition that each vendor enter into a consultancy agreement with Rib Loc Australia Pty Limited, and a condition that Mr Benfield's son, Mr Steven Bruce Benfield execute in favour of Heatshield Pty Limited a Deed of Assignment of Patent in relation to Patent No. 48652/93 upon certain terms and conditions. As part of the same transaction, Mr Benfield and Mr Peter Benfield entered into a Put Option Agreement with Heatshield dated 24 May 1994. Under the terms of the put option, Heatshield was given the option to sell to Mr Benfield and Mr Peter Benfield the Patent No. 48652/93 (in fact, a complete patent application) and ancillary property which was defined as follows:

"... any dies owned by the vendor [Heatshield] on the date of exercise of the option for manufacture of goods the subject of the patent"

107 The option period commenced six months after 24 May 1994 and expired on 24 May 1996. The purchase price of the assets was said to be $450,000.

108 There is another document to which I should refer. It is dated 18 March 1994 and it is signed by Mr Roy Senini (on behalf of Rib Loc Group Ltd) and Mr Benfield recording an agreement by Rib Loc Group Ltd to purchase tooling for a price of $64,000 maximum.

109 By Deed of Assignment dated 15 April 1994 Mr Steven Bruce Benfield assigned to Heatshield all his right, title and interest in and to the Patent Application No 48652/93. I have already referred to this Deed of Assignment when discussing Mr Rogers' role in its execution.

110 Mr Benfield and Mr Peter Benfield each entered into a consultancy agreement as required by the Sale Agreement. The consultancy agreements were in similar terms. They were each dated 24 May 1994 and were between the consultant and Rib Loc Group Ltd. Each consultant was required to serve the company for a period of one year. There was a specific provision in each agreement providing that the consultant was not obliged or authorised to do anything contrary to the covenants in the Deed with the plaintiff.

111 The put option was exercised by Heatshield (which had by then changed its name to Heatshield Premium Products Pty Ltd) by letter dated 2 December 1994 and by Deed of Assignment dated 9 December 1994 the invention the subject of Patent Application Number 48652/93 and any Letters Patent granted thereon was assigned by Heatshield to Willochra Investments Pty Limited. The latter company is a company owned and controlled by Mr Benfield and Mr Peter Benfield. By letter dated 9 December 1994 Rib Loc Group Ltd acknowledged that Mr Benfield and Mr Peter Benfield were free to manufacture and supply goods the subject of the patent application.

112 On 23 May 1995, Rib Loc Group Ltd wrote to Mr Benfield and Mr Peter Benfield advising them that it did not wish to extend the consultancy agreements. Accordingly, the consultancy agreements came to an end on 24 May 1995.

113 In relation to the transaction involving Mr Benfield and Rib Loc Group Ltd, Mr Roy Senini was called as a witness by the plaintiff. Mr Senini was an honest witness and I accept his evidence.

114 Mr Roy Senini was a director of Rib Loc Group Pty Limited from January 1994 to September 1994. He became the managing director of the company during that period.

115 Mr Senini gave evidence about the transaction in early 1994 between Rib Loc Group Ltd and Mr Benfield and Peter Benfield. His evidence did not add a great deal to what can be gleaned from the documents and I can deal with it briefly.

116 Mr Senini said, and I accept, that he had no dealings with Mr Steven Benfield during the course of negotiations. His dealings were with Mr Bruce Benfield. He said that physical possession of the dies the subject of the put option agreement remained with Mr Benfield and Mr Peter Benfield. He said that to the best of his recollection during their time as consultants (at least until September 1994) Mr Benfield and Mr Peter Benfield did no work on the outlet director which was the subject of the Patent Application Number 48652/93. The products of competitors, including the plaintiff's outlet directors, were from time to time discussed at meetings at which Mr Benfield was present. Mr Senini said the plaintiff's outlet director (designed in accordance with RD2) was much admired in the market.

117 After Mr Denney had manufactured the tools for the 350mm size China outlet, Mr Benfield continued to see Mr Rogers from time to time. However, it was not until late 1995 that Mr Benfield asked Mr Rogers to obtain a quote for a full set of tools (ie all sizes) for the China outlet. Mr Rogers asked Mr Denney for a quote and in December 1995, Mr Denney gave to Mr Rogers a quote of $1.2 million. Mr Rogers advised Mr Benfield of the quote which he had received.

118 Mr Rogers said that thereafter he did not receive any instructions from Mr Benfield for some considerable time although Mr Benfield continued to visit his premises from time to time.

4. EVENTS IN 1996 - KEMALEX, MR COLEBATCH AND MR BENFIELD

119 In early March 1996, Mr Colebatch asked Mr Rogers if he would be interested in designing a new airconditioning outlet for Kemalex. Mr Rogers referred to this outlet director as the "Kemalex outlet" and, again for convenience, I will use this description. It is clear that the outlet director discussed at this early stage was the outlet director which ultimately became KA1. Kemalex had previously carried out work on instructions from Mr Rogers in relation to the Silentaire duct adaptor, and in 1994 Kemalex had also been involved in the tooling trials on the models for the China outlet.

120 In response to the enquiry from Mr Colebatch, Mr Rogers told Mr Colebatch that before accepting instructions he would need to speak to an old client. Mr Rogers said that he did not tell Mr Colebatch that the client he wanted to speak to was Mr Benfield. I found Mr Rogers' explanation in cross-examination as to why he would not tell Mr Colebatch that the old client was Mr Benfield but he did tell Mr Benfield that the new client was Mr Colebatch (or Kemalex) unconvincing and I reject it. I find that Mr Rogers did reveal Mr Benfield's identity to Mr Colebatch.

121 Mr Rogers contacted Mr Benfield. Mr Benfield told Mr Rogers he had no objection to Mr Rogers working for Kemalex on the development of an outlet director. In fact, he said that he had no objection to Mr Rogers providing the tools manufactured by Mr Denney to Kemalex providing the Heatshield Patent was not infringed.

122 Mr Colebatch and Mr Rogers thereafter met and discussed the design of the proposed outlet director to be produced by Kemalex. Mr Rogers told Mr Colebatch about the design for the China outlet and asked him whether this was the outlet director Kemalex wished to produce. However, Mr Colebatch had certain specific requirements for the design of the proposed outlet director. Those requirements were:

1. The incorporation of a cruciform or cross into the design to support the blade packs.

2. The modification of the blades so that they were of even thickness.

3. A change to the position of the pivot point of the blades in order that the blades protruded below the ceiling. The China outlet design was more flush with the ceiling.

4. The addition of a second link bar to connect the blades.

123 Mr Rogers advised Mr Colebatch against a requirement that the blades be of even thickness. In his written statement, Mr Colebatch said that he thought this was a good idea because otherwise the plastic at the thicker end tends to sag when cooled during the injection moulding process. Mr Rogers advised Mr Colebatch against a requirement that the blades protrude into the room more than they did in the China outlet. He did not think there was any need for it, but Mr Colebatch was insistent that it be done and that it be done by bringing the main spigot of the blade closer to the leading edge of the blade. Mr Colebatch makes no reference to this in his written statement, but I find that he did make this request of Mr Rogers. Finally, in relation to the two control bars Mr Rogers told Mr Colebatch that that was unnecessary but again Mr Colebatch was insistent. In his written statement, Mr Colebatch said that he thought the market required two control bars. No explanation as to why he thought that was put before me.

124 By 10 April 1996, a design concept had been agreed and Kemalex gave Mr Rogers a purchase order to commence work on technical drawings.

125 The tools manufactured for the size 350 mm China outlet were provided to Kemalex without cost in about mid-April 1996.

126 The technical drawings for the new outlet director were completed by about 15 April 1996.

127 In preparing the technical drawings, Mr Rogers used the computer drawings which had been produced in relation to the China outlet and adapted them to incorporate the requirements for the proposed outlet. Mr Rogers said that in designing the proposed outlet and in particular the "snap lock" fittings on the frame he referred to a publication by a plastics producer, Bayer Engineering Plastics ("Practical Information: Snap Joints in Plastics" page 3). There was also a need to re-design the link bar. Mr Rogers provided a quotation dated 18 April 1996 for the production of the tools for the outlet to Kemalex.

128 Some changes to the drawings were required, and final drawings were completed and provided to Kemalex by 29 May 1996. Mr Rogers said that during the time the technical drawings were being prepared Mr Benfield visited his premises and asked him how the proposed outlet was proceeding and how it differed from the China outlet. Mr Rogers showed Mr Benfield a handwritten sketch of the proposed outlet, and then later, in about mid-June 1996 and after obtaining an authority from Kemalex, he showed Mr Benfield an illustration of a type used in a patent or design application. Mr Rogers was unable to explain why Mr Benfield needed such an illustration to see the difference between the Heatshield Patent and the Kemalex outlet when he had previously been given the handwritten sketch for that very purpose.

129 In mid-August 1996 Mr Colebatch instructed Mr Rogers to produce such drawings of the Kemalex outlet as would enable a patent application to be made. Mr Rogers carried out that task by reference to the illustration Mr Rogers had provided to Mr Benfield in June 1996. Mr Rogers is described as the inventor in the patent application which was subsequently made.

130 Mr Rogers said that he was contacted by a representative of Kemalex from time to time about modifications to the tools which were being manufactured. In mid-September 1996 he was told that a modification that was to be made had emanated from Mr Benfield. This was, he said, the first time he became aware that Mr Benfield was involved in the development of the Kemalex outlet.

131 I pause at this point to say something further about the evidence of Mr Rogers. He was not a particularly satisfactory witness. At times in cross-examination he was very guarded, and at other times he was evasive. I have already mentioned some unsatisfactory features of his conduct and evidence. For reasons I will give, I find that by no later than April 1996 there was an arrangement or understanding between Mr Colebatch and Mr Benfield that a business involving the commercial production of an outlet director would be established. It is not possible on the evidence to be more precise as to when the arrangement or understanding was reached and the terms of that arrangement or understanding at the initial stage. I do not accept Mr Rogers' evidence that it was not until September that he became aware of Mr Benfield's involvement in the production of the Kemalex outlet. He was challenged on this topic, and he was shown a letter dated 5 June 1996 from himself to Mr Daniels of Kemalex wherein he said:

"I have been requested by the Benfields to produce patent/design registration drawings."

132 His explanation in cross-examination that this was a "slip" was unconvincing. He tried to explain the statement as merely a mistake in mentioning Mr Benfield's name to Kemalex and not an indication that he was aware that Mr Benfield was involved in the project. That is a possible explanation if the statement was the only piece of evidence. However, I find on the whole of the evidence that it is most unlikely that Mr Rogers did not become aware of Mr Benfield's involvement until September 1996 and I reject his evidence to this effect.

133 Mr Benfield's interest in the design of the Kemalex outlet is consistent with an arrangement or understanding at a fairly early stage. It seems to me almost inconceivable that Mr Rogers would not have been aware of Mr Benfield's involvement in the project, or at least in the early stages (April, May) have strongly suspected it. His account of telling Mr Benfield of the name of the new client but not telling the new client of the name of the old client, of Mr Benfield showing a continuing interest in the Kemalex outlet and he (Mr Rogers) providing two drawings to Mr Benfield, and his responses in cross-examination when confronted with the letter dated 5 June 1996 against the background of my finding that there was by no later than April 1996 an arrangement or understanding between Mr Colebatch and Mr Benfield makes Mr Rogers' evidence that he was not aware of Mr Benfield's involvement until September 1996 so improbable that I reject it. I think he was aware from a fairly early stage of Mr Benfield's involvement, although he may not have known the precise details of the arrangement or understanding.

5. CONTACT WITH POTENTIAL CUSTOMERS BEFORE 8 SEPTEMBER 1996

134 Mr Alwyn Healy was called as a witness by the plaintiff. Mr Healy was an honest witness and I accept his evidence.

135 Mr Healy has been involved in the airconditioning industry for many years. Until February 2002 he operated through a company he controlled, Healy Airconditioning Pty Limited ("Healy Airconditioning"). That company sold by wholesale in Western Australia, airconditioning outlets including flexible ducting, grilles or outlet directors, sheet metal and airconditioning systems. He is familiar with outlet directors particularly multi-directional outlets or MDOs as they were referred to in the course of his evidence. At various times, he had, through his company, distributed multi-directional outlets produced by the plaintiff, Jadon Investments/Heatshield and another company called Westaflex. Mr Healy said that he had known Mr Benfield for approximately twenty years.

136 In 1996 Healy Airconditioning was a large purchaser of airconditioning grilles and adaptors. In that year, Mr Healy corresponded with and then met with Mr Colebatch and they discussed the possibility of Healy Airconditioning purchasing outlet directors. He did not know Mr Colebatch prior to that time.

137 The first written exchanges occurred on 26 April 1996 when Mr Colebatch received two letters from Mr Healy and he sent a letter to Mr Healy under the letterhead of Kemalex. The opening paragraph of Mr Colebatch's letter to Mr Healy reads:

"I understand you are going to visit with us shortly and overview our new airconditioning component."

138 Mr Healy could not remember how it was he came to have contact with Mr Colebatch. He said he may have been contacted by Mr Colebatch earlier in April, or perhaps in March. I think that is the most likely explanation and I find accordingly.

139 The plaintiff asked me to draw two inferences in relation to Mr Colebatch's letter of 26 April 1996 and Mr Healy's evidence. First, I was asked to infer that it was Mr Benfield who suggested to Mr Colebatch that he contact Mr Healy. I am prepared to draw that inference because I think it is likely having regard to the fact that Mr Benfield had known Mr Healy for many years and Mr Colebatch did not know him. I note Mr Colebatch's own admission (as contained in a paragraph in his written statement tendered by the plaintiff) that he met with Mr Benfield in May 1996. I can more confidently draw the inference that in April 1996 it was Mr Benfield who suggested to Mr Colebatch that he contact Mr Healy bearing in mind that neither Mr Benfield nor Mr Colebatch gave evidence. I think that by that time Mr Colebatch and Mr Benfield had reached an arrangement or understanding about the commercial production of an outlet director. Secondly, the plaintiff asked me to infer that a copy of Mr Colebatch's letter was sent to Mr Benfield on the same day. The plaintiff referred to the fact that the facsimile transmission details indicate that the letter had been sent to someone at 3:36 pm on 26 April 1996, and the fact that the letter was discovered by Mr Benfield and not by the Colebatch defendants. I am not prepared to draw that inference even taking into account the absence from the witness box of Mr Benfield and Mr Colebatch. I do not think the evidence provides a sufficient basis to do so.

140 On 30 April 1996 a meeting took place between Mr Healy and Mr Colebatch. They discussed various types of multi-directional outlets, and Mr Colebatch showed Mr Healy samples of a frame, an adaptor, a T-piece and the four blade packs which sit in the frame. Mr Healy said that he was impressed by what he was shown. Mr Colebatch showed him through the factory at the premises of Kemalex. Thereafter, there was further correspondence between Mr Colebatch and Mr Healy. I do not think it is necessary to go through the details of this correspondence. It is sufficient to say that Mr Colebatch was attempting to persuade Mr Healy to purchase the outlet directors, and Mr Healy was raising various queries concerning price, and the ability of Mr Colebatch to supply large quantities of the outlet directors. It would seem that in the early stages of his contact with Mr Colebatch, Mr Healy considered that he was dealing with Kemalex.

141 On 12 September 1996, K-Aire wrote to Mr Healy inviting him to consider the purchase of what is described in the letter as "our new innovative air outlet". A sample of the air outlet was enclosed. Mr Healy identified a blade pack of KA1 (Exhibit P3) as the same or similar to the sample he was sent. The letter goes on to say that the outlet directors would be available for delivery on 1 October 1996. Mr Benfield is the author of the letter. Mr Healy said that he had not had any correspondence or contact with Mr Benfield about the particular proposition raised by Mr Colebatch in April 1996 prior to that time.

142 On 8 October 1996 or thereabouts, K-Aire sold some diffuser assemblies to Healy Airconditioning. There were further supplies in the months which followed.

143 Mr Michael Scolyer was called as a witness by the plaintiff. Mr Scolyer was an honest witness and I accept his evidence. In 1993 Mr Scolyer commenced employment with a company called Rite-Price Heating and Cooling (South) and he stayed with that company until 1997. The business of that company involved the sale and installation of airconditioning units into homes. During his employment by Rite-Price he had a handful of conversations with Mr Benfield. He discussed with Mr Benfield what was happening generally in the airconditioning industry.

144 During one such conversation with Mr Benfield and Mr Peter Benfield they showed Mr Scolyer what he described as "a grille almost in prototype form". The grille was made of plastic and it had moveable blade packs which had moveable blades. The neck adaptor was made of plastic. Mr Benfield told Mr Scolyer that the grille was one they were producing for sale in the market place. Mr Benfield said that the grille was to be produced and sold to wholesalers who would then supply it to the industry. In his evidence in chief, Mr Scolyer said that this conversation with Mr Benfield had taken place in "July/August or even possibly September, but I believe July/August 1996".

145 In cross-examination, Mr Scolyer was tested about the date upon which this conversation took place. He said that he was certain that it was before the airconditioning season starts and that the season generally starts in September.

146 I find that a conversation took place in the terms indicated by Mr Scolyer. Mr Benfield was keen to generate business and to this end he showed Mr Scolyer a prototype outlet, namely, one that to Mr Scolyer's eyes did not look totally finished.

147 It is difficult to make a finding about the precise date of the conversation. It could have been in either July, or August or September 1996. Even taking into account Mr Benfield's absence from the witness box, I do not think the evidence is sufficiently precise to enable me to make a finding on the balance of probabilities that the conversation took place before 8 September 1996.

6. THE INCORPORATION OF K-AIRE AND EVENTS THEREAFTER

148 K-Aire was incorporated in the State of South Australia on 12 July 1996. It was incorporated under the name of Air Direct Products Pty Ltd, and on 25 October 1996 it changed its name to K-Aire Pty Ltd.

149 Mr Colebatch was the subscriber to the Memorandum of Association, and, on incorporation, four one dollar shares were allotted to him.

150 On 12 July 1996, Benfield Investments Pty Limited (as trustee of the Marlene Benfield Family Trust), MDM Investments Pty Ltd (as trustee of the Luciana Benfield Family Trust), Ino Duct Pty Ltd (as trustee of the Reich Family Trust) and Redgum Pty Ltd (as trustee of the Direct Air Discretionary Trust) entered into a partnership to conduct a business of manufacturing certain airconditioning vents for sale. Recital A of the partnership agreement states:

"A The parties (Partners) conduct a business of manufacturing certain airconditioning vents for sale."

151 Clause 2 of the agreement provides that the partnership will commence on 12 July 1996. Clause 4 provides that each of the partners will contribute and own a twenty-five per cent interest in the capital of the partnership. The banker of the partnership is to be Bank SA. Clause 13 contains obligations on the partners to diligently devote themselves to the partnership business.

152 Benfield Investments Pty Ltd is a company owned and controlled by Mr Benfield or members of his family, and Mr Benfield's brother, Mr Peter Benfield. MDM Investments Pty Ltd is a company controlled by Mr Benfield and Mr Peter Benfield and owned by Mr Peter Benfield or interests associated with him. Ino Duct Pty Ltd is a company owned and controlled by Mr Heinrich Reich or interests associated with him. Redgum Pty Ltd is a company owned and controlled by Mr Colebatch or interests associated with him.

153 On 12 July 1996 Mr Colebatch executed a Declaration of Trust to the effect that he held one of the shares in K-Aire on trust for Mr Peter Benfield. On 12 July 1996 the partners and K-Aire executed an agreement whereby the partners appointed K-Aire to manage the partnership business.

154 Mr Colebatch sought finance from Bank SA to purchase various dies and equipment used in the manufacture of plastic airconditioning components. An offer of finance was made by the Bank on 15 May 1996. It is addressed to the directors of Kemalex. The Bank said it required various forms of security including a mortgage from an interested third party and a guarantee and indemnity from Mr Colebatch and the interested third party. A replacement offer was made by the Bank by letter dated 12 July 1996 addressed to "Messrs R Colebatch, H Reich, B Benfield and P J Benfield". The purpose of the facility was stated by the Bank to be:

"To purchase various dies and equipment used in the manufacture of plastic air-conditioning components via a LIE [Lease in Escrow Agreement] and subsequently converted to a CHP [Commercial Hire Purchase Agreement]."

155 It is unnecessary to go into the precise details of the financing arrangements. As is to be expected, those arrangements involved the taking of security, including the taking of security from Mr Benfield and interests associated with him. Benfield Investments executed a guarantee and indemnity on 2 September 1996. The partners, including Mr Benfield, signed a guarantee and indemnity on the same date.

156 In July and August 1996 the manufacture of tools for an outlet director was being carried out by various parties including Kemalex and the invoices for that work were being sent to Bank SA.

157 On 2 August 1996, Kemalex submitted a written quote for the manufacture of tooling and moulded assemblies to K-Aire care of Kemalex's premises at 7 Poole Street, St Marys. By no later than 7 August 1996 Kemalex had devoted one of the telephone lines at its premises at St Marys to the activities of K-Aire.

158 A note which appears to have been generated from within Kemalex and is dated 7 August 1996 reads:

"Leigh/Tania Barrie

Line 5 phone number is now for Air Direct Products Pty Ltd. It's phone number is 8277 9599.

Richard is the only Director of this company. Should anyone ask no one else is connected to this venture.

Thanks

Leanne

Dist to RD, NS, TJ, WO'C

Note Gentlemen,

Peter and Bruce Benfield and Henry have no connection.

Richard"

159 I infer that Leanne wrote what she did on instructions from Mr Colebatch, and that "Richard" is Mr Richard Colebatch.

160 In August 1996, Mr Benfield was involved in providing instructions to patent attorneys, Madderns, to conduct searches for patent and design applications/approvals in the name of the plaintiff. I am prepared to draw this inference having regard to the note, "as instructed by Bruce", and bearing in mind that Mr Colebatch, Mr Benfield and Mr Catt (of Madderns, previously R K Maddern and Co) were not called to give evidence.

161 K-Aire ordered business cards for the business and these were received by K-Aire on 6 September 1996. K-Aire had also organised coloured letterhead for its correspondence some time prior to 12 September 1996.

162 In September and October 1996 Mr Benfield instructed Mr Rogers to produce a design and concept brochure for China for the Kemalex outlet. He was also instructed to prepare promotional material for the Australian market.

163 Mr Kevin Burton was called as a witness by the plaintiff. He was an honest witness and I accept his evidence. In 1996 and 1997, Mr Burton was employed by Insulco Pty Ltd. He was employed in the Air Handling Division of that company at the head office of the company in Sydney. Insulco Pty Ltd sold ducting and from time to time needed to purchase multi-directional outlets (outlet directors).

164 Mr Burton spoke to Mr Benfield by telephone on 23 September 1996. Mr Benfield said he was introducing a new outlet director onto the market and that he was ready to proceed with production. Mr Benfield said that he was looking for a distributor in each State.

165 Mr Burton went to Melbourne on 15 October 1996. He went to the premises of a company called Ausmalt Products. He was shown a new outlet director. Mr Burton came to Adelaide on 16 October 1996 and went to the premises of Air Diffusion Agencies Pty Ltd. A new outlet director about to come onto the market was discussed. On 17 October 1996, Mr Burton met Mr Benfield who asked him to sign a non disclosure agreement. Mr Benfield showed Mr Burton a prototype of the new outlet director. Mr Benfield mentioned Kemalex Plastics. He said the new outlet director did not infringe any company's registered design. Mr Benfield nominated companies which would be distributors. Mr Benfield said that design and tooling had been prepared and production was ready to proceed.

166 There was a delay in Mr Benfield providing the new outlet director. In about October 1996 only two sizes were available. Insulco Pty Ltd placed an order for samples (10-20) on 26 November 1996. It was not until mid January 1997 that Insulco Pty Ltd received its first order of substantial quantities of outlet directors. Mr Benfield told Mr Burton the delay was due to the fact that the injection pins in the injection moulding system kept snapping.

167 In November 1996, Mr Rogers was involved in the modifications made to KA1. The modifications made to KA1 led to the production of KA2.

8. OTHER EVIDENCE RELEVANT TO THE QUESTION OF BREACH

168 Mr Brian Wildman was called as a witness by the plaintiff. He was an honest witness and I accept his evidence.

169 The plaintiff's purpose in adducing evidence from Mr Wildman was to lay a basis upon which to ask the Court to infer that a significant amount of work towards the manufacturing and production of KA1 must have been carried out before 8 September 1996.

170 Mr Wildman is the sole director and manager of Northern Tooling Pty Ltd. He has extensive experience as a toolmaker. He expressed various opinions as to how long it would take to proceed from the design stage for an outlet director to the manufacturing of tools to the large-scale production of the final product. I do not propose to set out all of the estimates which he gave. His estimates depend upon a variety of matters including whether the client requests changes to the drawings during the course of the work, the size of the workforce manufacturing the tools and other matters he mentioned in evidence.

171 Mr Wildman expressed the view that to design and manufacture a blade and link, frame, cross and register and duct adapter for four sizes concurrently the time required would be in the order of twenty weeks. His views were based on the assumption that his company performed the work. His company is one of the largest manufacturer of tools in South Australia. If a smaller organisation was to perform the work it would take considerably longer. It may take as long as a year or more. Mr Wildman explained that it is necessary to provide for a water cooling system in the tools and he agreed that until that was done the tools were nowhere near ready for production.

172 Before I leave this outline of events between 1992 and 1996 I should make reference to two other witnesses called by the plaintiff, Mr Barry Denney and Mr Sharwan Somers. Their evidence became less important once Mr Rogers had given evidence.

173 Mr Denney was rather defensive at times. I thought that on occasions he was inclined to fence with the cross-examiner. Furthermore, counsel for Mr Benfield exposed some features of his evidence which are difficult to accept such as his explanation in relation to exhibit P18 and some of his evidence about when events occurred, for example, the commissioning of the duct adaptor tool in 1992. However, I accept the substance of his evidence. It is largely confirmed by the contemporaneous documents.

174 Mr Denney is a toolmaker. In 1994 he carried on business through a company, Wenbar Nominees Pty Ltd as trustee for the B J Denney Tooling Services Trust. The business traded under the name, B J Denney Tooling Services.

175 In 1992, Mr Denney was employed by a business called Die-Mould. He did some commissioning work on a duct adaptor tool for an airconditioning outlet. The work was done in accordance with drawings prepared by ARID.

176 It is unclear when Mr Denney left Die-Mould and started working at a business called SA Tool. It was probably sometime between late 1992 and mid 1993.

177 In early 1994 Mr Denney carried out work producing a tool for a new airconditioning outlet on instructions from Mr Rogers. He engaged subcontractors to perform some of the work. Other than an initial sum of $13,000 paid to SA Tool, the rest of the payments for the work Mr Denney performed in 1994 were made by Mr Rogers to Mr Denney. Mr Denney carried out the work between February and November 1994. In late 1994 Mr Denney saw one of the plaintiff's outlet directors in the premises of Mr Rogers.

178 By late 1994, Mr Denney was carrying out his tool-making business from the premises of Mr Rogers. He met Mr Benfield at the end of 1994. By that time, Mr Denney had produced a blade tool, a frame tool, a duct adaptor and a link tool. These tools all related to a 350 mm outlet. Try-outs for the duct adaptor took place just prior to Christmas 1994.

179 Mr Rogers told Mr Denney that Mr Benfield was trying to sell the tools to Rib Loc. Mr Denney charged Mr Rogers about $52,000 for the work he did in 1994. Mr Denney agreed that the tool he produced in 1994 did not have waterways and in that sense it was not ready to be used for the full scale production of the product.

180 In 1996 Mr Rogers asked Mr Denney to provide a quote to produce tools for a series of different sized outlets based on the design drawings prepared in 1994. Mr Denney provided a quote dated 16 February 1996. Mr Denney told Mr Russell Daniels of Kemalex of the quote he had given Mr Rogers. The quote was for $1.2 million and Mr Denney admitted that he was bragging to Mr Daniels when he told him of the quote.

181 At some stage after quote had been given, Mr Denney saw Mr Benfield and Mr Peter Benfield come to the premises of Mr Rogers. He was told by Mr Rogers that Mr Colebatch was also going to attend. The evidence of this "incident" is so imprecise that I do not think I can make anything of it.

182 Mr Rogers told Mr Denney that the work would be allocated to a number of tool manufacturers as it had to be done quickly so that the airconditioning outlet could be produced for the summer 1996 season. Mr Denney was one of the manufacturers and he received orders from Kemalex in May 1996, June 1996 and October 1996. Mr Denney did some modification work on the tool he had manufactured in 1994 and he worked on the link bar of the proposed outlet director. In late July 1996, Mr Colebatch asked Mr Denney to direct further invoices to Bank SA. Ultimately, the completion of the work was delayed because of a problem with shrinkage rates. This led to a dispute between Mr Denney and Mr Rogers.

183 Mr Sharwan Mohanlal Somers was called as a witness by the plaintiff. Mr Somers was an honest witness and I accept his evidence. Mr Somers commenced employment with Mr Rogers as an industrial designer in the middle of 1993.

184 Mr Somers identified various design drawings that he worked on in 1994 in relation to an airconditioning outlet director including a register and duct adaptor, link bars, frames and blades. The design drawings were given to Mr Denney. Mr Denney manufactured certain tools and samples of ducts, frames, blades and links were produced.

185 Mr Somers had some involvement in design drawings for an airconditioning duct, frame, blade frame, blades, link bar and cross piece prepared in early 1996 but most of the work was done by another designer, a Mr Woitek Nowokowski. Mr Somers said the design drawings prepared in 1996 had to be prepared "from scratch".

186 The critical findings of fact in terms of the plaintiff's arguments that Mr Benfield acted in breach of clause 9 are the following:

1. A provisional patent application was lodged on 28 September 1992 in relation to an air diffuser or outlet director. The applicant named is Mr Steven Bruce Benfield. A complete patent application was lodged on 28 September 1993. The provisional application and the complete patent application were made at the direction of Mr Benfield who had control of the alleged invention. He, on his own behalf, or on behalf of Heatshield, held the beneficial interest in the patent application. In my opinion, such a conclusion is amply justified having regard to the evidence of Mr Rogers and the subsequent dealings in the patent application at the time of the sale of the shares in Heatshield to Rib Loc Group Ltd and thereafter.

2. In 1992, 1993 and 1994 Mr Benfield on behalf of Heatshield gave instructions to Mr Rogers to prepare a patent specific illustration and technical design drawings for an airconditioning outlet director. Mr Benfield, on his own behalf or on behalf of Heatshield, arranged for the manufacturing of tools for the production of one size of such outlet director. The tools were manufactured, but they were not completed to production standard.

3. In January 1993, Mr Benfield approached a business in China with a view to exploring the possibility of a joint venture or investment arrangement involving the production and sale of (among other things) outlet directors.

4. In late 1995, Mr Benfield instructed Mr Rogers to obtain quotes on the cost of producing the tools for all sizes of the China outlet. Such quotes were obtained.

5. By no later than April 1996, Mr Benfield and Mr Colebatch reached an arrangement or understanding to establish a business which would involve the manufacturing and sale of a new airconditioning outlet director. The precise date is unclear, but such an arrangement or understanding had been reached before Mr Colebatch's approach to Healy Airconditioning Pty Ltd in April 1996. Precisely when all the details of the proposed business arrangement were settled is unclear but it was before 12 July 1996. A series of steps were taken to establish the business with a view to the sale of the new airconditioning outlet director in the 1996 summer season. The steps taken prior to 8 September 1996 were:

5.1 In March 1996 Mr Colebatch gave instructions to Mr Rogers to prepare design drawings for a new outlet director. Mr Benfield provided the tool manufactured by Mr Denney to the proposed business. The outlet director ultimately produced as a result of these efforts was KA1.

5.2 In April 1996 an approach was made to Healy Airconditioning Pty Ltd as a potential purchaser of the new outlet director. Although the approach was made by Mr Colebatch, I find on the balance of probabilities that it was Mr Benfield who suggested to Mr Colebatch that he approach Mr Healy.

5.3 Some time prior to 15 May 1996 Bank SA was asked to provide finance for the new venture.

5.4 A partnership agreement was entered into on 12 July 1996 and K-Aire was incorporated on the same date. On the same date Bank SA agreed to provide finance for the business to be conducted by K-Aire subject to various forms of security.

5.5 From April onwards, work was carried out in order to produce the tools necessary for the production of the new outlet director. Not long after finance was approved on 12 July 1996 the Bank started to pay the invoices of those manufacturers carrying out the work to produce the tools. For example, Mr Denney was asked to, and did, direct his invoices to Bank SA.

5.6 In August 1996, Mr Benfield was involved in providing instructions to patent attorneys, Madderns (previously R K Maddern and Co) to conduct searches for patent and design applications/approvals in the name (inter alia) of the plaintiff.

5.7 It is relevant to note how soon after 9 September 1996 K-Aire was in a position to supply KA1. Mr Healy said that on 8 October 1996 or thereabouts, K-Aire sold some diffuser assemblies (presumably KA1) to Healy Airconditioning. There were further supplies in the following months although there were delays. It is difficult to be precise as to the date upon which full scale production and supply commenced.

6. Mr Benfield was aware of the provisions of clause 9 of the Deed and Mr Colebatch became aware of the restraint by no later than May 1996. For the purposes of the issues in this case it is sufficient if I find that Mr Colebatch knew of the restraint at least from May 1996. Mr Colebatch took steps to keep Mr Benfield's involvement in the business a secret.

187 It is not contended by the plaintiff that there is evidence of the sale, offer for sale or manufacture of an outlet director of a prohibited kind by a business in which Mr Benfield was relevantly involved before 8 September 1996.

188 Mr Benfield was relevantly involved in the business conducted by Heatshield between 8 September 1992 and May 1994. Heatshield was selling outlet directors during that time. However, the outlet directors were purchased from the plaintiff or Jadon Investments which after the settlement in September 1992 came under the control of the plaintiff. The restraint did not apply to such resales.

189 In the course of his involvement in the business of Heatshield, Mr Benfield caused Heatshield to have technical drawings of an outlet director (ie., the so-called China outlet) to be prepared. He caused Heatshield to have drawings prepared for the purpose of a patent application in relation to an outlet director, and, either on Heatshield's behalf or his own behalf, to have a patent application lodged. He caused a letter to be sent to a business in China inviting discussions about a joint venture or investment arrangement involving (among other things) the manufacture and/or sale of outlet directors. Mr Benfield also caused Heatshield to have manufactured the tools necessary for the production of one size of an outlet director.

190 I do not think any of these acts gave Heatshield's business the character of a business of the sale and/or offer for sale and/or manufacturing of a prohibited outlet director. To my mind, they are preparatory acts which are not caught by the restraint in clause 9.

191 The same conclusion follows insofar as it might be said that any one or more of the above acts was carried on by Mr Benfield on his own behalf.

192 In late 1995 Mr Benfield instructed Mr Rogers to obtain quotes for a full set of tools for the so-called China outlet (ie., all sizes). By that stage Mr Benfield had sold his shares in Heatshield so it must be assumed that he was doing this on his own behalf. This does not involve carrying on or conducting a business, much less a business of the prescribed kind. Again, this is a preparatory act not caught by the restraint in clause 9.

193 In April, Mr Colebatch, on behalf of the business to be established, approached a potential customer of the proposed outlet director, namely Healy Airconditioning about the possible purchase of the new outlet director.

194 On 12 July 1996, K-Aire was incorporated. Before 8 September 1996, the company obtained finance, it instructed Mr Rogers to carry out certain design work, it instructed third parties to carry out the work necessary to produce tools for an outlet director and as part of this conduct the company incurred and paid liabilities. By 7 August it had established a place of business at the premises of Kemalex at 7 Paul Street, St Marys, South Australia. After 8 September 1996 it offered for sale and sold an outlet director (ie., KA1 and then KA2).

195 In my opinion, K-Aire was conducting a business prior to 8 September 1996. It was incurring liabilities and through the finance it had obtained it was paying those liabilities. Mr Benfield was involved in the business of K-Aire in the relevant sense. However, I do not think K-Aire's business was a business of the character identified in clause 9 until it commenced the sale, offer for sale or manufacturing of KA1. That did not occur until after 8 September 1996.

196 The same reasoning precludes a finding of breach in relation to any conduct by Mr Benfield prior to the incorporation of K-Aire. Either there was no business prior to that time or it was not of the character identified in clause 9.

197 For these reasons, I find that Mr Benfield did not act in breach of clause 9 of the Deed. In light of my conclusion that Mr Benfield did not act in breach of clause 9, it is strictly unnecessary for me to consider the following issues:

1. The claim against K-Aire, Kemalex and Mr Colebatch for procuring or inducing Mr Benfield to act in breach of clause 9.

2. Mr Benfield's submission that if he did act in breach of clause 9 the plaintiff has elected to pursue him for the infringement of its monopoly in RD1. In other words, it has elected not to pursue him for the so-called head start damages.

3. Mr Benfield's submission that any action against him in relation to the infringement of the plaintiff's monopoly RD1 is barred by the Limitation of Actions Act 1936.

4. Mr Benfield's submission that RD1 was not new or original and should not have been registered.

5. The question of whether the Silentaire grille infringed the plaintiff's monopoly in RD1.

However, in case there is an appeal I will now consider those issues.

The Claim against K-Aire, Kemalex and Mr Colebatch For Procuring or Inducing a Breach of Clause 9 by Mr Benfield

198 My consideration of this issue must proceed on the assumption (contrary to my finding) that at least some of the conduct by Mr Benfield between a date no later than April 1996 and 8 September 1996 constituted a breach of clause 9 of the Deed.

199 The tort of procuring or inducing another to breach a contract has three elements. First, the defendant to such a claim must have performed acts which constitute the procuring or inducing of a breach of contract. Secondly, the defendant must have had the intention to procure or induce a breach of contract. Thirdly, the defendant's conduct must have caused damage.

200 As to the first element, K-Aire, Kemalex and Mr Colebatch submitted that Mr Benfield's involvement in the partnership and K-Aire was entirely voluntary and could not be said to be "fairly attributable to any pressure, persuasion or procuration" on the part of Mr Colebatch, K-Aire or Kemalex. In support of the proposition that the plaintiff must show pressure, persuasion or procuration, the defendants referred to D C Thomson and Co Ltd v Deakin [1952] 1 Ch 646. However, I think that case is authority for the proposition that it is sufficient if the defendants had relevant dealings with Mr Benfield. In that regard, Jenkins LJ said (at 694):

"... There seems to be no doubt that if a third party, with knowledge of a contract between the contract breaker and another has dealings with the contract breaker which the third party knows to be inconsistent with the contract, he has committed an actionable interference."

201 Clearly, between a date no later than April 1996 and 8 September 1996, Mr Colebatch and Kemalex, and between 12 July 1996 and 8 September 1996, Mr Colebatch, Kemalex and K-Aire, had dealings in a relevant sense with Mr Benfield. The evidence is not clear as to whether Mr Colebatch approached Mr Benfield or Mr Benfield approached Mr Colebatch. The plaintiff asked me to find that Mr Colebatch approached Mr Benfield. That is what Mr Colebatch's written statement (tendered by the plaintiff) suggests. I make a finding in these terms. On the assumption that Mr Benfield did act in breach of clause 9 between April and 8 September 1996, the relevant dealing is the agreement or understanding with Mr Benfield, the establishment of the partnership and the incorporation of K‑Aire.

202 I should mention that I think the approach to Mr Healy in April 1996 should be put to one side. Although I have found that an arrangement or understanding was reached between Mr Colebatch and Mr Benfield by no later than April 1996, I have found that Mr Colebatch became aware of the restraint in May 1996 and therefore, the second element of the tort referred to below cannot be satisfied in relation to this conduct.

203 The precise nature of the second element of the tort has been the subject of debate in a number of authorities. In Short v City Bank of Sydney [1912] HCA 54; (1912) 15 CLR 148, Isaacs J said (at 160):

"But to constitute that cause of action, the defendant must have induced or procured the doing of what he knew would be a breach of contract. A bona fide belief reasonably entertained that it was not a breach of contract would be fatal to the claim. If the defendant did not know of the existence of the contract, he could not induce its breach; if he reasonably believed it did not require a certain act to be performed, his inducing a party to the contract to do something inconsistent with it could not be regarded as an inducement or procurement knowingly to break the contract; if he believed on reasonable grounds that the contract had been rescinded or performance waived, when in fact it had not, he could not be said to knowingly procure its breach. If this were not so, no man would be safe in the ordinary transactions of life, because he might find contrary to his knowledge or belief and expectation that some contract or enterprise he entered into was inconsistent with the contractual or other obligation of the party with whom he was agreeing or dealing. No doubt every man must be understood to intend the natural consequences of his acts; but that means having regard to the circumstances with which he is or is assumed to be acquainted. And the terms of an agreement and in its true construction, for it may be very complicated, and the acts of the parties in relation to it are circumstances without knowledge of which reasonably brought home to the mind no man can be said to intend consequences regarding the breach of the agreement."

204 Lindgren J discussed the required intention for the tort in Allstate Life Insurance Co & Ors v Australia and New Zealand Banking Group Ltd and Ors [1995] FCA 1368; (1995) 58 FCR 26. It is unnecessary to set out the facts of the case. The matter came before the Full Court of the Federal Court on an appeal from interlocutory orders whereby the plaintiff was refused leave to amend its pleadings to allege the tort of knowingly procuring or inducing a breach of contract. The appeals were dismissed. Lockhardt and Tamberlin JJ agreed with the reasons for judgment of Lindgren J.

205 Lindgren J considered the relevant authorities and addressed the issue of the relationship between knowledge and intention. He expressed his conclusion in the following terms (at 484):

"In my opinion, the authorities establish conclusively that the gravamen of the tort is intention. Although the requirement of knowledge of the contract is sometimes discussed as if it was a separate ingredient of the tort, it is in fact an aspect of intention. The requirement that the alleged tortfeasor have 'sufficient knowledge of the contract' is a requirement to have sufficient knowledge to ground an intention to interfere with contractual rights.

Both this intention to interfere with contractual rights and the necessary supporting knowledge of the contract refer to the 'actual' or 'subjective' state of mind of the alleged tortfeasor."

206 Lindgren J then discussed the extent to which wilful blindness or reckless indifference might be sufficient to satisfy the requirement of intention. In the circumstances of that case, his Honour did not need to resolve the issue.

207 In Emerald Construction Co Ltd v Lowthian [1966] 1 WLR 691, Diplock LJ said (at 703 - 704):

"There are three essential elements in the tort of unlawful procurement of a breach of contract: the act, the intent and the resulting damage. In a quia timet action such as this, it is sufficient to prove the act and the intent and the likelihood of damage resulting if the act is successful in procuring a breach of contract. The only issue on this part of the case is one of fact as to the defendants' intent. At all relevant times, they knew of the existence of a 'labour' only sub-contract for brickwork between the main contractors and the plaintiffs, but until it was disclosed to them on the interlocutory application to the Judge in chambers for an injunction, they did not know its precise terms. They say in somewhat equivocal language that they assumed that it could be lawfully terminated by the main contractors on short notice and that such lawful termination was all that they insisted on. But ignorance of the precise terms of the contract is not enough to show absence of intent to procure its breach. The element of intent needed to constitute the tort of unlawful procurement of a breach of contract is, in my view, sufficiently established if it be proved that the defendants intended the party procured to bring the contract to an end by breach of it if there were no way of bringing it to an end lawfully. A defendant who acts with such intent runs the risk that if the contract is broken as a result of the party acting in the manner in which he is procured to act by the defendant, the defendant will be liable in damages to the other party to the contract."

208 Lord Diplock held that the requirement that an intention be shown may be satisfied by evidence of reckless indifference. (See also Lord Denning MR in Emerald Construction Co v Lowthian at 700 -701.)

209 I think I should follow this approach. The element of intention is made out not only in cases where a defendant is recklessly indifferent as to the terms of the contract, but also in cases where knowing the terms of the contract, the defendant is recklessly indifferent as to whether the relevant dealings constitute a breach of the contract. On the other hand, it is important to avoid confusing acts of negligence or a lack of reasonable care with acts of reckless indifference. Negligence or a lack of reasonable care is not sufficient to satisfy the requirement of intention.

210 The question whether intention, including reckless indifference, is made out on the facts of this case is finely balanced. It might be inferred from the passages in Mr Colebatch's written statement tendered by the plaintiff that he did not think that Mr Benfield would be in breach of clause 9 in the absence of an offer for sale of an outlet director or the manufacture of an outlet director. Mr Colebatch states that he was being careful not to do anything which would constitute a breach of clause 9. He refers to his note of 7 August 1996 (see paragraph [158]) and says he thought it "prudent that no one outside of Kemalex and its advisers should know of the Benfields' involvement until the restraint expired and manufacturing had commenced". He does not explain why he thought it was prudent to act in this way.

211 The plaintiff points to two particular items of evidence which it submits show (at the very least) that Mr Colebatch was recklessly indifferent as to whether the conduct he procured or induced was in breach of clause 9. The first is Mr Colebatch's note dated 7 August 1996. The plaintiff submits that the most likely explanation for Mr Colebatch seeking to keep Mr Benfield's involvement a secret was that he considered, or at least strongly suspected, that Mr Benfield's involvement would constitute a breach of clause 9. In my opinion, this is the most likely inference and I can more confidently draw it in light of Mr Colebatch's absence from the witness box.

212 The second item of evidence is a letter written by Mr Colebatch's solicitors dated 12 November 1996 in response to a letter of demand from the plaintiff's solicitors. In the letter, Mr Colebatch's solicitors state:

"3. Our clients each deny that they were aware of or did induce a breach of contract on the part of Mr Benfield and therefore deny that they are liable to your client in any way in that regard."

213 The plaintiff submits that Mr Colebatch's false denial that he was aware of the covenant reveals a guilty mind. I do not accept this submission. It seems to me that the statement in the solicitor's letter is ambiguous. It may be saying that the defendants deny that they were aware of the contract, or it may be saying that the defendants deny that they were aware of a breach of contract.

214 The plaintiff also points to the failure of Mr Colebatch to give evidence.

215 Mr Colebatch read clause 9 in May 1996. He would have seen the reference to acts of sale, offering for sale and manufacturing. He may well have thought that in the absence of such acts there was no breach of clause 9. However, he would also have seen the provisions of clause 9(b) and in particular the reference to establishing a place of business. He knew K-Aire was incorporated on 12 July 1996. He was party to the partnership agreement executed on 12 July 1996 which stated that the parties to the agreement including Mr Benfield's company were conducting a business. That business would involve the sale of outlet directors. He knew a telephone line at the premises of Kemalex had been devoted to the business of K‑Aire by 7 August 1996. He knew K-Aire had secured finance and was incurring liabilities. It had engaged toolmakers to prepare the necessary tools for the full scale production of an outlet director. If I am wrong in my interpretation of clause 9 and Mr Benfield's involvement in these activities did constitute a breach of clause 9, then I think Mr Colebatch (and Kemalex and K-Aire) were recklessly indifferent as to whether Mr Benfield was acting in breach of clause 9. There is no evidence that Mr Colebatch sought or obtained legal advice on the proper interpretation of clause 9 and that is a significant fact (Swiss Bank Corp v Lloyds Bank Ltd [1979] Ch 548 per Browne-Wilkinson J at 580).

216 The third element of the tort is resulting damage. The evidence is somewhat sparse but I am prepared to infer that Mr Benfield's conduct gave K‑Aire a "head start" that it would not otherwise have enjoyed had he complied with clause 9, and that the plaintiff suffered some damage as a result.

217 I do not think there was any dispute that the intention and conduct of Mr Colebatch may also be attributed to K-Aire and Kemalex. Mr Colebatch's interest in those companies was such that I think his intention and conduct may also be attributed to them.

218 In conclusion, on the assumption (contrary to my finding) that Mr Benfield acted in breach of clause 9 of the Deed before 8 September 1996, I would uphold the plaintiff's claim against K-Aire, Kemalex and Mr Colebatch for procuring or inducing Mr Benfield to act in breach of clause 9.

219 Again, I am considering this issue on the assumption that my finding that Mr Benfield did not act in breach of clause 9 is incorrect.

"Subject to the strict and literal compliance in all respects with the terms of this Deed by the Covenantor, and in particular without limiting generality, the requirements of Part B and the restraint in Part C, whilst such strict and literal compliance continues the Plaintiff will take no action against

(a) Heatshield to enforce the Judgment or orders referred to in clause 1 or

(b) The Covenantor in respect to the claims the Plaintiff has against it as referred to in Recitals J and K above ("the third party claims")."

221 Clause 9 appears in Part C of the Deed. Recitals J and K assert that certain persons including Mr Benfield are jointly liable to the plaintiff for the infringement of RD1 by Jadon Investments and Heatshield.

"13. Accordingly, it is a strict condition of the most fundamental and essential nature to the compromise arrangement contained in this Deed, and to be literally and strictly enforced, that under no circumstances shall the Covenantor

(a) commit any breach (including a minor breach) of the requirements of Part B and the restraint in Part C or

(b) claim in any proceedings hereafter that the requirements of Part B or the restraint in Part C or either of them is invalid, void and/or unenforceable, whether in whole or in part.

14. Further, if such event should occur, the plaintiff shall then be at full liberty to exercise all rights it has against all the Covenantor and the stay referred to in clause 10 shall no longer apply."

223 The plaintiff submits that it has a right until final judgment to elect between a claim for head start damages against Mr Benfield, K-Aire, Kemalex and Mr Colebatch based on the breach of clause 9 or a claim for head start damages against K-Aire, Kemalex and Mr Colebatch and a claim for damages or an account of profits against Mr Benfield for the infringement of the plaintiff's monopoly in RD1. The plaintiff accepts that it cannot claim both forms of relief.

224 The defendants submit that the plaintiff has already elected to pursue Mr Benfield for damages or an account of profits in relation to the alleged infringement of the plaintiff's monopoly in RD1. The defendants were unable to identify the precise date upon which this election took place. Nevertheless, they submitted that it had taken place and the plaintiff had elected to rely on a contractual entitlement to avoid the contract (United Australia Ltd v Barclays Bank Ltd [1941] AC 1 per Lord Atkin at 29 - 30). The defendants submitted that if their argument was right, the plaintiff could not succeed against Mr Colebatch, Kemalex and K-Aire because having reclaimed its original cause of action against Mr Benfield any recovery against these three parties would amount to double recovery.

225 The Deed between the plaintiff and Mr Benfield constituted an accord and conditional satisfaction (Osborn & Bernotti v McDermott [1998] 3 VR 1 per Phillips JA at 10). A breach of the Deed entitled the plaintiff to affirm the accord and sue for breach, or treat the accord as at an end for want of satisfaction and pursue the original cause of action which was conditionally stayed. The plaintiff cannot pursue both courses of conduct. The former involves accepting the accord and suing for the shortfall in the satisfaction received, while the latter involves the plaintiff reclaiming its consideration as if there had never been an accord. In deciding what option to pursue, the same general principles apply as those which apply in the case of a repudiation of an agreement (Osborn v McDermott per Phillips JA at 10 - 11).

226 It is well established that for there to be an election at common law there must be unequivocal words or conduct evincing an intention to terminate performance of the contract. The issuing of proceedings making alternative claims for specific performance or damages based on termination does not of itself amount to an election (Contract Law in Australia, Carter and Harland 4th ed. para. [1970]). The defendants were unable to point to any unequivocal words or conduct by the plaintiff making an election. In my opinion, no election has yet taken place.

227 In those circumstances I do not need to consider the difficult question of whether, had I accepted the defendants' submission that the plaintiff had elected to pursue Mr Benfield for the infringement of its monopoly in RD1, the plaintiff's claim against Mr Colebatch, Kemalex and K-Aire for procuring or inducing a breach of clause 9 could be pursued.

Mr Benfield's Defence Based on the Limitations of Action Act 1936

228 Mr Benfield submits that there is a six year time limit in relation to the action claiming that he is jointly liable for the infringement of the plaintiff's monopoly in RD1 by virtue of s 35 of the Limitation of Actions Act 1936. The plaintiff did not dispute that a six year time limit applied. I heard no argument as to when the cause of action accrued but the plaintiff proceeded on the basis that the relevant time limit had expired. The plaintiff submits that Mr Benfield is estopped from raising the provisions of the Act.

229 The limitation provision bars the remedy but not the right. It creates a defence to an action which must be pleaded (Robinson v Craven (1994) 63 SASR 267).

230 The plaintiff submits that Mr Benfield is estopped from raising the defence. It relies upon the decision of the High Court in the Commonwealth of Australia v Verwayen (1990) 170 CLR 394 and submits that it is implicit in the terms of the Deed that if Mr Benfield did not comply with the restraint during the four year period then the plaintiff would be at liberty to bring proceedings against Mr Benfield for the infringement of RD1. It submits that in those circumstances, it would be unconscionable to allow Mr Benfield to rely on the time limit in the Limitation of Actions Act.

231 I think the plaintiff's submission is correct. Under clause 10 of the Deed the plaintiff agrees to bring no action against Mr Benfield subject to the strict and literal compliance in all respects with the terms of the Deed by Mr Benfield and while such strict and literal compliance continues. Clause 14 provides that the "stay" is lifted if there is a breach of the relevant provisions of the Deed and the plaintiff is to be at full liberty to exercise all rights that it had at the time the Deed was entered into. The parties to the Deed knew the restraint was for a period of four years. I cannot think that either party intended or contemplated that the plaintiff's rights under the Deed would be affected by the point in time at which a breach of clause 9 of the Deed took place.

232 In my opinion, it would be unconscionable for Mr Benfield to rely on the provisions of s 35 of the Limitation of Actions Act. The plaintiff did not take action against Mr Benfield but rather it entered into a Deed which specifically provides that the plaintiff may take action for the infringement of its monopoly in RD1 should Mr Benfield act in breach of clause 9.

233 I would reject the defence to the plaintiff's claim against Mr Benfield for the infringement of its monopoly in RD1 based on the Limitation of Actions Act 1936.

234 Again, I am considering this issue on the assumption that my finding that Mr Benfield did not act in breach of clause 9 is incorrect.

235 The plaintiff claims that Mr Benfield is jointly liable with Jadon Investments and Heatshield for the infringement of its monopoly in RD1.

236 The Statement of the Nature of the Design in the case of RD1 is as follows:

"A design applied to an airconditioning air outlet director applicable to the shape and configuration as illustrated. The design can be applied in any manner and by any means."

237 Mr Benfield counter-claims for the rectification of the register by the expunging of the entry of the registration of RD1 from the register (s 32 Designs Act 1906 (Cth)). The ground upon which he seeks an order under s 39 of the Designs Act is that RD1 was not a new or original design (s 17 of the Designs Act).

238 I make it clear at this point that I find, subject to questions of validity and infringement, all the other elements necessary to make Mr Benfield liable in relation to the infringement of the plaintiff's monopoly in RD1 are made out. By reference to the statements made his own affidavit, his participation in the infringement was such that he is jointly liable.

239 There is no dispute that neither Jadon Investments nor Heatshield had the licence or authority of the plaintiff to apply RD1 or an imitation of it to the Silentaire grille. Mr Timo Pyyvaro's evidence, which I will discuss in more detail shortly, establishes that there were sales of the Silentaire grille and Mr Benfield's affidavit makes it clear that such sales were profitable.

240 It is convenient to consider the question of validity first.

241 In May 1981 the definition of a "design" in the Designs Act was in the following terms:

" 'Design' means an industrial design applicable, in any way or by any means, to the purpose of the ornamentation, or pattern, or shape, or configuration, of an article, or to any two or more of those purposes."

242 There were extensive amendments to the Designs Act by the Designs Amendment Act 1981. The amendments came into force in 1982 and I will refer to them as "the 1982 Amendments". The definition of design was amended to read:

" 'design' means features of shape, configuration, pattern or ornamentation applicable to an article, being features that, in the finished article, can be judged by the eye, but does not include a method or principle of construction."

243 As the 1982 Amendments did not come into effect until 1982, it is the definition of design as it was in May 1981 which is relevant. However, for the purposes of this case there is no material difference between the two definitions. A method or principle of construction has never been included in the concept of a design (Firmagroup Australia Pty Ltd v Byrne & Davidson Doors (Vic) Pty Ltd (1987) 180 CLR 483 at 487 - 488 ("Firmagroup").

244 Mr Benfield claims that as at May 1981, RD1 was not a new or original design within the provisions of s 17 of the Designs Act. Before the 1982 Amendments, s 17 read as follows:

"Any new or original design, which has not been published in Australia before the lodging of an application for its registration, may be registered under this Act."

245 The 1982 Amendments amended s 17 so that it now reads:

"17(1) Subject to this Act, a design shall not be registered unless it is a new or original design and, in particular, shall not be registered in respect of an article if the design:

(a) differs only in immaterial details or in features commonly used in the relevant trade from a design that before the priority date in respect of the application for registration, was registered, published or used in Australia in respect of the same article; or

(b) is an obvious adaptation of a design that, before the priority date in respect of the application for registration, was registered, published or used in Australia in respect of any other article."

246 The parties did not dispute that in the case of RD1 it is s 17 as it stood before the 1982 Amendments which is relevant.

247 Counsel for the defendants submitted that the phrase "new or original" should be construed on the basis that it is a composite phrase expressing a single meaning. Although the argument was put in the context of submissions as to the validity of RD2, if correct, it applies equally in the case of RD1 and it is convenient to consider the submission at this point.

248 The word "new" involves novelty in the shape, configuration, pattern or ornamentation itself whereas "original" would include the way in which an old shape, configuration, pattern or ornamentation is applied to some special subject matter. In both cases there must be some intellectual activity so as to originate something that had not occurred to anyone before (see Dover Limited v Nurnberger Celluloidwaren Fabrik Gebruder Wolff [1910] UKLawRpCh 60; [1910] 2 Ch 25 per Buckley LJ at 28 - 30; MacRae Knitting Mills Ltd v Lowes Ltd [1936] HCA 43; (1936) 55 CLR 725 per Dixon J at 730).

249 In Malleys Ltd v J W Tomlin Pty Ltd [1961] HCA 77; (1961) 180 CLR 120 Taylor, Menzies and Owen JJ said (at 125):

"There is, however, one further point which requires consideration before concluding whether or not the design was registrable. The appellant argued that even if what was registered could be regarded as in a sense new, it could not be regarded as an original design because no originality in the sense of making a discovery was involved in the design and that some originality in that sense is requisite for novelty itself. It is not necessary here to explore the difference (if any) between the design that is new and a design that is original because, as s 17 was amended in 1934, it is sufficient for a design to be new or original. It seems clear, however, that the word 'new' does not take any colour from the word 'original' and that whether or not the design now in question is 'original' in any sense beyond its individuality of appearance, it is 'new' for the reasons which have already been given, namely, that the design of every bottom for a toilet pan and of every other article to which evidence was directed is substantially different if the 'J' rim is to be regarded as an integral part of the design."

250 There appears to be a conflict in the authorities in England on this point (The Law of Intellectual Property: Copyright, Designs and Confidential Information, Ricketson and Creswell, 2nd Edition, Law Book Co, 2002 Chapter 21 para [21.10]) ("Ricketson"). I proceed on the basis that the word "new" involves novelty in the shape, configuration, pattern or ornamentation itself, whereas "original" includes the way in which an old shape, configuration, pattern or ornamentation is applied to some special subject matter.

251 A combination of old features may result in a new design. Furthermore, where the nature of the article is such that there are limitations in terms of the addition of new features the Court should not be too quick to deny novelty on the basis that the design does not include some wholly new feature. The critical consideration is whether the design is distinctive to the trained eye (D Sebel & Co Ltd v National Art Metal Co (1965) 10 FLR 224 per Jacobs J at 227).

252 In Conrol Pty Ltd v Meco McCallum Pty Ltd & Anor (1996) 34 IPR 517, Lockhart J, at first instance, said (at 529):

"Determining whether the design in suit and the earlier designs or articles are substantially the same or not, the designs must be looked at as a whole; the test is whether an article made according to the design in suit would be substantially similar in appearance to an article made according to the previous design: Re Clarke's Design [1896] UKLawRpCh 86; (1896) 13 RPC 351 at 360; and Allen West & Co Ltd v British Westinghouse Electric & Manufacturing Co Ltd (1916) 33 RPC 157 at 165.

The whole of the design need not be new to qualify for registration. The design may be novel notwithstanding that all of its parts are old and were common general knowledge at the date of registration. If the combination of two or more old and well known designs or parts of designs gives to the combination as a whole the appearance of a new design that design may be novel: Walker & Co v AG Scott & Co Ltd (1892) 9 RPC 482 per Chitty J at 485; Lewis Falk Ltd v Jacobwitz (1944) 61 RPC 116 at 126; and Re Clarke's Design at 360".

253 I do not think anything said by the Full Court on appeal throws doubt on these observations ((1997) 80 FCR 264).

254 In his closing submissions, counsel for Mr Benfield identified as the relevant prior art for the purposes of considering the validity of RD1 two Sarflow Supply grilles, two Variflow grilles, two United States patents (numbers 4020752 and 2982197), a United Kingdom patent (number 1071676) and airconditioning fascias from airconditioning units manufactured by Kelvinator, Pope and Pinnock respectively. Counsel submitted that having regard to that prior art, RD1 was not a new or original design within s 17.

255 Mr Franz Juraschek was called as a witness by the Benfield defendants. He gave a good deal of evidence about the Sarflow Supply grilles. He was an honest witness and I accept his evidence.

256 Mr Juraschek has been employed in the airconditioning industry for many years and his evidence was directed to the type of grilles or outlet directors available on the market particularly during the 1970s. Mr Juraschek was employed by Sarflow Sales from 1969 to 1974 and then from 1976 to 1982.

257 In about 1969, Sarflow Sales started to sell aluminium grilles in lieu of steel grilles. Aluminium was a lighter, cheaper and easier metal to produce than steel.

258 During the 1970s, Sarflow Sales produced an outlet director with adjustable blades within a fixed core. The blades were attached to the outer frame. Sarflow Sales also produced an outlet director which was multi-directional and which included removable cores. The cores or blade boxes had two sides rather than four. Each blade moved independently. The cores rested on the lip of four separate openings in the face of the frame.

259 Mr Juraschek said that there was not much demand for the outlet directors which had the four-way removable cores. The making of these particular outlet directors from metal involved substantially greater expense than making outlet directors which had fixed cores where the blades were fastened directly to the outer frame. As a result, not many of these outlet directors were manufactured and sold. There were some sales to Brian Lane Engineering Pty Ltd.

260 Mr Juraschek said that the development of four-way plastic outlet directors dramatically reduced the cost and thereby increased the popularity of such outlet directors.

261 Mr Juraschek said that features that were common to air diffusion outlet directors being sold in the 1970s were an outer frame, a cruciform or cross-section and curved blades. Mr Juraschek said that the features of the two Variform grilles (produced by a competitor of Sarflow Sales) tendered in evidence (Exhibits P40 and P41) were common in the industry in the early 1970s. At about the same time, movable blades protruding below the plane of the ceiling were a feature of air diffusion outlet directors. Mr Juraschek said that from his observations, blades protruding below the ceiling had the advantage of directing the air a greater distance and giving a better pattern of distribution.

262 In summary, Mr Juraschek's evidence establishes that Sarflow Sales sold an air diffusion outlet director in the 1970s which was made of aluminium, had a cruciform or cross-piece and removable cores which sat on the ledge on the cruciform in the inner edge of the frame. They could be lifted out and repositioned from below the outlet director when installed in the ceiling.

263 Mr Benfield relies on two Variform grilles which the evidence establishes were available in the 1970s. The outer framing effect of the Variform grilles is not materially different from the framing effect of RD1. The cruciform on the Variform grilles is identical to the cruciform on RD1 except for the fact that the cruciform in RD1 is flush with the frame whereas the cruciform found on the Variform grilles is not continuous. The neck of the metal air diffusion grilles available in the 1970s also incorporates a neck arranged in a vertical plane around and above the frame.

264 This patent was published in Australia on 23 September 1977. It relates to an air diffusion outlet. It incorporates removable modular cores, blades of uniform thickness and blades which can turn through approximately ninety degrees (90o). The main feature of the design is the modular cores which can be removed and repositioned. Each core can be positioned in any one of the four positions producing a multi-directional effect on the distribution of air. RD1 produces a similar multi-directional effect on the distribution of air.

265 This patent was published in Australia on 31 July 1961. It also relates to an air diffusion outlet.

266 I did not hear any oral evidence about this patent. It appears that it incorporates modular four-sided blade boxes. Although the blade boxes appear to be bolted together and then installed as one unit into the face of the outlet, it also appears that each of the blade boxes can be positioned in any one of four positions.

267 This patent was published in Australia on 28 November 1967. It relates to an air diffusion outlet. The main feature appears to be the modular cores which can be removed and repositioned.

THE KELVINATOR AND POPE AIRCONDITIONING FASCIAS

268 These articles were part of airconditioning units installed in the wall of a building. The face of the units contained blade boxes with fixed blades or veins. The boxes can be removed and repositioned. Such articles were in use in the 1970s. A statement of Mr Clinton Evans was tendered and it establishes these matters. I accept Mr Evans' evidence.

269 This unit was also an airconditioning unit installed in the wall of a building. This unit incorporates fixed blade modular blade packs. The blade packs are arranged in quadrants and it appears that each core or pack can be positioned independently in any of four different positions. Such units were available in Australia in or before the 1970s.

270 A statement of Mr Steven Conroy was tendered and it establishes these matters. I accept Mr Conroy's evidence.

271 I heard evidence from two experts, one called by the plaintiff and one called by the Colebatch defendants. Both were well-qualified witnesses who did their best to assist me. It is well-settled by authority that ultimately it is my eye which must judge questions of novelty and infringement.

272 Professor Anthony Russell is a Visiting Associate Professor of Design at the Curtin University of Technology. He was called as a witness by the plaintiff. He prepared a report in relation to RD1 dated October 1999. He addressed the issue of the prior art and whether RD1 was a new or original design in light of that prior art.

273 He described the features of all of the articles he examined in the following terms:

"All of the articles are airconditioning air outlet directors designed specifically as ceiling mounted outlets for air ventilation shafts and each of them exploit the application of blades arranged in the form of louvres to provide variable direction of the air flow.

Each article with the exception of the Variflow product has adopted the use of four sets or cores of louvred blades arranged in a cruciform pattern, each core able to be repositioned, east, west, north or south thus changing the flow direction of air through each louvre. The four Variflow louvres are fixed in pre-determined positions and cannot be changed.

The product made to the ADR differs in one important material way to all of the other alleged prior art articles in that its louvre blade cores are produced as fixed integral mouldings whereas each of the other articles have incorporated louvre blades capable of being pivoted either in unison or individually to provide additional variations to the direction of air flow passing through them.

It is to be noted that the ADR louvre cores are so designed that when reversed in their cruciform frame the aerofoil shape of each blade also effects a change to the angle of the airflow.

All of the products are meant to conform to the requirement of achieving the penetration of the ceiling in order to attach the air outlet director in the least visually disturbing way, each adopting a square box divided into four smaller squares which hold the louvre cores, the box terminating on the lower or room side in a flange or framing effect. The manner in which this is achieved in each article is a matter of the design which has been applied to it and each has a different appeal to the eye."

274 Professor Russell said that RD1 had three visual components, namely, an outer frame, the return frame divided by the cruciform and the louvre blade boxes.

275 The blades do not protrude below the plane of the frame and cruciform. In terms of the appeal to the eye, Professor Russell described the design as a simple clean geometric design.

276 Professor Russell compared RD1 with the various items of prior art including the United States Patent 4020752, the Sarflow grille which had removable cores, the United Kingdom Patent 1071676 and the Variflow Supply grilles. I do not propose to set out the comments he makes in relation to the items of prior art.

277 Professor Russell said that the louvre design is well known and has been used in architecture since early times. Professor Russell said that the louvre or blade features of RD1 appealed to the eye as one of constancy and regularity of visual pattern. He contrasted this with the louvre features of the prior art which gave the appearance of an inconstant or untidy visual pattern. The louvres in RD1 present as an article with clean simple lines whereas each of the items of prior art presents as a more complex mechanical article.

278 As to the frame, Professor Russell said that it presents as a very simple, elegantly proportioned mainframe design with careful regard to the positioning of the visual weight of the central cruciform element to the enclosing outer frame. That was to be contrasted with the prior art.

279 In cross-examination by counsel for Mr Benfield, Professor Russell agreed that the main or critical difference between RD1 and the prior art was the fact that the louvre blade cores in RD1 were produced as fixed integral mouldings.

280 Dr Manfred Zockel is an engineer employed in the Department of Mechnical Engineering at the University of Adelaide. He was called as a witness by the Colebatch defendants. He was cross-examined by Mr Benfield's counsel about whether RD1 was a new or original design. In summary, he agreed that the prior art included blade packs with movable blades resting on a cruciform and frame in the ceiling. It also included blade packs with fixed blades located on a vertical plane in a wall airconditioning unit. Dr Zockel agreed that the idea of placing a blade pack with fixed blades in an air outlet director in the ceiling and resting it on a cruciform and frame was a simple and obvious development of the prior art.

281 My own observations of the prior art and RD1 suggest to me that the conclusions expressed by Professor Russell in his report and in his evidence in chief are correct. I agree that the appeal to the eye of RD1 as applied to an outlet director is (as the plaintiff put it in its written submissions) "one of a precisely moulded, geometrically formal plastic product with distinct and definite surface qualities developed by the smoothness of the surface and the lack of pattern and ornamentation. The overall effect is one of precision, simplicity, quality, and cleanness of surface".

282 I also agree with the plaintiff that the prior art consisted of metal outlet directors which gave an appearance of heaviness, complexity and mechanicalisation. In particular, the metal outlet directors had (a) multiple and different metal extrusions within the one product; (b) visible mitred joints in the corner of the outer frame; (c) visible mitred welded joint or staked joints on the ceiling side of the outer frame; (d) a discontinuous surface on the room side of the outer frame by reason of the use of multiple extrusions to form the frame and cruciform elements, and the use of visible recessing or overlapping parts; (e) various cross-member configurations for holding blades and blade packs; (f) the protrusion of the leading blade over the outer frame when the blades were in the shut or near shut position.

283 I am inclined to agree with Dr Zockel that the idea of placing a blade pack with fixed blades in an outlet director in the ceiling and resting it on a cruciform and frame was not a great step forward in terms of the prior art which involved blade packs being placed on a vertical plane in an airconditioning unit placed in the wall of a building However, the critical point is that RD1 contained features of shape and configuration which were distinctive when compared with the prior art (Dalgety Australia Operations Ltd v F F Seeley Nominees Pty Ltd (1986) 10 FCR 403 per Fisher J at 409).

284 To my mind, the distinctive features of shape or configuration of RD1 which distinguish it from the prior art are the fact that in the case of RD1 the blade boxes were produced as fixed integral mouldings and contained blades which do not protrude below the horizontal plane of the blade box or surrounding frame. This finding is also important in terms of considering whether the Silentaire grille is an imitation or copy of RD1.

285 I reject Mr Benfield's claim that RD1 is invalid because it is not a new or original design. I am satisfied that RD1 was a new or original design which had not been published in Australia before the lodging of the application for its registration.

286 The plaintiff claims that Jadon Investments and Heatshield applied a fraudulent imitation of RD1 to the Silentaire grille. Although the infringement section was amended by the 1982 Amendments it was not suggested that the principles differ in terms of my consideration of the alleged infringement of RD1 and the alleged infringement of RD2.

287 It is well established that the difference between the registered design and the prior art is relevant when considering the issue of infringement. If the differences between the registered design and the prior art are small, then small differences between the registered design and the accused article will lead to a finding of no infringement. Put another way, if the novelty of the registered design consists in slight variations from the prior art then there will be no infringement unless there is a very close resemblance between the registered design and the accused article (Dart Industries Inc and Anor v Decor Corporation Pty Ltd (1989) 15 IPR 403 per Lockhart J (with whom Gummow J agreed) at 409).

288 An obvious imitation of a registered design is one that is not the same as the registered design but it nevertheless results in a copy apparent to the eye notwithstanding slight differences. A fraudulent imitation is a copy of the registered design with differences which are both apparent and not so slight as to be insubstantial but which have been made merely to disguise the copying. In the case of an alleged fraudulent imitation, visual comparison will not of itself be sufficient to establish imitation otherwise it would be an obvious imitation (Malleys Ltd v J W Tomlin Pty Ltd [1961] HCA 77; (1961) 180 CLR 120 at 127).

289 The application of a fraudulent imitation of a design to an article implies a knowledge of the registered design and making use of the registered design by the designer of the accused article. Although the designer of a fraudulent imitation need not be fraudulent in the sense of intending to steal another's property - he may, for example, quite genuinely believe that he has created a different design from the registered design - he must be shown to have created a design based on, and deliberately based on, the registered design (Dunlop Rubber Co Ltd v Golf Ball Developments Ltd (1931) 48 RPC 268 per Farwell J at 279 - 280).

290 It seems that there are three elements of fraudulent imitation. First, the defendant must be shown to have made use of the plaintiff's design. Secondly, the defendant must be shown to have had a certain degree of knowledge (I will come to discuss this in more detail) about the plaintiff's rights in relation to the design. Thirdly, even if the first two elements are shown, fraudulent imitation will not be made out unless in fact the accused article is an imitation or copy of the registered design.

291 The first element means that the plaintiff must prove that the accused article is deliberately based on the registered design in the sense that the defendant's design has knowingly, consciously or deliberately been based on or derived from the registered design. As I have said, it is not necessary to show that the intention was a dishonest intention (Dart Industries Inc and Anor v Decor Corporation Pty Ltd per Lockhart J at 411 - 412). It need not be shown that the defendant had the representations showing the registered design; it will be sufficient if he had the article which embodies the registered design.

292 The second element means that plaintiff must prove that the designer of the accused article knew or had reason to suspect that the article he imitated is an embodiment of a design which is the subject of an application for registration or which has actually been registered (Turbo Tek Enterprises Inc v Sperling Enterprises Pty Ltd [1989] FCA 275; (1989) 23 FCR 331 at 348). It may be sufficient if the designer knew or had reason to suspect that the article he imitated was protected by some other legal right, in particular some other right of intellectual property (Elconnex Pty Ltd v Gerard Industries Pty Ltd [1991] FCA 567; (1991) 32 FCR 491 per Burchett J at 503; Lift Verkaufsgerate GmbH v Fischer Plastics Pty Ltd [1993] FCA 388; (1993) 27 IPR 187 per Hill J at 201).

293 The third element means that the plaintiff must prove that the accused article is in fact an imitation or copy. In other words, even if the defendant set out to copy the plaintiff's design and even if the defendant's intention in adopting the differences between the plaintiff's registered design and the accused article was to disguise the copying, there will be no fraudulent imitation unless the accused article is in fact an imitation or copy. The defendant's intention and conduct will be given weight in deciding if the accused article is a copy, but it is not decisive. In Firmagroup, the High Court approved a passage from the reasons of the trial Judge (King J) in the following terms:

"My conclusion is that although there are common features of construction in the compared designs, it must appear, to find fraudulent imitation, that the overall distinctive appearance of the registered design has been taken. In this case salient features of construction are taken, but the whole unit has been so redesigned to incorporate them that a different design has been produced. Thus the change in balance of the features and the lengthening of the article are not mere disguise but are themselves salient features of the defendants' design which are novel and unique in that design."

294 With respect, the point is put succinctly by the Full Court of the Federal Court in Turbo Tek Enterprises Inc and Anor v Sperling Enterprises Pty Ltd [1989] FCA 275; (1989) 23 FCR 331 at 349:

"In other words, an infringer may succeed because, although he has a fraudulent intention, he does make an article, the shape or configuration or which is distinctly different from that in respect of which a design is registered."

295 Finally, the authorities make it clear that it is my eye which must determine questions of infringement. I am to adopt the mantle of a customer who is interested in the design of the articles in question. It is important that I look at the registered design and the design embodied in the accused article as a whole, that I not do so through the eyes of an expert in design and that I consider the registered design and the accused article separately and together. In Gaskell and Chambers Ltd v Measure Master Ltd [1993] RPC 76, Aldous J said (at 79):

"It is settled law that the comparison must be made between the registered design and the alleged infringement side by side and also upon an assumption of 'now and later', namely upon the assumption that the two designs are compared side by side and thereafter the interested addressee goes away and comes back later to the alleged infringements. It is in that way that the court can conclude which features of the design would in reality appeal to and be noticed by the eye and then decide whether the designs are or are not substantially different."

296 In Action Number 1810 of 1989, Zelling AJ found that the Silentaire grille was a fraudulent imitation of RD1. That decision does not bind Mr Benfield as he was not a party to that action.

297 Some of the witnesses called to give evidence before Zelling AJ were also called as witnesses before me. Mr Timo Pyyvaaro was called as a witness by the plaintiff. He was an honest witness and I accept his evidence. Mr Pyyvaaro was employed by Heatshield as sales manager for a period of some five and a half years between 1982/83 to 1988/89. He said that during that time, Heatshield bought and sold the plaintiff's grille in the course of its business.

298 In 1987, Mr Pyyvaaro was instructed by Mr Benfield and by Mr Peter Benfield to make enquiries to see if Heatshield could produce a grille that would compete in the market with the plaintiff's grille. Mr Pyyvaaro made some enquiries which it is unnecessary to detail. Later, Mr Benfield came up with a design concept, and Mr Pyyvaaro was instructed to speak to a design engineer about the concept. Mr Pyyvaaro went to see Mr Brian Smythe, a design engineer who practised from premises at Glenelg. This visit took place some time in July 1988. Mr Pyyvaaro took a sample of the plaintiff's grille with him. He subsequently identified the sample, and it became Exhibit P8 in the action before me.

299 Mr Benfield knew there were patent or design rights with respect to the plaintiff's grille. He told Mr Pyyvaaro that he was looking at the possibility of manufacturing and selling a grille that would be sufficiently different to avoid infringing the plaintiff's "patent".

300 Mr Brian Smythe was called as a witness by the plaintiff. He was an honest witness and I accept his evidence. Mr Smythe is an industrial designer. Mr Smythe confirmed the fact of a visit to his premises by Mr Pyyvaaro and that Mr Pyyvaaro was looking for a design that did not infringe the plaintiff's intellectual property rights.

301 I have already referred to the evidence of Mr Scolyer in a different context. Mr Scolyer was employed by Heatshield as a sales representative in about 1986 and 1987, and then again from 1988 until approximately 1993. His position in the company was such that he reported to Mr Benfield and Mr Peter Benfield.

302 Some time after he rejoined Heatshield in 1988, Heatshield began selling the Silentaire grille. He was involved in discussions with Mr Benfield prior to the release of the Silentaire grille. In the course of those discussions, Mr Benfield said, and I quote from Mr Scolyer's evidence:

"Mr Benfield had said that the grille that they were bringing out onto the - at that stage I didn't know what the brand name would be - it had to differ in several areas from the original A C Components grille in as much as it had individually moveable blades and that the T-section of the grille itself and the outer section of the grille had to differ from that of the A C Components grille to eliminate their design criteria, or design patent."

303 I do not think that there can be any doubt, and I find, that in mid 1988, Mr Benfield had a plan to manufacture and sell an outlet director which was similar to the plaintiff's outlet director. The plaintiff's outlet director had a competitive edge in the market. Mr Benfield also wanted to obtain a competitive edge in the market. He wanted to design something which was sufficiently different from the design of the plaintiff's outlet director to avoid issues of infringement. I agree with the way in which the plaintiff put the matter, namely, Mr Benfield's intention was to try and "design around" RD1. These facts are confirmed by Mr Benfield's account of the relevant events as set out in his affidavit to which I have already referred.

304 There are a number of similarities between RD1 and the Silentaire grille. Each has a square outer frame which surrounds four equal size square openings. These square openings are separated from each other by a cruciform or cross-section. The horizontal plane of the cruciform is contiguous with the outer frame. Each grille has four cores which rest on a lip so that the cores do not fall below the horizontal plane of the outer frame and cruciform. Each grille has six blades per core and each blade has a significant curve from the leading edge to the trailing edge.

305 On the other hand, there are a number of differences between RD1 and the Silentaire grille. The outer frame on RD1 is flat on the horizontal plane, whereas the outer frame of the Silentaire grille is bevelled producing a recessed or "coffered" effect when looking up at the Silentaire grille from below. The blades in the cores in RD1 are fixed and in proportion to each other. The blades do not protrude below the horizontal plane of the outer frame and cruciform. Each core has four sides. By contrast, each core in the Silentaire grille has only two sides and the blades are movable. In fact, each blade is capable of being moved individually. Unless they are shut, the blades in the Silentaire grille protrude below the horizontal plane of the cruciform, and if they are more fully opened, they protrude below the horizontal plane of the outer frame. Of these differences, I can say now that the difference in the number of sides of the core is a matter of little or no consequence. It would not be noticed when the grille is assembled.

306 There can be no doubt that the author of the design of the Silentaire grille (whether the author is Mr Benfield or as Mr Benfield asserts in his affidavit, Mr Weatherell) was aware of the plaintiff's outlet director and that it was protected by a registered design. There was a conscious attempt to design "around" the plaintiff's registered design but that does not exonerate the infringing party because an intention to steal property is not a necessary element of fraudulent imitation.

307 The designer of the Silentaire grille was not called as a witness by Mr Benfield. I therefore have no explanation from the designer as to why he adopted the differences he did in designing the Silentaire grille.

308 In Action Number 1810 of 1989, Zelling AJ expressed the view that the principal differences to the eye between RD1 and the Silentaire grille were the fact that in some positions at least the blades in the Silentaire grille protrude into the room and the fact that there is a bevel around the inner edge of the outer frame of the Silentaire grille. Zelling AJ held that these differentia served no useful purpose. In fact in the case of the bevel, he held that the effect of the bevel was a disaster.

309 Counsel for Mr Benfield said that there was evidence in the case before me suggesting the differences did serve useful purposes. There was evidence that the bevelling of the main outer frame allowed the air to spill over the frame reducing the deposit of dust and dirt on the grille. That evidence was given by Mr Burton. Whilst that evidence was given in the context of differences between an outlet director produced by the plaintiff and an outlet director produced by another company (Westaflex) I think it is evidence I can take into account in terms of the difference between RD1 and the Silentaire grille. I accept Mr Burton's evidence on this point although I note that it was given in fairly general terms. There was also evidence that the "coffered" or recessed effect created by the bevelling, gave an appearance of depth and solidity to the grille. That evidence was given by Mr Smythe and Professor Russell and I accept it. It confirms my own observations. In fairness, Professor Russell also said that industrial designers tend to avoid the coffered effect produced by the bevel. Professor Russell also suggested that bevelling may add strength to the frame although that point was not developed in his evidence.

310 There was also evidence that the pivoting blades permitted a much greater range and control of the direction of airflow. This versatility was important for a reverse cycle (hot and cold) function. The facility for blades to protrude below the ceiling allowed for more effective airflow in the room. The design of the blade boxes in RD1 inhibited or blocked airflow and created air resistance. I accept the evidence on this point given by Mr John Stevenson, Mr Alwyn Healy and Mr Franz Juraschek.

311 My acceptance of this evidence means that there may have been reasons associated with the appearance and effective operation of the Silentaire grille which provide an explanation for the differences between it and RD1 other than an intention to disguise copying. However, I had no evidence from the designer of the Silentaire grille as to why he adopted these features. It is open to me to infer that they were adopted to disguise the fact of copying. I am prepared to draw that inference. To my mind it is clearly established that the designer of the Silentaire grille was trying to design "around" RD1. The designer had an article which had been manufactured in accordance with RD1. I am prepared to infer that the designer of the Silentaire grille wanted to reproduce as far as possible the attractive features of RD1.

312 However, that is not the end of the matter. The Silentaire grille must in fact be a copy or imitation of RD1 in the sense which I have explained. In considering this issue I must take into account the distinctive features of RD1 when compared with the prior art. As I have said, I think the distinctive features in terms of shape or configuration of RD1 when compared with the prior art is the fact that the blade boxes were produced as fixed integral mouldings and contained blades which do not protrude below the horizontal plane of the blade box or surrounding frame. Those features of shape or configuration are not present in the Silentaire grille. For this reason, I do not think the Silentaire grille is an imitation or copy of RD1. This conclusion means that the Silentaire grille is not a fraudulent imitation of RD1. It follows that even had I reached the conclusion that Mr Benfield acted in breach of clause 9, I would nevertheless have concluded that the Silentaire grille did not infringe the plaintiff's monopoly in RD1.

313 The plaintiff alleges that each of KA1 and KA2 infringe its monopoly in RD2. The defendants deny infringement and each defendant (other than the seventh and eighth defendants) claims by way of counter-claim that RD2 is invalid and seeks an order for rectification of the register by the expunging of the registration of RD2 from the register (ss 32 and 39 of the Designs Act).

314 The Certificate of Registration in relation to RD2 provides that the article in respect of which the design is registered is an airconditioning outlet director part. The Certificate also contains a statement of monopoly and a statement of novelty in the following terms:

"Statement of Monopoly: monopoly is claimed in the shape and configuration of an airconditioning outlet director part as shown in the accompanying illustrations.

Statement of Novelty: novelty results in the arrangement of the end parts of the blades and a coupling bar inter-connecting said ends at each side of a surrounding frame as illustrated in the representations."

315 There are five pages of representations attached to the certificate.

316 The following definitions in s4 of the Act are relevant to the submissions made by the parties.

"'article' means any article of manufacture and includes a part of such an article if made separately, but does not include an integrated circuit, or part of an integrated circuit, within the meaning of the Circuit Layouts Act 1989, or a mask used to make such a circuit;

'design' means features of shape, configuration, pattern or ornamentation applicable to an article, being features that, in the finished article, can be judged by the eye, but does not include a method or principle of construction;

'monopoly', in relation to a registered design, means the exclusive right to apply the design to an article in respect of which the design is so registered;

'statement of monopoly' in relation to a design, means a statement relating to the representations of an article to which the design is applied that indicates:

(a) those features of the representations in respect of which the applicant for registration of the design wishes to claim a monopoly; and

(b) those features of the representations that are to be disregarded in considering the extent of the monopoly protection;

'statement of novelty' in relation to a design, means a statement relating to the representations of an article to which the design is applied that indicates those features of the representations in respect of which novelty or originality is claimed;"

317 The respective concepts of a statement of monopoly and a statement of novelty were introduced as part of the 1982 amendments. Counsel for the defendants submitted that the statement of novelty had a particularly important role to play in the determination of the respective issues of validity and infringement. Counsel argued that as far as validity is concerned, the statement of novelty identifies the features in respect of which novelty or originality is claimed, and that the statement may be taken as an admission by the applicant for registration of the features said to be new or original. It is not conclusive in the sense that it is open to a party asserting invalidity to prove that a feature claimed to be new or original, is not in fact new or original. Counsel submitted that the statement of novelty by stating the features in respect of which novelty or originality is claimed provides the foundation for an analysis of the infringement issue.

318 I do not accept the defendants' submission that the statement of novelty is the only basis upon which newness or originality should be considered, or that it constitutes a binding admission against the applicant. The plaintiff submitted, and I agree, that the position under the Designs Act is the same as was stated by the author of the sixth edition of Russell-Clarke on Industrial Designs para 3.278 in commenting on the position in England:

"... the statement of novelty is merely a unilateral statement by the applicant asserting that certain features shown on his representation are novel; that statement does not exclude other features also shown on the representation from forming part of the design (i.e. the whole collection of features shown) as registered."

319 There is nothing in the Designs Act which suggests that a statement of novelty should be given the force or effect for which the defendants contend.

320 Nor do I think the statement of novelty can limit the monopoly in the way put forward by the defendants. In Richsell Pty Ltd v Khoury (1995) 32 IPR 289 the Full Court of the Federal Court rejected an argument to the effect that the monopoly was limited by the statement of novelty. Davies and Whitlam JJ said (at 292):

"Mr Morris, counsel for Richsell, has submitted that the monopoly was limited by the statement of novelty being the features of the backrest cushion noted in the statement of novelty. However, the effect of the registrations was to accord to Richsell the exclusive right to apply to furniture the features of shape and configuration of furniture as disclosed by the representations of the design. The monopoly related to the furniture as a whole: (citation of authorities omitted) The registration of each design therefore signified that the furniture so described was distinctive as a whole, owing to the features of novelty identified in the statement. If the registration of a design of furniture considered as a whole, is not supported by s 17 of the Designs Act, then the registration may be cancelled: MacRae Knitting Mills Limited v Lowes Limited."

321 The above is the only relevant statement in the authorities on the issue raised by the defendants. It does seem odd that the statement of novelty would have only the limited effect of a unilateral statement by the applicant asserting certain features of his design are novel. However, that does seem to me to be the better approach bearing in mind that there is a statement of monopoly in this case and, that other than excluding features of pattern or ornamentation, it is completely general in its terms. The statement of monopoly relates to the airconditioning outlet director part as a whole. With respect, I do not gain much assistance from what is said in the report of the Designs Law Review Committee in February 1973 (Report on the Law Relating to Designs paras 99 - 101 inclusive). I note that the definition in the Act of a statement of monopoly includes not only a reference to features which are to be disregarded, but also features in respect of which the applicant wishes to claim a monopoly.

322 It seems to me that my rejection of the defendants' submission as to the effect of the statement of novelty means that two further arguments put by the defendants must fail, namely that RD2 is invalid because it is ambiguous, or because it showed no more than a method or principle of construction.

323 In Firmagroup the High Court, after referring with approval to Pugh v Riley Cycle Co Ltd [1912] UKLawRpCh 24; [1912] Ch 613, said (at 488):

"The only design features that are susceptible of protection are those features which convey the idea of 'one particular individual and specific appearance', to repeat the phrase from Russell-Clarke. No design should be construed as to give to its proprietor a monopoly in a method or principle of construction. The registration of the appellants' design thus gives no monopoly for the making of an article combining a plate in which a keyhole is set and a recessed hand grip; nor in our opinion does it give a monopoly for the making of an article combining a rectangular plate in which a keyhole is set and a recessed rectangular hand grip placed alongside horizontally. The idea of shape or configuration conveyed by those features is altogether too general to attract statutory protection. If the appellants' design was no more precisely specified than that, registration ought to have been refused."

324 The defendants submitted that because the plaintiff was bound by the statement of novelty, and that because the statement of novelty did not refer to particular details of design, but rather to a method or principle of construction, the design was invalid. I reject that argument for two reasons. First, the statement of novelty must be read as a whole, and it specifically refers to what is shown on the representations. The representations show details of a design. Secondly, even if the defendants are right, and the statement of novelty refers to no more than the general arrangement, the plaintiff is not bound by the statement of novelty in the way suggested by the defendants. I refer to my earlier conclusions. I reject the defendants' argument that RD2 is invalid because it is ambiguous or it does no more than show a method or principle of construction.

325 Counsel for the defendants submitted that RD2 was not a new or original design. I have already set out the relevant provisions of s 17 (see paragraph [245]). In the course of submissions, a series of questions were debated as to the proper interpretation of s 17 of the Act.

326 The plaintiff submitted that paragraphs (a) and (b) of s 17(1) contain an exhaustive statement of the circumstances in which it will be found that a design is not new or original, and submitted that paragraphs (a) and (b) in fact reflect the two categories referred to by Buckley LJ in Dover Ltd v Nurnberger Celluloidwaren Fabrik Gebruder Wolff [1910] UKLawRpCh 60; [1910] 2 Ch 25. In Monier Ltd v Metalwork Tiling Co (1984) 73 FLR 105 Jacobs J, after setting out s 17 as it was before the 1982 Amendments, and s 17 as it is now, said obiter:

"I am far from persuaded that this section makes any significant change in the law. Under both the old Act and the new Act, it is only a new or original design which has not been published in Australia before the lodging of an application for its registration (that being the 'priority date' under the new Act s 21) that can be lawfully registered, and it seems to me that the new Act really does no more than spell out, in statutory form, the criteria or tests which the courts have already evolved under the earlier legislation for determining whether a design is or is not new or original."

327 On the other hand, in my opinion, the words of s 17(1) suggest that paragraphs (a) and (b) are no more than examples of when it will be held that a design is not new or original. I note that in Ricketson it is said that the effect of paragraphs (a) and (b) of s 17(1) is to lay down "minimum standards as to what is to be judged by the eye" (Chapter 21 para [21.5]).

328 There can be no doubt that paragraphs (a) and (b) of s 17(1) embody at least some of the principles previously developed in the cases. The defendants were not able to clearly identify a principle developed in the cases which is not either wholly or at least partly embodied in paragraphs (a) and (b) of s 17(1). I will proceed on the basis that the relevant tests for determining if a design is new or original are those set out in paragraphs (a) and (b) of s 17. Those tests are to be applied having regard to the way in which the principles have been stated in the cases both before and after the introduction of the 1982 Amendments.

329 The words in paragraph (a) of s 17 "differs only in immaterial details" reflect the test previously developed, namely, that it is not necessary that the design be entirely new or original, but substantially new or substantially original having regard to the nature and character of the article to which the design must be applied (Macrae Knitting Mills Ltd v Lowes Ltd [1936] HCA 43; (1936) 55 CLR 725; Conrol Pty Ltd v Meco McCallum Pty Ltd & Anor (1996) 34 IPR 517 per Lockhart J at 529; affirmed on appeal (1997) 80 FCR 264).

330 The other words in paragraph (a) of s 17 "in features commonly used in the relevant trade ... in respect of the same article", reflect the test previously developed in the cases.

331 The equivalent words in the Registered Designs Act 1949 (UK) are "variants commonly used in the trade". In Phillips v Harbro Rubber Co (1920) 37 RPC 233 Lord Moulton provided an example of the application of those words. He said (at 240):

"The introduction of ordinary trade variants into an old design cannot make it new or original. For example, if it is common practice to have, or not to have, spikes in the soles of running shoes, a man does not make a new and original design out of an old type of running shoe by putting spikes in the soles. The working world, as well as the trade world, is entitled at its will to take, in all cases, its choice of ordinary trade variants for use in any particular instance, and no patent and no registration of a design can prevent an ordinary workman from using or not using trade knowledge of this kind."

332 The defendants made a further submission about the proper approach to the question of novelty. They submitted that in determining if RD2 embodied a new or original design, I could have regard to what was referred to as "a mosaic of prior art". This issue was considered by the Full Court of the Federal Court in Conrol Pty Ltd v Meco McCallum Pty Ltd (1997) 80 FCR 264. The argument by the appellant in that case was that the trial Judge had erroneously compared the design with an amalgam of features which could be commonly found in the article in question, "rather than with a particular existing design or, successively and separately, with each of the particular designs which were in evidence" (per Burchett, Lindgren and Lehane JJ at 270). The Full Court of the Federal Court held that the trial Judge did not in fact make that error. In the course of the reasons there are some statements which suggest that it is possible to make a mosaic of items of prior art (see pages 273 - 274). However, as I read the reasons for judgment it was unnecessary for the Court to decide that issue, and it did not decide the issue. I should apply the well established principle to which I have already referred, namely, that a combination of old features may result in a new design providing the design is distinctive to the eye (D Sebel & Co Ltd v National Art Metal Co Pty Ltd (1965) 10 FLR 224 per Jacobs J at 227; Conrol Pty Ltd v Meco McCallum Pty Ltd & Anor (1996) 34 IPR 517 per Lockhart J at 529).

333 RD2 is shown on five pages of representations attached to the Certificate of Registration. As I have said, RD2 relates to the blade boxes, or cores. The frame which houses the blade boxes is not shown. There are six curvilinear blades in the blade box. The curvature of the blades is such that between the leading edge and the trailing edge the blade turns almost ninety degrees (90o). The blades move in unison. They are attached to the frame of the blade box by means of a spigot or axle which protrudes from the end of the blade and which has a cap or top at the end of it. The spigot or axle is inserted into a horse-shoe shaped aperture which snaps tight after insertion. There are two slots on either side of each aperture which allow the aperture to "deform" and then snap fit.

334 There are two control bars on either side of the frame which are there to ensure the blades move in unison. The blades are connected to the control bar by means of an axle which is at the end of each blade and which is above the main axle.

335 KA1 has the same general features as RD2. It does not have an inward lip or overhang as may be found on the top of the blade box in RD2, and there are some differences in the apertures for the main axle and other differences which it will be necessary to mention in some detail later.

336 KA2 is similar to KA1 with the most notable difference being that KA2 has only one control bar.

337 Professor Russell said that regard was to be had only to features of shape and configuration. Pattern and ornamentation are not relevant in this case. The general nature of the statement of monopoly means that regard is to be had to the shape and configuration of the article as a whole. The statement of novelty directs attention to the general positioning of the parts set out in the statement of novelty, and not the specific detail of design of each of the parts. Professor Russell said:

"The 'end parts' of the blades comprise the vertical end edge of each blade with one large spigot which connects the ends of each blade to the frame and a second smaller spigot located above the large spigot which connects to the coupling bar."

338 In comparing RD2 with the prior art and the accused articles, particular regard must be had to the features identified in the statement of novelty while still having regard to RD2 as a whole. The representations in RD2 are clear in terms of conveying the design.

339 Professor Russell said that the automotive air control outlets made from plastic to which he was referred have little relevance to the issue of determining the validity of RD2 because they have more to do with function than appearance. Such outlets are quite unlike RD2, KA1 and KA2, not only in their visual appearance and design, but also their function.

340 Professor Russell said that the crucial items of prior art are RD1 and Registered Design No 105504 (ie., the Silentaire grille "RD 105504"). RD2 appears lighter and more finely wrought than RD1 and RD 105504. This impression is achieved through the particular forms of design applied to the various elements that make up the louvre assembly such as:

• The proportional positioning of the spigots at the blade ends;

• The cutting back of the blade ends at this position;

• The elegant conical shaped flaring of the spigot ends to the blades; and

• The arrangement of the parts as defined in the statement of novelty.

These particular configurations of design are not present in the relevant prior art although they are closely imitated in KA1 and KA2.

341 Professor Russell said that three design features relating to the frame are not present in the prior art or KA1 or KA2. These features are as follows:

• The chamfered form of the upper edge of the frame which contributes to the masking from above of the louvre blades as they connect to the coupling bar;
• The particular forms of the "horse-shoe shaped" mouldings at each of the receiving mouths on the main spigots; and
• The regularly shaped vertical bars on the vertical face of the frames which result from the chosen method of plastic injection moulding technology.

These three features are not obvious adaptations or novel developments of the prior art.

342 In making an examination of RD2 and KA1 and KA2, Professor Russell said that he paid particular regard to the statement of novelty.

343 Professor Russell said that it is necessary to compare RD2 with KA1 and KA2 from the various views including the underside view, the topside view and the side view or elevation of RD2. The only clearly discernable differences between RD2 and KA1 and KA2 are the three features referred to above. The overall appearance of KA1 and KA2 is so similar as to negate any significant impact of these differences to the eye. Professor Russell concluded that KA1 and KA2 apply an obvious imitation of RD2.

344 Dr Zockel expressed the view that the statement of novelty refers exclusively to the detailed design of the protrusions at the ends of the blades which connect with the coupling or linkage bar and the snap fits in the coupling bar into which these protrusions fit. The reference to detail in this context means the specific shape and dimensions of the parts as well as their arrangement. The representations attached to RD2 do not contain any design details of this feature. The wording of the statement of novelty and the lack of design details in relation to this feature suggest a method of assembly rather than a specific design. The statement of monopoly claims to cover the article as a whole.

345 Dr Zockel said that there are features of RD2 not referred to in the statement of novelty which could be claimed to be original. These features are:

• The pronounced and steeply chamfered inner lip on the entry side of the frame which hides the coupling bars from view when looking in the direction of airflow and which directs air towards the centre of the blades;
• The vertical ribs on the outside of the frame are visually distinctive; and
• The horse-shoe shaped reinforcement on the outside of the frame around the snap fits for the main axles of the blades.

346 Apart from these features, RD2 differs from the prior art only in immaterial details, or in features commonly used in the relevant trade designs.

347 Dr Zockel gave evidence to the effect that there are a number of design constraints for the blade box which is the subject of RD2, and he identified those design constraints.

348 Dr Zockel expressed the view that there are a number of differences between RD2 and KA1. First, RD2 has distinctive horse-shoe shaped reinforcement of the frame around the snap fit for the blade axles. KA1 does not have this feature. Second, in RD2 the slot at the top of the snap fit opening is shorter than is the slot in KA1. Third, in RD2 the outside of the frame of the blade box has distinctive vertical ribs which are not present on KA1. Fourth, RD2 has corners on the inside and outside of the frame as well as on the outer flange. KA1 has a chamfered outer corner of the frame and a rounded or filleted corner to the outer rim. Fifth, no comparison can be made of any differences in the axles which go into the coupling bar because the representations do not show this feature. Sixth, RD2 has a pronounced and steeply chamfered inner lip. KA1 has smooth inner walls. Seventh, there is a difference between RD2 and KA1 in the snap fits on the coupling or linkage bar in terms of the shape and length of the fingers. Eighth, in the case of RD2, the transitions from the blade to the axle are conical whereas in KA1, they are more hemispherical. Ninth, RD2 has notches just downstream of the main axles which are not present in KA1. Finally, RD2 has six blades whereas KA1 has five.

349 The same differences can be seen when RD2 and KA2 are compared. In addition, there are further differences between RD2 and KA2. First, KA2 has one coupling or linkage bar whereas RD2 has two. Second, the coupling bar in KA2 has holes rather than snap fits. Third, KA2 has only three axles or spigots on each blade, and the axle or spigot that goes into the coupling bar is a simple stub axle. Fourth, KA2 has a lengthwise rib on the coupling bar. Fifth, the side slots in KA2 are closed.

350 Dr Zockel concluded that the drawings for RD2 are not sufficiently detailed to show the design features for which novelty is claimed. He also said that apart from the three features not referred to in the statement of novelty but which could be claimed to be original, the design and methods of assembly in RD2 are obvious adaptations or natural developments of design commonly in use in Australia prior to 1990. In any event, the three features are not present in KA1 and KA2. Finally, Dr Zockel said that there are a number of material or significant differences in visual and functional features between RD2 on the one hand and KA1 and KA2 on the other. I have already identified the differences as he described them.

351 In my opinion, for the purposes of considering the validity of RD2 the relevant prior art is RD1 and Registered Design 105504. The defendants submitted that the automotive parts which were tendered and shown to the experts were relevant prior art. An examination of the automotive art reveals various forms of snap fit mechanisms and a coupling bar to ensure blades or vents more in unison. However, the appearance and appeal to the eye is quite different when a comparison is made between RD2 and the automotive art. I did not understand it to be suggested that RD2 differed from the automotive art only in immaterial details. In any event, I would reject such an argument; the differences are substantial. Furthermore, the designs in relation to the automotive art are not designs registered, published or used in Australia in respect of the same article.

352 Nor do I think that the differences between RD2 and the automotive art can be described as features commonly used in the relevant trade. I agree with the plaintiff's submission that one needs to look at the trade channel in which the manufactured articles are supplied. The automotive parts are in a different trade channel to the trade channel for airconditioning components used in residential or commercial premises. In addition, the defendants called no evidence on the topic of features or variants commonly used in the trade.

353 Nor do I think it can be said that the design embodied in RD2 is an obvious adaptation of the design(s) embodied in the automotive art. In my opinion, the differences between RD2 and the automotive art prevent such a conclusion from being drawn.

354 In relation to the relevant prior art (RD1 and RD105504) there are a number of features of shape and configuration which are immediately apparent to the eye. In the case of RD1, the relevant features are the shape of the square blade boxes and the shape of the fixed curvilinear blades. In the case of RD105504, the relevant features are the square shaped, two-sided "packs" and the shape of movable curvilinear blades attached to the two sides by small spigots at the ends of the blades positioned in holes. The small spigots are placed a little above the half-way point of the blade ends. The blades themselves in RD105504 protrude below the horizontal plane of the two sides.

355 When one looks at RD2 and compares that design with RD1 and RD105504, I think the differences of shape and configuration which one immediately notes are:

1. The shape and configuration of the end parts of the blades, and the shape and configuration of the receiving points in the outer frame and control bars. In fact, to my mind, it is this difference which is the most eye-catching on first examination of RD2 and the relevant prior art.

2. The chamfered inner lip or overhang on the top of the frame of the blade box in RD2.

3. The vertical ribs on the outside of the blade box in RD2.

356 To my mind, the features which I have identified and, particularly the first, give RD2 a distinctive shape and configuration compared with the relevant prior art. The differences are substantial and are not differences in immaterial details. Nor is there evidence that the different features are features commonly used in the relevant trade.

357 I reject the defendants' claim that RD2 is invalid because it is not a new and original design. The counter-claims for rectification of the register (s 32) are dismissed.

358 Section 30 of the Act deals with infringement. It relevantly provides:

"30(1) A person shall be deemed to infringe the monopoly in a registered design if he, without the licence or authority of the owner of the design:

(a) applies the design or any fraudulent or obvious imitation of it to any article in respect of which the design is registered;

...

(c) sells, or offers or keeps for sale, or hires, or offers or keeps for hire, any article:

(i) to which the design or any fraudulent or obvious imitation of it has been applied in infringement of the monopoly in the design;

...

(2) If any person infringes the monopoly in a registered design, the owner of the design may bring an action or proceeding against him for infringement of the monopoly in the design."

359 The plaintiff does not argue that the defendants have applied the design to KA1 and KA2. They argue that the defendants have applied a fraudulent or obvious imitation of the design to KA1 and to KA2.

360 I have already set out the relevant principles in relation to a fraudulent imitation (see paragraphs [288] - [294]). An obvious imitation is an imitation which is not the same, but is a copy apparent to the eye notwithstanding slight differences. It matters not whether the designer of the accused article knew of the registered design. The question is one of substance and is to be considered having regard to the essential features of the design.

361 Dr Zockel identified a number of differences between RD2 and KA1 which I consider to be slight differences. In other words, differences which would not prevent me from finding that KA1 is an obvious imitation of RD2. Those differences are:

1. The horse-shoe shaped reinforcement of the frame around the snap fit for the blade axles in RD2 is not present in KA1.

2. The slot at the top of the snap fit opening in RD2 is shorter than it is in KA1.

3. The corners on the inside and outside of the frame as well as on the outer flange are square in RD2 whereas KA1 has a chamfered outer corner of the frame and a rounded or filleted corner to the outer rim.

4. The shape of the fingers in the coupling bar are shorter and present a more "wavy" appearance and the coupling bar is thicker in RD2 compared with KA1.

5. The transition between the blade and each of its four axles are conical in RD2 whereas in KA1 the transitions are more hemispherical.

6. The blade ends in RD2 have notches just downstream of the main axles whereas these are not present in KA1.

7. RD2 shows six blades whereas KA1 has five blades.

362 That leaves as differences between RD2 and KA1 the steeply chamfered inner lip on the top of the frame of RD2 and the vertical ribs on the outside of the frame of RD2. These features are not present in KA1. Are these two differences merely slight differences so that KA1 is an obvious imitation of RD2? Although there are a number of similarities between RD2 and KA1, I have reached the view that the differences, particularly the absence in KA1 of the steeply chamfered inner lip on the top of the frame, are more than slight differences. I do not think that KA1 is an obvious imitation of RD2. It follows that KA2 is not an obvious imitation of RD2.

363 The next question is whether KA1 is a fraudulent imitation of RD2. That question requires a consideration of the knowledge and conduct of the designer of KA1.

364 I have already referred to the communications between Mr Colebatch and Mr Rogers in March 1996 (see paragraphs [119] - [123]). I now need to examine those events in the context of what led to the adoption of the particular design embodied in KA1.

365 In 1996 Mr Colebatch was the managing director of Kemalex and he knew about the previous action between the plaintiff on the one hand and Jadon Investments, Heatshield and Richmond Plastics on the other, because Kemalex had been involved in the manufacture of the Silentaire grille. Furthermore, for a time after the action was resolved Kemalex manufactured the Silentaire grille for the plaintiff. I find that in 1996 Mr Colebatch had reason to suspect that any outlet director produced by the plaintiff was the subject of a registered design.

366 In 1991 and 1992 Mr Rogers knew that Heatshield was involved in a court action brought by the plaintiff in relation to a product produced by Silentaire Products (Jadon Investments). In addition, by 1996 he had had considerable experience as an industrial designer and must have been aware that many products are protected by intellectual property rights including the rights conferred by a registered design. I find that in 1996 Mr Rogers had reason to suspect that any outlet director produced by the plaintiff was the subject of a registered design. I reject his evidence insofar as it was to the contrary.

367 When Mr Colebatch went to see Mr Rogers in March 1996 he had a range of outlet directors with him. He showed these outlet directors to Mr Rogers. The plaintiff was a large seller of airconditioning products in the market and, generally speaking, its products including outlet directors, were popular. I find that when Mr Colebatch went to see Mr Rogers he had with him one or more of the plaintiff's outlet director parts.

368 Mr Aemel Nordin was called as a witness by the plaintiff. He is a director of the plaintiff. His family owns the shares in the plaintiff and has done so since 1996. Although there was an attempt by counsel for Mr Benfield to discredit parts of his evidence, I find that Mr Nordin was an honest witness and I accept his evidence.

369 The principal significance of Mr Nordin's evidence is that it appears that at some stage the plaintiff stopped manufacturing an outlet director part in accordance with RD2 and commenced manufacturing a slightly modified outlet director part. The main modification was that the holes in the control bar were elongated which meant that although the blades moved in unison they produced a fan shaped effect rather than moving in parallel. Mr Nordin said that from the time of his involvement with the plaintiff, the plaintiff only manufactured the modified outlet director part. He could not give any evidence as to when the change took place.

370 The evidence about when the plaintiff started manufacturing and selling only the modified outlet director part is unclear. The significance of the point is that the defendants submit that Mr Rogers or Mr Colebatch could not have copied RD2 because the plaintiff's outlet director part in the market in 1996 (and for some time before this date) was not designed in accordance with RD2.

371 I find that an outlet director part manufactured in accordance with RD2 was first sold in the market not long after the registration of RD2 on 21 March 1991. Mr Stevenson said that the plaintiff's "variable vane multidirectional outlet" (which I take to be the outlet director embodying RD2) was released on the market in the early 1990s. It is not possible to be any more precise. Nor is it possible on the evidence to be precise as to when the outlet director with the elongated holes in the control bar was released in the market. Mr Healy's evidence was that:

"I think the very first blade packet was actually - or the blades actually moved parallel and then I believe a very short period after that period of four months or six months after that they became elongated holes and moved in a fan shape. That's my memory."

372 Mr Denney's evidence was that he saw the plaintiff's product at the premises of Mr Rogers in late 1994, but I do not think his evidence is sufficiently precise to enable me to make a finding as to whether it was the outlet director part designed in accordance with RD2 or the modified outlet director part.

373 Mr Rogers said that prior to designing a product for a client he carried out research which included an examination of competitiors' publications and products. He had done that in relation to the outlet director he developed for Mr Benfield in 1994.

374 I find on the balance of probabilities that in March 1996 Mr Rogers had an outlet director part designed in accordance with RD2. He had either obtained that previously or it was one of the outlet director parts Mr Colebatch brought with him when he visited Mr Rogers.

375 I find that in March 1996 Mr Colebatch gave Mr Rogers instructions that:

1. He wanted a design that would produce an outlet director part which would look similar to other products in the market, and

2. He had a number of specific requirements for the outlet director he wanted Mr Rogers to design. Mr Rogers disagreed with some of the requirements (see paragraphs [122] and [123]). Two of Mr Colebatch's requirements, namely, the requirement that the blades protrude below the ceiling and the addition of a second control bar are also features of RD2.

376 I find that Mr Rogers in designing KA1 knowingly, consciously and deliberately based his design on the plaintiff's outlet director part which embodied RD2. I make that finding having regard to a number of matters. First, Mr Rogers had an outlet director part which embodied RD2. The plaintiff was a larger seller in the market and its products, including outlet director parts, were popular. I mention at this point that I am unable to accept Mr Rogers' denial that he knew that the plaintiff was "a large player in the market". By 1996 he had been involved in design work for outlet directors for a number of years. He kept himself informed of the products of competitors of his client. He would have had a reasonable appreciation of the plaintiff's position in the market. Secondly, Mr Colebatch's instructions to Mr Rogers were to design a product which looked like other products in the market. Some of Mr Colebatch's specific requirements are features of RD2. Thirdly, there are substantial similarities between Mr Rogers' design and RD2. The similarities between KA1 and RD2, particularly in relation to the snap fit mechanism, the control bars and the blade ends including the spigots, are obvious. No other outlet director part similar in respect of those features to KA1 or RD2 was identified. The publication Mr Rogers identified is, to my mind, an unlikely source of the similarities to which I have referred. It follows that I do not accept Mr Rogers' denial that he modelled the snap fit for the main blade spigot on the plaintiff's outlet director part. I have already identified other areas in which his evidence was unsatisfactory. His denial on this point is a further example.

377 By about 10 April 1996, Mr Rogers and Mr Colebatch had agreed on the design and Mr Rogers at about this time produced a model. Technical drawings were completed on 15 April 1996.

378 The elements of fraudulent imitation are made out unless it can be said that KA1 embodies a shape or configuration which is distinctly different from RD2 (Turbo Tek Enterprises Inc and Anor v Sperling Enterprises Pty Ltd at page 349). In my opinion, the shape and configuration of KA1 is not distinctly different from RD2. There are differences, the most significant of which are the absence from KA1 of the chamfered lip and the vertical ribs on the outside of the frame. However, the features of shape and configuration which give RD2 its distinctive appearance, namely, the snap fit mechanism, the control bars and the blade ends including the spigots (despite small differences) have been copied.

379 I find that KA1 is a fraudulent imitation of RD2.

380 On 31 October 1996 the plaintiff notified K-Aire that it believed the manufacture and sale of KA1 infringed its monopoly in RD2. Thereafter certain changes were made to KA1 and these resulted in KA2. I have already set out the nature of the changes which were made in the context of my summary of Dr Zockel's evidence (see paragraph [349]). The major change was the removal of one control bar. Having regard to the circumstances in which the changes were made, the only issue in relation to KA2 is whether it has taken the overall distinctive appearance of RD2, or put another way, whether the shape or configuration embodied in KA2 is distinctly different from RD2. I do not think there is distinctive difference between KA2 and RD2. To my mind, the removal of the control bar and the other changes made do not result in any significant change to the appearance (in terms of shape and configuration) of KA1.

381 I find that KA2 is a fraudulent imitation of RD2.

The Parties Liable in Relation to the Infringement of RD2

382 It is necessary for me to find which of the nine defendants are liable in relation to the infringement of the plaintiff's monopoly in RD2. The plaintiff made submissions on this issue. The defendants did not make any submissions on the issue. As I understand it, I am only determining liability at this stage and it is not necessary for me to make findings as to the extent of each defendant's responsibility.

383 It was an admitted fact that none of the defendants had the licence or authority of the plaintiff to do the acts alleged to have infringed the plaintiff's monopoly in RD2.

384 Before the trial, the plaintiff utilized the procedure under the Supreme Court Rules 1987 to obtain various admissions of fact from the defendants. It is on the basis of these admissions of fact and certain admissions in the respective defences of the defendants that I am able to make a number of the findings set out below.

The Companies (other than Connect Aire and T & S Manufacturing)

385 K-Aire has, in Australia, caused a fraudulent imitation of RD2 to be applied to KA1 and KA2 respectively and has sold, offered for sale and kept for sale KA1 and KA2 respectively and has thereby infringed the plaintiff's monopoly in RD2. Kemalex has, in Australia, applied a fraudulent imitation of RD2 to KA1 and KA2 respectively, and thereby infringed the plaintiff's monopoly in RD2. K-Aire Sales has, in Australia, sold, offered for sale and kept KA2 and has thereby infringed the plaintiff's monopoly in RD2. K-Aire Wholesale has, in Australia, sold, offered for sale and kept KA2 and has thereby infringed the plaintiff's monopoly in RD2. Kemalex Plastics has, in Australia, applied a fraudulent imitation of RD2 to KA2 and has thereby infringed the plaintiff's monopoly in RD2.

386 Each of these defendants is therefore liable in relation to the infringement of the plaintiff's monopoly in RD2.

387 The plaintiff referred me to a number of authorities dealing with the question of when a director of a company is held liable for acts carried out by the company. The plaintiff submitted that there were a number of possible tests for determining liability.

388 The first test is that referred to by Lindgren J in Microsoft Corporation and Anor v Auschina Polaris Pty Ltd and Ors [1996] FCA 1069; (1996) 71 FCR 231, namely, a director of a company is liable for the tortious acts of a company if he directed or procured the acts to be done. His Honour referred to and relied upon Performing Right Society Ltd v Ciryl Theatrical Syndicate Ltd [1924] 1 KB 1 and Wah Tat Bank Ltd v Chan Cheng Kum [1975] A.C. 507.

389 The second test requires a greater element of personal blameworthiness and is expressed in terms of the director making the tortious act his own act before he is held liable (Mentmore Manufacturing Co Ltd v National Merchandising Manufacturing Co Inc (1978) 89 DLR (3d) 195; White Horse Distillers Ltd v Gregson Associates Ltd [1984] RPC 61) Lindgren J referred to this test in Microsoft but declined to apply it. He applied the directed and procured test.

390 Another possible test for liability is that referred to by Finkelstein J in Root Quality Pty Ltd v Root Control Technologies Pty Ltd [2000] FCA 980; (2000) 49 IPR 225. Finkelstein J said that before a director could be said to have made the company's tort his own, his conduct must be such that it can be said that he was so personally involved in the commission of the unlawful act that it is just that he should be rendered liable.

391 I will apply the directed or procured test. Like Lindgren J I think it is a more satisfactory test than the "making the tortious act his own" act test and it is supported by the weight of authority in this country.

392 The plaintiff also argued that the personal defendants were liable because they were parties to a common design to infringe RD2. In The "Koursk" [1924] P 140 Scrutton LJ (at 156) approved the following passage in Clerk and Lindsell on Torts, 7th ed (1921) at pg 59:

"Persons are said to be joint tortfeasors when their respective shares in the commission of the tort are done in furtherance of a common design."

A vendor and a purchaser may have a common design to commit an infringing act or tort and thereby be joint tortfeasors (Rotocrop International Ltd v Genbourne Ltd [1982] FSR 241). In CBS Songs Ltd v Amstrad Consumer Electronics Plc [1988] UKHL 15; [1988] 1 AC 1013, Lord Templeman referred to joint infringers as, "two or more persons who act in concert with one another pursuant to a common design in the infringement" (at 1057).

393 Mr Colebatch is jointly liable with K-Aire, Kemalex, K-Aire Sales, K-Aire Wholesale and Kemalex Plastics for such acts of those companies which infringed the plaintiff's monopoly in RD2. He directed and procured the relevant acts, and I also find that he acted in concert with each company pursuant to a common design to carry out the relevant acts. At all material times, Mr Colebatch has been the sole director of K-Aire and Kemalex Plastics. At all material times he was the managing director of Kemalex and it seems that he controlled the activities of that company. In addition, he or interests associated with him, owned Kemalex via Redgum Pty Ltd.

394 I am satisfied that Mr Colebatch was in a position to control, and did in fact control, the activities K-Aire, Kemalex and Kemalex Plastics.

395 Mr Colebatch and Mr Benfield were directors of K-Aire Sales and K-Aire Wholesale, and I am satisfied that they were each in a position to control, and did in fact control, the activities of those companies.

396 Mr Benfield is jointly liable with K-Aire Sales and K-Aire Wholesale for such acts of those companies which infringed the plaintiff's monopoly in RD2. He directed and procured the relevant acts, and I also find that he acted in concert with each company pursuant to a common design to carry out the relevant acts. At all material times he, with Mr Colebatch, was a director of the companies. He was in a position to control, and did in fact control, the activities of the companies.

397 Mr Benfield is also jointly liable for such acts of K-Aire which infringed the plaintiff's monopoly in RD2. The evidence establishes that he was engaged in the marketing and sale of KA1 and KA2 and was a person by and through whom K-Aire (and K-Aire Sales and K-Aire Wholesale) infringed RD2 by selling KA1 and KA2. He also acted in concert with K-Aire pursuant to a common design to carry out the relevant acts.

398 Connect Aire was incorporated on 20 August 1997. It is a company jointly owned and operated by three of the individuals who are behind three of the companies which are members of the partnership, namely, Mr Benfield, Mr Peter Benfield and Mr Otto Reich.

399 Since about August 1997, Connect Aire has sold flexible ducting to various companies and businesses which sell airconditioning plant and componentry by retail. The flexible ducting is used in the installation of commercial and domestic airconditioning systems.

400 Connect Aire admits that between about 20 August 1997 and 30 June 2000 it sold flexible ducting in a range of standard sizes used in the airconditioning industry in connection with a range of air diffusion outlets including those produced by the plaintiff and KA2. Connect Aire admits that during the period from 20 August 1997 to 30 June 2000 it sold, offered for sale and kept for sale flexible airconditioning ducting in a range of standard sizes used in the airconditioning industry and which could be and was used in conjunction with a range of air diffusion outlets including KA2 and outlets produced by the plaintiff.

401 T & S Manufacturing was incorporated on 20 August 1997. Mr Benfield has been a director of the company since 12 April 2000. Since its incorporation, the company has manufactured and sold flexible ducting for use in the installation of commercial and domestic airconditioning systems. The ducting manufactured and sold is manufactured in a range of standard sizes and can be, has been and is, used in conjunction with a range of air diffusion outlets including KA2 and the outlets produced by the plaintiff.

402 Outlet directors are generally sold as part of a kit which includes ducting and other componentry. There are a number of advantages in a purchaser being able to purchase all of his requirements from the one vendor.

403 Connect Aire assembled KA1 and KA2 and this included placing the blade in the frame and inserting the spigot in the control bar.

404 T & S Manufacturing sold KA2 as part of a kit which included ducting and other airconditioning components.

405 These findings of fact are sufficient to render Connect Aire and T & S Manufacturing liable in relation to the infringement of the plaintiff's monopoly in RD2 either on the basis of aiding and abetting other defendants, or as parties to a common design with other defendants to infringe the plaintiff's monopoly in RD2, or both.

406 It will be necessary to determine the extent of each company's liability at the next stage of the hearing.

407 I find that Mr Benfield did not act in breach of clause 9 of the Deed. The plaintiff is not entitled to relief in relation to the alleged breach of clause 9 including the alleged infringement of RD1.

408 I find that RD2 is valid and the defendants are not entitled to relief in relation to the allegation that RD2 is not valid.

409 I find that a fraudulent imitation of RD2 has been applied to KA1 and KA2 and that each of the defendants is liable for the infringement of the plaintiff's monopoly in RD2.

410 I will hear from the parties as to what orders are appropriate in light of these conclusions.

(APPENDICES "A", "B", "C" AND "D" SHALL REMAIN ON THE COURT'S FILE.)

RULING NO 1: MR BENFIELD'S STATEMENT AND AFFIDAVIT

1 During the course of the plaintiff's case, counsel for the plaintiff applied to tender certain paragraphs in a witness statement of Mr Benfield, and certain paragraphs in an affidavit sworn by Mr Benfield on 11 September 1989.

2 The witness statement of Mr Benfield consists of 129 paragraphs and it addresses each of the issues in the action. It was prepared by the solicitors for the Colebatch defendants and filed in Court on 5 December 2001. The statement was filed and served pursuant to an order made by a Judge of this Court. The order relevantly provides:

3. That by the close of business on 28 September 2001 the defendants file and serve:

3.1 a list of the witnesses which the defendants intend to call at trial;

3.2 a signed statement in the form of a proof of evidence to be given as evidence-in-chief by each witness ("witness statement") and which identifies the documents to which the witness proposes to refer; and

3.3 in the case of a witness not willing to provide a proof of evidence, a statement of the substance of the evidence that the party calling the witness expects the witness to give in relation to each issue.

3 The time limit referred to in the order was extended. Similar orders were made in relation to witness statements to be filed and served by the plaintiff. In addition, orders were made to the effect that every witness statement was to stand as the evidence-in-chief of the witness concerned and the parties were not entitled, without leave of the Court, to lead evidence from that witness which was not contained in that person's statement. The parties were not entitled to lead evidence from any person unless a witness statement had been filed and served, or a statement of the substance of the evidence had been filed and served.

4 I assume that the order was made pursuant to the power of the Court to make pre-trial orders for the just, efficient, fair and expeditious trial of an action. This Court does not have a specific rule of court or practice direction dealing with the exchange of witness statements.

5 Mr Benfield did not oppose the making of the order for the exchange of witness statements.

6 The affidavit of Mr Benfield was used on an interlocutory application in Action 1810 of 1989. There is no issue of legal professional privilege in relation to the affidavit. The only issue in relation to the affidavit is whether the plaintiff should be required to tender additional paragraphs to those it sought to tender in order to avoid the paragraphs it sought to tender creating a misleading impression or being taken out of context.

7 I ruled that the plaintiff could not tender any part of Mr Benfield's witness statement. I ruled that the plaintiff could tender Mr Benfield's affidavit but only if it tendered certain additional paragraphs, namely, paragraphs 4 (second para), 5(b) and (c), 6, 11, 12, 13 (second para). The plaintiff tendered those paragraphs in Mr Benfield's affidavit it had identified and the additional paragraphs referred to in my ruling.

9 Counsel for Mr Benfield opposed the tender of the statement on a number of grounds.

10 First, he submitted that the statement was protected by legal professional privilege, and that there had been no waiver of privilege. For reasons I will give, I accept that submission. It follows that it is not strictly necessary for me to consider the other arguments which were advanced. However, in recognition of the detailed submissions of counsel, I will deal with them briefly.

11 Secondly, counsel for Mr Benfield submitted that insofar as the plaintiff relied on s 45B of the Evidence Act 1929 (SA), and assuming the statement was not protected by legal professional privilege, the plaintiff was required to tender the whole statement. He argued that what was admissible under s 45B was a document which meant the whole document.

12 Thirdly, counsel for Mr Benfield argued that, quite apart from any issue of privilege, there is a rule of practice that a party cannot tender as admissions statements in an opposing party's affidavit (or statement) filed in proceedings unless the opposing party has deployed the affidavit (or statement) in some way.

13 Fourthly, counsel for Mr Benfield submitted that at common law any tender of admissions contained in a document must be a tender of the whole document. He referred to Jack v Smail [1905] HCA 25; (1905) 2 CLR 684 and Gardner v Duve (1978) 19 ALR 695.

14 Solicitors, Strachan Carr, act for Mr Benfield. However, the witness statement of Mr Benfield was prepared by Thomson Playford, solicitors, who act for the Colebatch defendants. At one point, counsel for the plaintiffs submitted that the statement was not privileged because it was not a communication between Mr Benfield and his solicitors. Counsel for Mr Benfield responded by submitting that the statement was protected by reason of the fact that common interest privilege existed between the defendants to the action. Counsel for the plaintiff responded to this submission by submitting that there could be no common interest privilege in relation to the dispute concerning RD1 because the Colebatch defendants were not involved in that cause of action. Counsel for the plaintiff accepted that common interest privilege existed in relation to the dispute concerning the breach of clause 9 and RD2.

15 After some discussion between counsel for Mr Benfield and myself, counsel sought the opportunity to put forward evidence to establish that in preparing the statement, Thomson Playford were acting as agents for Mr Benfield's solicitors.

16 Counsel for Mr Benfield tendered an affidavit from his solicitor to this effect. Subsequently, counsel for the plaintiff abandoned his submission that the statement could not be privileged on the ground that it was prepared by Thomson Playford rather than Strachan Carr. I can proceed on the same basis as if the statement had been prepared by Mr Benfield's solicitors.

17 I did not understand counsel for the plaintiff to argue that the statement was not protected by legal professional privilege when it was first prepared. I think counsel's approach is correct. Even if the particular statement was prepared for the purpose of complying with the order of the court, it did not lose its essential character as a statement of a witness (State Bank (SA) v Smoothdale (No.2) Ltd [1995] SASC 5070; (1995) 64 SASR 224 at 226 per King CJ with whom Mullighan and Nyland JJ agreed) ("Smoothdale").

18 Counsel for the plaintiff submitted that legal professional privilege was lost when the statement was disclosed. In my opinion, it is clear that the document did not lose its privileged character because it was no longer confidential after it had been disclosed (Smoothdale per King CJ at 226). Rather, the real question is whether there was an express waiver of legal professional privilege when the document was disclosed.

19 I have reached the conclusion that legal professional privilege was waived by the disclosure of the statement only for the limited purpose of disclosing the nature of the evidence Mr Benfield would give as his evidence in chief if called as a witness, and for no other purpose, or to no greater extent. The steps whereby I have reached this conclusion are as follows:

1. It is possible that a waiver of legal professional privilege may be limited to a specific situation or purpose (Smoothdale per King CJ at 228).

2. There is a general waiver of privilege if a party expressly waives privilege or uses the statement for purposes incompatible with the retention of confidentiality.

I do not think that there was an express waiver of privilege. It is true that Mr Benfield did not oppose the making of the order which led to the filing and serving of the statement. However, I do not think the failure to object means that what would otherwise be a limited waiver becomes a general waiver. It seems to me that that could only be the case if it was clear that the potential waiver of privilege was a ground for opposing the making of the order, or there was something in the Rules of Court which made it clear that that was the result of an order for the filing and serving of a witness statement.

Clearly it is possible to construe the order as involving the disclosure of the statement for a limited purpose. Although it may not have been expressly said at the time the order was made, the order was made for the same reason that led to the practice direction under consideration in Smoothdale, namely, to facilitate "the just quick and cheap disposal of the proceedings" (at 228).

I do not think the fact that a party has consented to the relevant order means that he has expressly waived legal professional privilege for all purposes. He has consented to a waiver of the privilege for a limited purpose.

It cannot be said that Mr Benfield has used the statement in a manner which is incompatible with the retention of confidentiality. In fact, at the time of my ruling he had not used the statement at all.

3. It is necessary then to consider whether in the circumstances surrounding the delivery of the statement, the law imputes or implies a waiver of privilege. In this regard, I respectfully agree with the reasoning of King CJ in Smoothdale (at 229-231). In essence, whether the law will impute a waiver depends on whether the maintenance of the privilege would be unfair to the plaintiff (Attorney-General (NT) v Maurice [1986] HCA 80; (1986) 161 CLR 475).

20 In my opinion, there is nothing unfair in the maintenance of the privilege beyond the limited purpose I have identified. The order applied to both the plaintiff and the defendant. Even without an express statement of its purpose, the order was plainly made for similar reasons to those which led to the making of the New South Wales practice direction referred to in Smoothdale. Mr Benfield obtained no forensic advantage in disclosing the witness statement.

21 Clearly, there are differences between the facts in this case and the facts in Smoothdale. However, I do not think the differences are material differences in terms of the application of the Court's reasoning to this case. The fact that in Smoothdale an order was made pursuant to a practice direction whereas the order in this case was made by consent is not, for the reasons I have given, a material point of distinction. Furthermore, the fact that the practice direction under consideration in Smoothdale expressly provided that if the witness did not give evidence, no other party may put the report or statement in evidence without leave of the court does not seem to have been of any real significance to the reasoning of King CJ. Finally, the fact that the practice direction expressly stated its purpose is not a material point of distinction. I have no difficulty in inferring that a similar purpose led to the making of the relevant order in this case.

22 Counsel for both parties referred me to a number of authorities in addition to Smoothdale. None of the cases, other than Black & Decker Inc v Flymo Limited [1991] 3 All ER 158, involved the use of statements in the very proceedings in which they had been disclosed pursuant to a court order or practice direction. Many of the cases involved a consideration of the principle preventing the use of documents disclosed on discovery for a collateral purpose (Harman v Secretary of State for the Home Department [1983] 1 AC 280) as well as a consideration of legal professional privilege.

23 Support for the contentions put forward by counsel for the plaintiff may be found in Black & Decker Inc v Flymo Limited (per Hoffmann J at 159) and Complete Technology Pty Ltd v Toshiba (Australia) Pty Ltd [1994] FCA 1314; (1994) 53 FCR 125 (per Hill J at 130-131).

24 On the other hand, there is support for the views of King CJ in Smoothdale that a disclosure of the witness statement leads to a waiver of legal professional privilege only to the limited extent dictated by the reason for the disclosure in Fairfield - Mabey Ltd v Shell UK Ltd (Metallurgical Testing Services (Scotland) Ltd [1989] 1 All ER 576; Prudential Assurance Co Ltd v Fountain Page Ltd & Others [1991] 1 WLR 756; Abigroup Ltd v Akins & Others (1997) 42 NSWLR 623 per Bainton J at 631-635; Akins v Abigroup Ltd [1998] NSWSC 254; (1998) 43 NSWLR 539 per Mason P at 552-553. In saying this, I recognise that a number of these authorities can be distinguished on a variety of grounds.

25 It seems to me that I should follow the clear reasoning of the Court in Smoothdale. In my respectful opinion, that reasoning is right. Until the witness statement is used by the maker in some way, there is simply no intentional use of the statement incompatible with the maintenance of confidentiality such that an express waiver arises, nor do relevant considerations of fairness dictate a finding that there has been an imputed or implied waiver of privilege. There is no other evidence of express waiver even where a party consents to the orders under which the witness statement is disclosed. The party has expressly waived privilege only to an extent necessary to achieve the purposes of the order. Those purposes relate to the efficient disposal of the action at trial and the possibility of a resolution of the action before trial. Absent a clear statement in the Rules of Court or practice direction under which such an order is made, or possibly in the order itself, the purposes of the order do not include the provision of evidence to the recipient of the statement who may then use it as part of his or her case at trial.

2. Section 45B of the Evidence Act 1929 (SA)

26 Counsel for Mr Benfield contrasted the position under s 45B of the Evidence Act with the position under s 34C. Section 34C makes admissible a statement whereas what is admissible under s 45B is a document. The difference between the two sections means that under s 34C, parts of a document are admissible (ie, a statement), whereas under s 45B only the whole document is admissible. In other words, it was not open to the plaintiff to "pick and choose" the parts of a document it tendered under s 45B. It seemed to me that counsel for the plaintiff in making no reference to s 45B in the course of his submissions implicitly abandoned any reliance on it. No party suggested that it affected the question of legal professional privilege. I think the argument put by counsel for Mr Benfield is probably right when he says that parts of a document are not admissible under s 45B of the Evidence Act, but in the circumstances it is unnecessary for me to express a concluded view on the point.

27 To support his submission that there was a rule of practice of the nature identified, counsel for Mr Benfield relied on Ex parte Child; Re Ottaway [1882] UKLawRpCh 18; (1882) 20 Ch D 126 and In Re Cohen [1924] 2 Ch 515. He accepted that the statements in those cases related to the practice in the bankruptcy jurisdiction, and that the practice in Chancery at the time appears to have been different.

28 There is no authority on whether this aspect of the practice in bankruptcy in England in the 19th century applies in this Court. To my mind, it is surprising that if there is such a rule of practice it has not been raised in any of the modern authorities. I think it is doubtful such a rule of practice exists in this jurisdiction, but again, it is unnecessary for me to express a concluded view on the point.

4. A Rule of Common Law that a Party Must Tender the Whole of a Document

29 I reject the submission that the plaintiff in seeking to tender admissions in the witness statement must tender the whole of the document. The cases to which counsel for Mr Benfield referred (Jack v Smail; Gardner v Duve) deal with the use of parts of a document in circumstances in which the whole document has been tendered. A party may tender parts of a document containing admissions. That party may not be selective in the sense that he cannot omit parts of the documents which explain or qualify the admissions, but there is no absolute rule that he must always tender the whole document in which the admission is contained (Adelaide Congregation of Jehovah's Witnesses Inc v Pegasus Leasing Ltd, Olsson J, 26 October 1995, unreported ruling).

30 I take the relevant principle to be that if a party wishes to tender part of a document in order to rely on admissions contained in the document, he may do so but he should be required to tender all passages which bear on the admission whether by way of explaining it, placing it in its proper context or qualifying it. I did not understand counsel for the plaintiff to dispute this basic proposition.

31 It seems to me that the paragraphs in the affidavit which I have already identified should form part of any tender by the plaintiff. I do not think it is necessary to go through each paragraph. It is enough for me to say that the additional paragraphs were relevant to effect of the statements in the paragraphs the plaintiffs sought to tender, and that as a matter of fairness to Mr Benfield, I formed the view they should be part of the tender.

32 At the conclusion of the plaintiff's case, counsel for Mr Benfield and counsel for the first three defendants (K-Aire, Kemalex and Mr Colebatch) each sought to make a submission of no case to answer. The foreshadowed submission related to only some of the issues in the action.

33 Counsel for Mr Benfield sought to make a submission of no case to answer in relation to the following issues:

• The issue of whether Mr Benfield acted in breach of clause 9 of the Deed ("the breach issue").
• Assuming the first issue is decided against Mr Benfield, the issue of the infringement of RD1 ("the infringement of RD1 issue"). As I understand what counsel put to me, the precise issue is whether the Silentaire grille was an obvious or fraudulent imitation of RD1.

34 Counsel for the first three defendants sought to make a submission of no case to answer in relation to the issue of whether those defendants induced or procured the breach of clause 9 by Mr Benfield ("the inducement issue"). Counsel for the first three defendants submitted that I should hear first from counsel for Mr Benfield on the breach issue. If that issue was determined in favour of Mr Benfield, there would be no need to hear a submission of no case in relation to the inducement issue.

35 Counsel for Mr Benfield submitted that he should not be required to elect to call no evidence in relation to the breach issue. He accepted that at some stage it would be proper to require him to elect to call no evidence in relation to the infringement of RD1 issue. Counsel for the first three defendants submitted that they should not be required to elect to call no evidence in relation to the inducement issue.

36 I did not hear full submissions on the various issues. It seemed to me that it was appropriate to hear an outline of the submissions, and then to determine at a relatively early stage whether it was appropriate to entertain the submissions of no case, and if so, whether I should require the defendants to elect to call no evidence either generally, or in relation to the particular issues. In doing so, I adopted an approach similar (but not identical) to the first of the three approaches identified by Tadgell J in Protean (Holdings) Ltd (Receivers and Managers Appointed) and Others v American Home Assurance Co [1985] VicRp 18; [1985] VR 187 at 237.

37 After hearing submissions from all parties I ruled that I would not entertain the submissions of no case unless the defendants elected to call no evidence on any issue in the action. Counsel for the Colebatch defendants elected to call evidence, and in those circumstances, I did not entertain submissions of no case to answer.

38 An important aspect of the present argument is that whatever decision I made on submissions of no case, the trial of the action would proceed in the normal way in relation to the cause of action against all defendants based on the alleged infringement of RD2 ("the infringement of RD2 issue"). Furthermore, the plaintiff alleges that KA1 and KA2 are obvious or fraudulent imitations of RD2. KA1 and KA2 were manufactured in 1996. The acts and conduct of Mr Benfield and/or Mr Colebatch in 1996, and in particular the first half of 1996, leading up to the manufacture and sale of KA1 will be relevant to the question of whether KA1 and KA2 are fraudulent imitations of RD2. In addition, an important participant in events in 1996 leading up to the manufacture and sale of KA1 and KA2 was Mr Andrew Rogers, an industrial designer. Counsel for the Colebatch defendants told me during the argument that he would be calling Mr Rogers as a witness in relation to the infringement of RD2 issue.

39 The significance of this point is two-fold. First, even if I was to rule in favour of the submissions of no case, the trial of the action would still proceed in relation to the infringement of RD2 issue. The parties have been required to file written statements of their potential witnesses. My assessment of the issues in the case, and the number of potential witnesses to be called by the defendants, is that if I do not entertain the no case submissions, or if I indicate that I require the defendants to elect and they decide not to elect, the time taken in completing the trial of the action will not be significantly extended. It is difficult to be precise, but I am confident the "additional" time would be no more than a couple of days, a week at most. This is an important factor, particularly when it is assessed against the additional costs that might be incurred by the parties should any rulings I deliver in relation to the no case submissions be overturned on appeal. Secondly, the plaintiff alleges that acts and conduct by Mr Benfield in 1996 leading up to the production of KA1 were in breach of clause 9 of the Deed, and that acts and conduct by the first three defendants in 1996 constitute acts of inducement in terms of a breach of clause 9 by Mr Benfield. Those acts and conduct or closely related acts or conduct may also be relevant to the question whether KA1 is a fraudulent imitation of RD2. As far as I could see at the conclusion of the plaintiff's case, there is an overlap (or at least a possible overlap) between the issues relating to the breach issue (at least insofar as the plaintiff relies on acts and conduct of Mr Benfield in 1996) and the inducement issue on the one hand, and the allegation that KA1 and KA2 are a fraudulent imitation of RD2 on the other. In other words, if I heard and upheld the defendants' submissions on the breach issue and the inducement issue, it is at least possible that I would hear evidence in relation to the infringement of RD2 issue which would also have been relevant to those issues.

40 It has been said that there is a settled rule of practice that a defendant wishing to make a no case submission should be required to elect to call no evidence. I do not propose to set out all the relevant authorities. Many of them are collected in the reasons for judgment of Finkelstein J in Compaq Computer Australia Pty Ltd v Merry & Ors [1998] FCA 968; (1998) 157 ALR 1 at 6 - 7. As Finkelstein J observes, there are good practical reasons for the practice. If a no case submission is accepted and no election is required and the decision is later overturned on appeal, then the appeal court will have to order a retrial with all the inconvenience and expense to the parties that is involved in that course. Furthermore, it is thought undesirable that the plaintiff's evidence is reviewed twice. This will happen if a no case submission is entertained without calling on the defendant to elect, and the submission is then rejected.

41 Having said that, the rule of practice is not inflexible, and the court retains the discretion to depart from it.

42 A leading authority in this State is Residues Treatment and Trading Co Ltd v Southern Resources Ltd [1989] SASC 1397; (1989) 52 SASR 54. In that case, Perry J considered whether there is a settled rule of practice in this State of the nature I have described or in fact a settled rule of practice that a party will be permitted to make a no case submission without being required to elect to call no evidence. His Honour identified four categories of circumstances in which a no case submission could be made, and the rule concerning election in each case. His Honour said (at 68 - 69):

"In my opinion, the evident good sense in the proposition that, generally speaking, a trial judge should not take a course which could result in him being obliged to review the evidence twice, once before the defendant has called any evidence and again after further evidence has been called, should lead to recognition of the general rule in the terms in which it has clearly been identified in other jurisdictions.

That is not to say that there is no reason to put counsel to their election if the submission of no case to answer may be advanced in a manner disengaged from any review of the evidence. But that is not the case here.

As to that aspect of the matter it seems to me that there are primarily four situations in which a submissions of no case to answer may be made. They are:

1. Where no reference at all to the evidence is required.

2. Where a reference to the evidence is required only to establish that there is an evidentiary hiatus or failure to adduce any evidence as to an essential element in the cause of action.

3. Where it is argued that on a consideration of the evidence adduced by the plaintiff taken at its highest from the plaintiff's point of view, the evidence could not support the causes of action pleaded.

4. The situation where it is contended that although there is some evidence to support the plaintiff's claim, it is so weak and unreliable that it should be dismissed without calling upon the defendant.

In the criminal jurisdiction, category 4 would be met by following the course referred to in R v Prasad (1979) 23 SASR 161: see in particular per White J at 172.

As to category 1, this should normally be argued on the pleadings, preferably before the trial commences. No question of election arises in that situation. Likewise, consideration of a submission of no case to answer in category 2 should not involve an election.

As to categories 3 and 4, these situations should normally be met by the application of what I have referred to as the general rule that counsel should be called upon to elect.

It has been conceded by all counsel that the case falls into category 3.

Before leaving the question of the situations in which a submission of no case to answer may be made, I should say that it seems to me that some confusion has arisen by the use of the expression 'question of law'. It has sometimes been suggested that no election should be required if the consideration of the submissions is confined to a question of law.

But the adequacy of the evidence to support the plaintiff's case is always a question of law. I think it better to say that if consideration of the submission of no case to answer involves the need to evaluate the evidence, other than simply to identify an hiatus of the kind referred to in example 2 above, the moving party should normally be put to his election."

43 I note that in Compaq Computer, Finkelstein J expressed the view that the authorities show that category 2 cases identified by Perry J in Residues Treatment do in fact fall within what he called the general rule that a party will be required to elect.

44 Counsel for Mr Benfield submitted that his submission on the breach issue did not require a detailed consideration of the evidence. He said that the basis of his submission was such that it fell within category 2. Counsel for Mr Benfield said that he would argue that on the proper construction of clause 9, no breach can be established unless (among other things) the plaintiff can prove that there was an operating business before 9 September 1996. There is no need to consider the evidence, he submitted, other than to note that there is no evidence on that point. Therefore, he should not be required to elect to call no evidence on the issue. Counsel for the first three defendants made a similar submission in relation to the inducement issue in the sense that they argued that there was no need to consider the evidence, other than to note that there is no evidence on the point.

45 I do not agree that in relation to the breach issue, reference to the evidence is only required to establish an evidentiary hiatus. Even if Mr Benfield is right about the proper construction of clause 9, the plaintiff will no doubt refer to various documents in evidence, and ask me to draw the inference that there was an operating business before 9 September 1996. Although perhaps the evidence is not quite so clear, I think the same observation may be made in relation to the inducement issue.

46 There is a further reason for requiring an election on these issues. If I do not, and I rule in favour of the defendants and that ruling is overturned on appeal, then the defendants will be at liberty on a retrial to call evidence on those issues. That may involve the defendants calling witnesses who will have given evidence and been cross-examined before me on the infringement of RD2 issue, and possibly cross-examined on issues relevant to the breach issue and the inducement issue. To my mind that would be an undesirable outcome.

47 If there is a rule of practice in this State requiring election then the defendants should be required to elect unless in the exercise of my discretion I think the defendants should not be put to an election. I can see no reason, having regard to the reasons which normally justify a requirement that a party elect, not to require the defendant to make an election. If I approach the matter by reference to the four categories identified by Perry J in Residues Treatment, the foreshadowed no case submissions fall within category 3 and an election should be required.

48 I have also concluded that the defendants should be required to elect to call no evidence on any issue. I accept as the authorities make clear, that a party may make a no case submission with respect to some only of the issues in an action. Presumably, it is within the power of the court to require a party to elect to call no evidence as to only those issues. However, it is not appropriate to do that in this case. To deal with the breach issue and the inducement issue in the normal way will not involve a great deal of additional hearing time. Those issues overlap with the infringement of RD2 issue. There is a real possibility that I will hear evidence on the infringement of RD2 issue which will bear on the breach issue and the infringement issue. That evidence may suggest that my decision on that issue (if it is in favour of the defendants) is wrong. This case has similarities with the overlapping of issues identified by Perry J in Residues Treatment, although the fact of the overlapping was perhaps more obvious in that case.

49 It was for these reasons that I ruled that the defendants should elect to call no evidence on any issue before I would entertain the no case to answer submissions.

RULING NO 3: THE PLAINTIFF'S APPLICATION TO AMEND**

50 I can deal with my reasons for this ruling quite briefly.

51 In the course of its case, the plaintiff applied to tender a letter from Mr Benfield of Heatshield to a Mr Zhou Xingen in China dated 5 January 1993 (MFI P 52). The letter invites negotiations about the possibility of a joint venture or agreement between Mr Benfield or Heatshield and Mr Xingen's business involving the sale of (among other things) airconditioning outlet directors. The letter was said by the plaintiff to be relevant to the allegation that prior to 9 September 1996 Mr Benfield acted in breach of clause 9 of the Deed.

52 Counsel for Mr Benfield objected to the tender of the letter. He said that the letter or the issue raised by the letter had not been pleaded. This submission led to an application to amend by the plaintiff. Paragraph 13 of the Statement of Claim is the relevant paragraph. Leaving aside amendments which were not contentious, the plaintiff sought to amend paragraph 13 to add the following particulars of the allegation that Mr Benfield acted in breach of clause 9:

"(vi) Assisted the establishment of the K-Aire business by providing financial assistance in the form of a guarantee and security;

(vii) By himself, or by or through Heatshield, entered into negotiations with persons in China for the manufacture and supply of airconditioning outlets by Heatshield to those persons or for the supply by those persons of airconditioning outlets to Heatshield, for supply in Australia."

53 I allowed the amendment and admitted the letter in evidence (P 52). My reasons follow.

54 Counsel for Mr Benfield did not consent to the amendment in paragraph 13(d)(vi) but he presented no detailed argument against it. It seems to me that I ought to allow the amendment. There is already before the Court evidence with respect to the allegation, and there is no doubt Mr Benfield has been on notice that it is alleged against him that he was involved in the establishment of the business conducted by K-Aire.

55 Counsel for Mr Benfield opposed the amendment in paragraph 13(d)(vii) on three grounds. He submitted that the amendment was deficient in form, that it was not arguable, and that Mr Benfield will suffer prejudice if the amendment is allowed.

56 I gave Mr Benfield the opportunity to put forward evidence of prejudice. No evidence was forthcoming. That is a significant factor in favour of granting leave to amend.

57 There are difficulties with the form of the amendment, but they are inherent in the existing pleading in paragraph 13. In my opinion, the allegation is arguable, or at least I am not prepared to hold that it is not arguable in the absence of full submissions on the proper interpretation of clause 9 of the Deed.

58 In my opinion, the absence of prejudice to Mr Benfield is the critical consideration. The nature of the proposed amendment and the absence of prejudice to Mr Benfield means that leave to amend should be granted.

APPENDICES A , B, C, D SHALL REMAIN ON THE COURT FILE