R2M Pty Limited v Gourlay

REASONS FOR JUDGMENT 1 On 6 September 2010, the plaintiff commenced proceedings in this Court seeking an order setting aside a statutory demand served upon it on 17 August 2010. The defendant, Mr Gourlay, who served the statutory demand, is a former director of the plaintiff company, which was incorporated 19 August 2009. He is also a shareholder. 2 At the time of filing the application, the plaintiff also filed two affidavits in support (an affidavit of Christopher Gordon Cooke sworn on 6 September 2010 and an affidavit of Wayne Leslie Finlayson affirmed on 6 September 2010). Mr Cooke is a current director of the plaintiff company and Dr Finlayson is a former director, having resigned on 11 October 2010. Mr Gourlay filed a substantial affidavit in response, sworn on 26 November 2010. 3 For the purpose of the present application it has not been necessary to determine contested issues of fact and, having regard to the tests to be employed and the fact that further litigation is possible, it would be inappropriate to do so. The distillation of the facts which appears hereunder must be read with that qualification in mind.

The Facts 4 According to the affidavit of Mr Cooke, the plaintiff is a company which conducts research and product development into various technologies to support food, water and energy security and develops those technologies into products and services for the Australian and International market. An example of this is the creation of microbial treatments to soils to promote soil health. 5 On 21 December 2009 the plaintiff and Mr Gourlay entered into an "Intellectual Property Licence Agreement", expressed as commencing on 1 December 2009, whereby Mr Gourlay was to provide intellectual property to the plaintiff ("the licence agreement"). 6 Clause 1.1 of the licence agreement defined "intellectual property" as follows: Intellectual Property means all of the Licensor's methods, techniques, specifications, procedures, manuals, trade secrets, Confidential Information, knowledge and experience, prototypes, information imparted to R2M in confidence by the Licensor, any trademarks, service marks, trade names, copyrights, designs, patents and written or visual material relating to the technology and/or research as specified in Item 1 of Schedule 2. (Emphasis added) 7 Item 1 of Schedule 2 of the licence agreement listed the following matters: • Recipes relating to development of new microbial formulations for soil, plants, animals and humans; • Procedures relating to microbial fermentation; • Procedures for extraction of ORMUS from sea water or other materials for addition to microbial formulations; • Reports and findings relating to the measurement of life force energy form [sic] a Beale device; • Findings relating to tests with the Booker water conditioning device; • Expertise and intelligence relating to: о the development of baseline data for trials and experiments of microbial formulations, including soil carbon mapping and measurement; о the application rates and timings for microbial formations to soil, plants and animals; о bio-conversion of organic wastes into soil, conditioners and liquid fertilisers; о the mapping and detection of primary water, earth generated water in fractured rock systems; о subtle energy research; о water structure/disassociation; о trace mineral application; о seawater processing and applications; о biological farming; о primary water; о bio-conversion; о fermentation technologies; and о ORMUS production. 8 Under the terms of the licence agreement Mr Gourlay was required to deliver the intellectual property within 3 months of the commencement date (i.e. by 1 March 2010). Clause 6 of the licence agreement provided (in part): 1.1 Delivery of Intellectual Property to R2M (a) The Licensor must, within three (3) months of the Commencement Date, provide to R2M the Intellectual Property including, but not limited to: (i) any and all documents recording the Intellectual Property including methods, techniques, manuals, procedures; (ii) any and all prototypes, designs, patterns; (iii) any other written or visual material relating to the Intellectual Property; and (iv) if part of the Intellectual Property is the provision of knowledge, experience or intelligence then the Licensor must document that knowledge, experience or intelligence to the best of their abilities and provide a copy of that document to R2M. (b) The Licensor warrants to R2M that it will provide R2M with all the Intellectual Property within the time frame specified in subclause 6.1(a) and will not withhold any information. (Emphasis added) 9 It is apparent from the terms of the licence agreement to which I have referred that the provision of intellectual property was intended to be comprehensive. The licence agreement gave an exclusive, non-transferrable licence to the plaintiff to use the intellectual property for identified permitted uses, which included "development and commercialisation", "further research and scientific experimentation" and "creation of products and commercial applications". 10 The licence fee for the intellectual property was specified in Schedule 1 of the licence agreement as $195,000, 8% of ordinary shares in R2M Pty Limited and the equivalent of 8% of shares in a related company (calculated in a way specified in Schedule 1). The licence agreement stipulated that $100,000 and the shares were to be paid/delivered by 31 December 2009 and the remaining $95,000 was to be paid on 1 July 2010. There was no provision in the licence agreement in relation to GST. It is now accepted that no payment of any amount relating to GST was required under the licence agreement. 11 According to the affidavit of Mr Cooke, Mr Gourlay, as a director of the company, arranged for payment to himself of $110,000 in licence fees in about December 2009. This amount (incorrectly) included $10,000 for GST. The proceeds of a cheque for $110,000 were debited to the account of the plaintiff on 7 January 2010. 12 On 10 May 2010 Mr Gourlay sent an email to Mr Cooke setting out his dissatisfaction with the management of the company in relation to a number of issues, including changes to his own role and position. In relation the delivery of intellectual property he stated: Further, you should not expect that any project that I have brought to the R2M will fall under your spell. Similarly, you should not expect that any IP will automatically transfer to R2M under current leadership and management arrangements. Current arrangements signal disharmony in the company and a lack of commitment to capitalisation to enable IP and technology transfer. 13 On 20 May 2010 Dr Finlayson was appointed a director of the plaintiff. He conducted an audit in June 2010 of the provision of intellectual property to the plaintiff by Mr Gourlay and others. He concluded that Mr Gourlay had not provided intellectual property as required. On 1 July 2010 an email was sent by Dr Finlayson to Mr Gourlay asserting that no intellectual property, as outlined in the licence agreement, had been provided. Dr Finlayson requested that Mr Gourlay provide the intellectual property required by the licence agreement and listed again the information referred to in Item 1 of Schedule 2 of the licence agreement. 14 Mr Gourlay responded by email on the same day. His response commenced with the following statements: Wayne, I am happy to comply with this request as long as you comply with the following by 10 July: 1. Payment of all of my consultancy, director fees and final IP payments as required by Agreements. 2. Provide to the Board the R&D Plan, IP Property Transfer Plan, Quality Control Plan and IP/Product Commercialisation Plans that you were required to have completed by 30 March 2010. 15 Mr Gourlay went on to deny Dr Finlayson's suggestion that he had provided no intellectual property as required by the licence agreement. He gave suggested examples of the provision of the required information. He also suggested that "if there are gaps in the IP transfer" they were due, amongst other reasons, to inadequate management, control and security arrangements by the plaintiff. 16 The plaintiff did not pay the second instalment of the licence fee. On 17 August 2010 Mr Gourlay served the plaintiff with a statutory demand (dated 16 August 2010) for payment of a debt allegedly owed to him in the amount of $104,500 (including $9,500 on account of GST). The debt was described in the Schedule to the statutory demand as: Money owing under the terms of the Intellectual Property Agreement between Robert Clyde Gourlay and R2M Pty Limited being the final payment for Intellectual Property provided by Robert Gourlay to R2M Pty Limited under the terms of the agreement, as per Tax Invoice No 201008, dated 27 May 2010. 17 In a short affidavit accompanying the statutory demand, which was affirmed by Mr Gourlay on 13 August 2010, Mr Gourlay stated formally that he believed that there was no genuine dispute in relation to the existence or amount of the debt. 18 On 18 August 2010 solicitors for the plaintiff wrote to solicitors for Mr Gourlay. This letter noted Dr Finlayson's demand for the provision of intellectual property. The letter alleged that Mr Gourlay had not provided any of the required intellectual property, although it referred also to Mr Gourlay's assertion that he had done so. It advised that the plaintiff rescinded the licence agreement due to Mr Gourlay's repudiation and fundamental breach of it and threatened litigation to recover the earlier payment and the shares which had been issued to Mr Gourlay. It asked that the statutory demand be withdrawn. 19 On 24 August 2010 solicitors for Mr Gourlay replied. They denied non-delivery of intellectual property, they alleged breaches of the licence agreement by the plaintiff and they declined to withdraw the statutory demand. 20 On 25 August 2010 solicitors for the plaintiff wrote once again. They suggested that the correspondence showed a "clear genuine dispute" about the debt claimed. Again they suggested that the statutory demand be withdrawn. This time there was no definite response and, on 6 September 2010, the present application to set aside the statutory demand was filed. 21 The affidavits to which I earlier referred served, amongst other things, to restate the respective positions of the parties. The plaintiff claims a failure on the part of Mr Gourlay to deliver intellectual property as promised. Although the plaintiff's evidence is equivocal about whether it claims that no intellectual property at all has been delivered by Mr Gourlay, or some only, it claims to be relieved of the obligation to make any further payment to him. Furthermore, the plaintiff's stated position is that Mr Gourlay's defaults are such that not only is the payment which was due on 1 July 2010 one to which Mr Gourlay is not entitled but he is now disentitled to retain any part of the first payment made to him. 22 Mr Gourlay, on the other hand, claims that the obligation to make the second payment of the licence fee to him was unconditional. However, Mr Gourlay's detailed response to the affidavits of Mr Cooke and Dr Finlayson (like his email of 1 July 2010) reveals that there is ample scope for a conclusion that there are a number of areas of disagreement between the parties about the extent of Mr Gourlay's compliance with his own obligations under the licence agreement and whether the final payment to him, due on 1 July 2010, was one to which he was then, or is now, legally entitled.