ZOLL Medical Australia, in the matter of Cardiac Defibrillators Australia Pty Ltd (in liq) v Cardiac Defibrillators Australia Pty Ltd

Federal Court of Australia|2022-02-25|Before: Halley J

Counsel for the Plaintiffs: Mr MA Karam with Ms SF Gaussen

Counsel for the Defendants: The Defendants did not appear.

ORDERS NSD 1304 of 2021 IN THE MATTER OF CARDIAC DEFIBRILLATORS AUSTRALIA PTY LTD (IN LIQ) ACN 095 328 911 BETWEEN: ZOLL MEDICAL AUSTRALIA PTY LTD First Plaintiff

AND: CARDIAC DEFIBRILLATORS AUSTRALIA PTY LTD (IN LIQ) ACN 095 328 911 First Defendant

PHILIP NEWMAN IN HIS CAPACITY AS LIQUIDATOR OF CARDIAC DEFIBRILLATORS AUSTRALIA PTY LTD (IN LIQ) ACN 095 328 911 Second Defendant

order made by: HALLEY J DATE OF ORDER: 25 February 2022

Pursuant to s 500(2) of the Corporations Act 2001 (Cth), the applicants are granted leave to proceed against the first respondent.
Within 14 days of the date of these orders, the respondents are to deliver to the applicants' solicitor the following documents: (a) documents evidencing the first respondent's complete sales history (for goods supplied pursuant to the Exclusive International Distribution Agreement (bearing the effective date of 1 January 2015) and the International Distributor Agreement dated 31 March 2020) (Distributor Agreement)) by: (i) product (including serial number, if available); and (ii) customer; (b) a list containing the names, addresses and primary contact details (by contact email, mailing address and phone number, where available) of the customers identified in Order 2(a) above.
Order 2 is to be complied with in the following manner: (a) to the extent that documents can be provided electronically, they are to be so provided to the applicants by email to jonathon.ellis@dlapiper.com and alex.wong@dlapiper.com; (b) to the extent the documents are to be provided in hard copy, by delivery to the attention of Jonathon Ellis, DLA Piper, Level 14, 80 Collins Street, Melbourne, VIC 3000, PO Box 4301, Melbourne VIC 3000.
The proceeding be listed for a further case managment hearing at 9.30 am on Friday, 1 April 2022.
Liberty to apply on 24 hours' notice. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Inroduction 1 On 25 February 2021 I made orders in this proceeding granting leave to the plaintiffs to proceed against the first defendant (Cardiac Defibrillators Australia Pty Ltd (in liquidation) (CDA)) and for the production of documents and provision of information by the defendants. These are my reasons for making those orders. 2 The plaintiffs seek the Court's assistance in compelling compliance with contractual entitlements for the return of customer and customer related information upon the termination of distributor agreements they had with CDA. Those contractual entitlements arise pursuant to two agreements with CDA, which is now in liquidation. 3 The plaintiffs advanced multiple alternative bases for the orders for production of documents and provision of information that they sought in the amended originating process, namely: a mandatory injunction (Orders 4 and 5); orders for specific performance (Orders 6 and 7) and orders pursuant to cl 90-15 of Schedule 2 of the Corporations Act 2001 (Cth) (Corporations Act) or alternatively s 486 of the Corporations Act (Orders 2 and 3). 4 The plaintiffs relied upon the following affidavits: (a) Scott Rodgers affirmed on 13 December 2021 and "Exhibit SR-1"; (b) Scott Rodgers affirmed on 18 December 2021; and (c) Jonathon Ellis affirmed on 18 February 2022. 5 For the reasons that follow I was satisfied that that the plaintiffs should be given leave to proceed against CDA and I concluded that the following orders for production of documents and provision of information should be made and that they should be made by way of mandatory injunctions rather than as orders for specific performance or orders pursuant to cl 90-15 of Schedule 2 or s 486 of the Corporations Act: 2. Within 14 days of the date of these orders, the defendants are to deliver to the plaintiffs' solicitor the following documents: a. documents evidencing the first respondent's complete sales history (for goods supplied pursuant to the Exclusive International Distribution Agreement (bearing the effective date of 1 January 2015) and the International Distributor Agreement dated 31 March 2020) (Distributor Agreement)) by: i. product (including serial number, if available); and ii. customer; b. a list containing the names, addresses and primary contact details (by contact email, mailing address and phone number, where available) of the customers identified in Order 2(a) above. 3. Order 2 is to be complied with in the following manner: a. to the extent that documents can be provided electronically, they are to be so provided to the plaintiffs by email to jonathon.ellis@dlapiper.com and alex.wong@dlapiper.com; b. to the extent the documents are to be provided in hard copy, by delivery to the attention of Jonathon Ellis, DLA Piper, Level 14, 80 Collins Street, Melbourne, VIC 3000, PO Box 4301, Melbourne VIC 3000.

Background 6 The following factual background is taken largely from the comprehensive written submissions made by the counsel for the plaintiffs, Mr Karam and Ms Gaussen, as supplemented by the oral submissions of Mr Karam. 7 The plaintiffs develop and market medical devices, including cardiac defibrillators. On 1 January 2015, Cardiac Science Corporation (an entity subsequently acquired by the second plaintiff (ZMC) on 26 August 2019), entered into an international distributor agreement with CDA (then known as Cardiac Science Australia Pty Ltd) (Prior Distributor Agreement). 8 Relevantly for present purposes, the Prior Distributor Agreement contained a provision dealing with consequences for termination, which included cl 9.2(b)(v), which provided that CDA shall within 30 days from the date of termination or expiry of the agreement: deliver to CARDIAC SCIENCE, at [CDA's] expense, all documents concerning the Products, which are then in [CDA's] possession, including names and addresses of customers that have purchased or otherwise acquired Products from Distributor. 9 Following a review of its business operations, the Prior Distributor Agreement was terminated by ZMC in or about February 2020. Shortly thereafter, on 31 March 2020, the first plaintiff (ZOLL) entered into a new distribution agreement with CDA (then known as Cardiac Science Australia Pty Ltd) (Distributor Agreement). 10 The Distributor Agreement relevantly contained clause 7.5, which provided that: 7.5 Books and Records; Audit Right. At all times during the term of this Agreement, and for at least two (2) years after the termination of this Agreement (or such longer period of time as required by applicable law), Distributor will maintain at its principal place of business complete and accurate books and records with respect to Distributor's activities pursuant to this Agreement, including a complete list of all the Products installed or distributed by Distributor and a complete list of Customer names, addresses and primary contacts, and all other data needed for verification of Distributor's compliance with the terms of this Agreement and payment of amounts owed to ZOLL under this Agreement. During the term of this Agreement and for two (2) years thereafter, upon prior written notice, ZOLL will have the right, during normal business hours, to inspect, or have an independent audit firm inspect, Distributor's books and records and facilities relating to Distributor's performance of its obligations hereunder to ensure compliance with the terms of this Agreement. The costs of the audit will be paid by ZOLL. 11 Clause 10.5 of the Distributor Agreement provided for obligations upon termination, including, relevantly for present purposes: (c) Distributor shall immediately deliver to ZOLL any and all Confidential Information (as defined in Section 20) of ZOLL and all samples, drawings, prints, photographs, notes, documents and materials received from ZOLL during the term of this Agreement. (d) Distributor shall immediately deliver to ZOLL Distributor's sales history by Product and by Customer for the twenty-four (24) months preceding the termination or expiration of this Agreement. 12 On 18 November 2020, ZOLL terminated the Distributor Agreement. 13 On 12 February 2021, the solicitors for ZOLL corresponded with CDA's then solicitors and requested that CDA comply with its obligations under the Prior Distributor Agreement and the Distributor Agreement (together Distributor Agreements). 14 On 26 March 2021, CDA was wound up as a creditors' voluntary winding up, and Mr Philip Newman was appointed liquidator (Liquidator). 15 Between 7 May 2021 and 7 December 2021, the solicitors for the plaintiffs corresponded with the Liquidator on multiple occasions, seeking compliance with CDA's obligations under the Distributor Agreements and indicating that proceedings would be commenced if compliance was not forthcoming. 16 By a letter dated 18 October 2021 to the solicitor for the plaintiffs, the Liquidator advised that: I re-iterate my position that I am unable to provide you with books and records of the company, in the absence of a Court Order. Should your client submit an application to the Court for access to the company's books and records, I will oblige with any such Orders made by the Court. Alternatively, I have considered whether I was able to deem the customer listing sought by you as an asset of the company. As previously advised, Krypton Nominees Pty Ltd ("Krypton") holds a security interest over the assets of the company. Despite my best endeavours, I was unable to obtain the consent of the secured creditor for the sale of the company's customer listings and other such records to you. Accordingly, I am unable to proceed with a sale on this basis. I note that Krypton has recently provided an updated payout figure of its debt, in the amount of $170,063.52, and also re-iterated its position that it would release its security upon payment of this amount in full. Consequently, I am also unable to provide this information to you, on the basis that it is deemed an asset of the company. 17 The plaintiffs commenced these proceedings on 14 December 2021. 18 On 16 December 2021, the Liquidator sent an email to the Court stating: I wish to provide you with notice that I do not intend to file an appearance in this proceeding and will abide by any Order made by the Court in respect of this proceeding. 19 The plaintiffs submit that the information contained in the books and records sought by them is of critical importance to them, and they require the information in order to comply with their product liability, warranty and regulatory obligations for the distribution of lifesaving medical devices including defibrillators. By way of a practical example, the plaintiffs submit that they must know to whom their cardiac defibrillators have been distributed, in the event of a product recall. 20 The plaintiffs submit that the information and documents sought also carry significant commercial value to the plaintiffs for the following reasons. 21 First, the information would enable ZOLL to communicate directly with the end customers of ZOLL's products, ensuring that these customers receive the latest information on ZOLL's products, particularly in relation to product maintenance, service, pricing and upgrades. 22 Second, the information would provide ZOLL with relevant market information by way of sales trends and regional splits which can be generated from the client information, as it includes purchase histories in addition to general client contact information, and allows for more focused marketing, including the option to upgrade devices and trade-in devices to ensure they have the latest technology available for this product. 23 Third, access to the client information would enable ZOLL to provide its customers with information specific to consumable and accessory supplies via its new partner, St John Ambulance Australia, by helping to ensure the devices are "Rescue Ready" for a lifesaving event.

Relevant principles 24 Section 500(2) of the Corporations Act provides: (2) After the passing of the resolution for voluntary winding up, no action or other civil proceeding is to be proceeded with or commenced against the company except by leave of the Court and subject to such terms as the Court imposes. 25 The principles which are relevant to the exercise of the discretion under s 500(2) may be summarised as follows: (a) the purpose of s 500(2) is to prevent a company's assets being dissipated by unnecessary litigation: Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (In liquidation) [2018] NSWCA 139 (Seymour Whyte) at [16] (Sackville AJA), citing In the matter of DSHE Holdings Limited (recs and mgrs apptd) (in liq) [2018] NSWSC 82 (DSHE Holdings) at [18] (Black J); Re Gordon Grant and Grant Pty. Ltd. [1983] 2 Qd R 314 (Re Grant) at 316 (Campbell CJ, Sheahan J and McPherson J); (b) the power to grant leave is discretionary: Seymour Whyte at [16], citing DSHE Holdings at [18] (Black J); White, in the matter of Mossgreen Pty Ltd (Administrators Appointed) (No 5) [2018] FCA 184 at [21] (Perram J); (c) a plaintiff for leave will be required to show why it should not be left to prove its debt in the winding up: Seymour Whyte at [16], citing DSHE Holdings at [18]; (d) a plaintiff must establish that the claim has a solid foundation and gives rise to a serious question to be tried: Seymour Whyte at [16], citing DSHE Holdings at [18]; (e) factors relevant to the exercise of the court's discretion may include the degree of complexity of legal and factual issues: Seymour Whyte at [16], citing DSHE Holdings at [18]; Zamattia v Jainti Pty Ltd (in liq) in its capacity as Trustee of the Zambito Trust [2022] NSWCA 3 (Zamattia) at [8] (Leeming JA). It may also include whether there are complex procedural matters such as discovery or interrogatories involved: Zamattia at [8]; Re Grant at 317; (f) the effects that the proceedings may have on creditors of the company in liquidation are to be taken into account: Zamattia at [8]; (g) leave should generally be granted for a proprietary claim which cannot be accommodated within the proof of debt procedure: Chahwan v Euphoric Pty Ltd [2006] NSWSC 1002 at [40] (Barrett J); on appeal Chahwan v Euphoric Pty Ltd and Another (2008) 227 ALR 43; [2008] NSWCA 52 at [8] (Beazley, Tobias and Bell JJ); Oliveri v P M Sulcs & Associates Pty Limited (in liq) [2012] NSWSC 1311 at [10] (Black J); Richardson v Lo Pilato (Liquidator); In the Matter of Trojan Hospitality (ACT) Pty Limited (In Liq) [2014] FCA 888 at [52]-[54] (Foster J); and (h) the Court will normally grant leave as of right where plaintiffs seek to recover their own property from the company because such claims cannot be accommodated within the proof of debt regime. Claims which can only be resolved by court proceedings include rectification, specific performance, injunction and rescission of a contract: Commonwealth v Davis Samuel Pty Ltd (No 5) (2008) 68 ACSR 336; [2008] ACTSC 124 (Davis Samuel) at [34]-[36] (Refshauge J); cited with approval in Palace v RCR O'Donnell Griffin Pty Ltd (in liq) [2021] QCA 137 at [40] (Sofronoff P and Morrison and Bond JJA); QNI Resources Pty Ltd and Others v Park and Others (2015) 116 ACSR 321; [2016] QSC 222 at [49] (Bond J).

Submissions 26 The plaintiffs submit the following matters support the grant of leave in the present case. 27 First, the proof of debt procedure is unable to accommodate the proposed claim. The plaintiffs do not claim a debt. Rather, they seek the provision of information which can only be resolved by court order, given the refusal of the Liquidator to provide the information absent such an order. Accordingly, they submit that leave should be granted as of right consistently with the statements of principle in Davis Samuel at [34]-[36] (summarised above). 28 Second, for the reasons outlined in their submissions for substantive relief, the proceedings have a solid foundation and give rise to a serious issue to be tried. 29 Third, the issues to be determined are not factually or legally complex. Nor are the prospective orders contested. As noted above, by email dated 16 December 2021, the Liquidator informed the Court that he did "not intend to file an appearance in this proceeding" and would "abide by any Order made by the Court in respect of this proceeding." 30 Fourth, there are no pre-trial procedures such as discovery or interrogatories which are required. To the contrary, the question of leave to proceed is to be determined at the same time as the hearing in relation to substantive relief. 31 Fifth, the proceedings do not cause procedural or substantive prejudice to creditors. The plaintiffs seek the provision of limited information only. By correspondence dated 21 September 2021, the Liquidator advised the plaintiffs' solicitor that his staff had extracted, and would secure, various reports from CDA's QuickBooks management accounts files which the Liquidator considered contained the information sought. 32 By letter dated 8 February 2022, after the first case management hearing in this proceeding on 4 February 2022, the solicitor for the plaintiffs wrote to the Liquidator and invited him to have regard to the impact of the prospective orders on the orderly conduct of the liquidation. 33 As at 18 February 2022, which was the date of the plaintiffs' submissions, the Liquidator has not responded to that correspondence. Nor had he expressed any concerns as to any hardship arising from any compliance with the proposed orders for production of documents and provision of information if they were made by the Court. 34 On 18 February 2022, the solicitors for the plaintiffs provided the Liquidator and his solicitors with a copy of the plaintiffs' outline of submissions. 35 On 22 February 2022, the solicitors for the plaintiffs provided a copy of the plaintiffs' proposed orders to the Liquidator and his solicitors.

Consideration 36 I am satisfied that the lodgement of a proof of debt would be an inadequate alternative to the orders sought by the plaintiffs. The plaintiffs seek provision of information, not recovery of a debt owed to them. 37 The Liquidator has refused to provide that information without a court order but does not seek to challenge the orders for production and the provision of information. There is no question that the proceeding gives rise to a serious issue to be tried. The entitlement of the plaintiffs to the information is clearly stated in the Distributor Agreements. 38 Further, I am satisfied that making the orders sought by the plaintiffs for production of the documents and provision of the information would not cause any material delay in the winding up of the company or any other material prejudice to the defendants, given the relevant information and documents appear already to have been identified by the defendants. 39 I note that the Liquidator confirmed in his letter of 21 September 2021 to the plaintiffs' solicitor: Please note that I am not in control of the company's QuickBooks management accounts file, however, access to same has been provided to my staff by the company's director. As I am not in control of the company's QuickBooks account, I am unable to take steps to secure same. I note that, at the date of this letter, I am still currently able to access this file. Notwithstanding the above, my staff has extracted various reports from the company's QuickBooks management accounts file, which are relevant to my investigations into the company's affairs. My staff has also extracted various reports which I consider are those sought by your client, based on your prior communications with this office. I confirm that these extracted reports will be secured by my office, however, I am unable to provide any such certainty in terms of the QuickBooks management accounts file, as I am not in control of same. 40 For these reasons, I have concluded that it is appropriate that an order should be made pursuant to s 500(2) of the Corporations Act granting the plaintiffs leave to proceed against CDA.

Relevant principles 41 The relevant principles with respect to the grant of a mandatory injunction can be summarised as follows: (a) a mandatory injunction will only be granted when the plaintiff shows a very strong probability on the facts that grave damage will occur in the future: Redland Bricks Ltd v Morris and Another [1970] AC 652 (Redland Bricks) at 665 (Lord Upjohn); Renouf v RAC Finance Ltd (No 2) (2018) 338 FLR 276; [2018] FCCA 182 at [93] (Judge Lucev); Lord v McMahon (No 3) [2016] NSWSC 1686 (McMahon) at [16] (Slattery J); (b) damages must be an insufficient remedy: Redland Bricks at 665; McMahon at [16]; Dimitrios Michos & Another v Council of the City of Botany Bay [2012] NSWSC 625 (Dimitrios) at [80] (Slattery J); (c) regard should be paid to (i) whether the defendant behaved wantonly or unreasonably, and (ii) the hardship which would be caused by the grant of an injunction to a defendant who had behaved reasonably but wrongfully: Redland Bricks at 666; McMahon at [16]; Dimitrios at [80]; (d) if an injunction is granted, it must be so worded as to bring the defendant's attention to exactly what it is that the defendant is expected to do: Redland Bricks at 666; McMahon at [16]; Dimitrios at [80]; and (e) The public interest is relevant: Wrotham Park Estate Co Ltd v Parkside Homes Ltd [1974] 2 All ER 321 (Brightman J). 42 "Specific performance" is a term usually reserved for an order enforcing the whole of an agreement, while an order compelling performance of a single positive contractual obligation is called a mandatory injunction. In the realm of contract all forms of injunction, mandatory or prohibitory, approximate in some degree to decrees of specific performance: Sino Iron Pty Ltd v Mineralogy Pty Ltd [2020] WASC 311 at [81] (Kenneth Martin J).

Submissions 43 In the present case, the plaintiffs submit that orders for the production of the information and documents should be made and a mandatory injunction is the most appropriate form of relief, taking into account the above principles and for the reasons outlined below. 44 First, the evidence establishes that the plaintiffs are likely to sustain "grave damage" should they not be provided with the relevant extracts from the books and records of CDA. Most notably, the plaintiffs are compromised in their ability to conduct and manage product recalls of critically important, life-saving medical devices. This causes the plaintiffs difficulty in complying with their regulatory obligations under the Therapeutic Goods Act 1989 (Cth). 45 Consequently, non-compliance has potentially significant effects on the business operations of the plaintiffs given they are potentially exposed to broad-ranging legal liability. Further, if the plaintiffs are not granted the relief sought, they are also denied access to information which is of significant commercial value to their business. 46 Second, an inability to issue product recall notices poses a tangible danger to members of the community. Accordingly, there is a strong public interest in granting the relief sought and no public interest considerations that would favour refusing the relief. 47 Third, the consequences for the plaintiffs' ability to conduct their business, the potential exposure to legal liability, and the threat to individual members of the community cannot is such that it is not just to confine the plaintiffs to a remedy in damages. That is particularly so given that CDA is in liquidation.

Consideration 48 I am satisfied that for the reasons advanced by the plaintiffs that making the orders for production of the documents and provision of the information sought by the plaintiffs were necessary to ensure that the plaintiffs did not suffer "grave damage" and there was a tangible danger to the public if product recall notices could not be provided to purchasers of the products the subject of the Distributor Agreements. 49 I am also satisfied that the plaintiffs have a strong prima facie contractual entitlement to the information sought pursuant to the terms of the Distributor Agreements, damages would not be an appropriate remedy and the proposed orders for the production of the documents and provision of the information sought by the plaintiffs were expressed with sufficient precision that the defendants will be put on notice of exactly what is required of them. 50 I am also satisfied that it was appropriate to make the orders sought by way of mandatory injunctions rather than by orders for specific performance given that the plaintiffs were seeking performance of limited obligations of CDA that only arose on termination of the Distributor Agreements. 51 In the circumstances, it is unnecessary to determine the alternative bases on which the plaintiffs' relied for the relief that they sought, cl 90-15 of Schedule 2 and s 486 of the Corporations Act. In any event, I note that both proceed on the premise that the plaintiffs are unsecured creditors of CDA, a premise that on its face appears to be inconsistent with their primary position, that I have accepted, that in substance the claim advanced by the applicants is a proprietary claim which cannot be accommodated within the proof of debt procedure.

Other relief 52 The plaintiffs also sought orders at the commencement of the hearing that the defendants permit the plaintiffs or their independent auditor to inspect the books and records of the defendants to monitor their compliance with the orders for production and for the plaintiffs' costs of the proceedings to be costs in the liquidation of CDA. 53 Counsel for the plaintiffs, however, in the course of the hearing confirmed that the plaintiffs were no longer seeking, at least at present, those additional orders.

Disposition 54 For the reasons outlined above, on 25 February 2022 I made an order granting the plaintiffs leave to proceed against CDA and orders by way of mandatory injunctions for the production of the information and provision of the documents sought by the plaintiffs. I certify that the preceding fifty-four (54) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Halley.

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