Advanced Gaming Technologies Pty Ltd v Resource Management Force Pty Ltd

[1995] FCA 808

IN THE FEDERAL COURT OF AUSTRALIA )
  )
NEW SOUTH WALES DISTRICT REGISTRY )    No.  NG 682   of  1995
  )
GENERAL DIVISION                 )

BETWEEN:ADVANCE GAMING TECHNOLOGIES PTY LIMITED

Applicant

AND:RESOURCES MANAGEMENT FORCE PTY LIMITED

Respondent

11 SEPTEMBER 1995

REASONS FOR JUDGMENT
LOCKHART J.
     This is a dispute between two corporations over the development and supply of certain hardware and software relating to various devices and services, and to the design and development of communications interface software in relation to certain devices and services - generically, the programmes.

The applicant, Advance Gaming Technologies Pty Limited seeks an interlocutory injunction until the final hearing of the proceeding to restrain the respondent, Resource Management Force Pty Limited from, in the absence of a licence from the applicant, selling, letting for hire, offering for sale or hire, or reproducing in a material form, the material of the kind to which I have referred, or authorising a reproduction in a material form of such material.

The applicant also seeks an order that the respondent deliver up to the applicant all source and object codes, disks and related documentation in its possession, custody, or power, for each of the programmes, together with certain other articles.

A case has been prepared on both sides at fairly short notice and, if I may say so, has been prepared with considerable thoroughness.  The evidence is substantially in a form which is appropriate for a final hearing, though obviously there remains some degree of refinement of the evidence to be undertaken by each side.

The parties are not in agreement over most of the issues in the case.  The applicant's case is based upon both the Copyright Act 1968 and the consumer protection provisions of the Trade Practices Act 1974. However, the real dispute concerns the Copyright Act.  Of course, I do not propose to make any findings of fact of a definitive nature in a proceeding of this kind.  That is appropriate to a final hearing.

The two issues that the Court has to resolve at this interlocutory stage are well-known, namely, whether there is a serious question to be tried and, if there is, where does the balance of convenience lie?  This is, it seems, essentially a balance of convenience case.  I shall explain why I have reached that view.

On the question of whether there is a serious question to be tried or, as it is sometimes put in the cases, a prima facie case established, the applicant relies primarily upon a document called "Heads of Agreement" which, although undated, is agreed to have been signed on 9 December 1994.  The applicant relies on other material as well, but the Heads of Agreement document is the primary basis of its case, at least for interlocutory purposes.  It is an agreement between the applicant and the respondent whereby the respondent agreed to provide services exclusively to the applicant for a term of some four years for the design, development and supply of the programmes.

Clause g of that document is a clause of considerable importance to the applicant's case, and the applicant says that under this clause the respondent agrees that all ownership rights and intellectual property rights for any hardware and any software developed by the respondent for and on behalf of the applicant, to date and in the future as governed by the agreement, are to vest absolutely with the applicant; and further, that the respondent vests in the applicant all intellectual and industrial property rights arising out of any modifications or adaptations made to the hardware or software, whether those modifications or adaptations are made pursuant to the agreement or otherwise.  The operation of clause g was expressed to survive the termination of the agreement.

Clause k provides that the respondent shall not use any software or hardware developed by it for the applicant, together with certain other matters, without the prior written approval of the applicant. 

Clause m provides that the respondent shall not sell or be party to the sale of what is called the AGSP Hardware and the associated software to any party within the gaming industry, whether directly or indirectly.

There is a real dispute on questions of fact between the parties over whether the Heads of Agreement document is the essential agreement between the parties or whether the agreement arises from certain documents that preceded the Heads of Agreement and at least one document that followed it.  This document is said to be an 'Amendment to the Heads of Agreement' and there is a real dispute over whether it has any contractual force at all between the parties.  Certainly it has not been executed.  On the one hand, the applicant denies that any discussions occurred which involved adopting the terms of the document; whereas on the other hand, the respondent says that by discussions between the relevant officers of the two parties the terms of that document were firmly agreed.

The respondent says that the agreement between the parties embodied in the Heads of Agreement, including clauses g, k, and m to which I have referred, are all subject to the opening sentence of the Heads of Agreement which reads:

"[The respondent] agrees to enter into the following arrangement with [the applicant] subject to conditions at schedule A."

Schedule A is a document that relates primarily to terms of payment by the applicant to the respondent for the work to be done by the respondent for the applicant, and it is unnecessary to refer to them in any detail, except to say in summary form that they provide for payment by the applicant to the respondent for development work on the various bases referred to in clauses a and b in particular.

The respondent says that in the light of the opening sentence of the Heads of Agreement, and since there has not been relevant payment made by the applicant to the respondent for work done by the respondent for the applicant, there is no operation at this stage of clauses g, k, and m, and indeed of other clauses in the Heads of Agreement.  In other words the respondent says that the right of the applicant to the property rights to which clause g refers is conditional upon the due compliance by the applicant with the methods and terms of payment, and rates of payment, provided for in schedule A to the Heads of Agreement.
     It is common ground that sums of money have not been paid by the applicant to the respondent.  There is a dispute over the reasons for that, and over the precise figure which, if the respondent is right, is unpaid.  The figure is not yet clear, but from what has been said from the bar table it would appear to be a minimum of some $128,000.  Nevertheless, as I say, there is dispute, and I make no finding with respect to any unpaid sums.

Other elements in the case are relevant, including the role of a company known as Vidco Distributors Pty Limited.  It is the respondent's case that it is itself the owner of the copyright in the relevant programmes because it has not been paid for the work it did for the applicant.  Alternatively, the respondent says that if it is not the owner of the copyright in the programmes, then Vidco is the owner because, it says, Vidco is the principal in all relevant transactions, with the applicant being the agent.  In either case, the respondent says no relevant copyright has vested or can vest in the applicant.

These propositions are denied by the applicant.  And indeed, there are serious arguments on the question of ownership of copyright in favour of both sides.  Determining which arguments are more sound is not a matter that it would be appropriate for the Court to determine at this stage.  For present purposes, I am persuaded that there is a serious question to be tried in the matter, or a prima facie case established, and resolve that issue in favour of the applicant.  This does not mean that the Court thinks that the argument advanced by counsel for the respondent, which I have very briefly outlined, is not an argument that ultimately may succeed at trial.  It may.  In any case, the threshold for an applicant to prove that there is a series question to be tried is not high.

I turn to the balance of convenience.  This case is really about the balance of convenience in my view.  The applicant says that if it does not have the benefit of injunctive relief or an order for the return of the various articles to which I referred earlier then it will suffer grave prejudice.  Evidence has been given by a Mr Callaway, a director of the applicant, and he says that if the programmes are not returned to the applicant they will be used to the detriment of the applicant because the respondent may sell or otherwise deal with them in the marketplace as it wishes and without restraint.  He also says that the applicant will suffer irreparable loss and damage.  It relies primarily, though not exclusively, upon the fact that it is currently engaged in negotiations with the trustees of the Tattersalls Sweep consultation for the supply of certain material including the relevant programmes, or subsequent or improved versions of them.

The chapter and verse is given to the alleged damage that is likely to follow in paragraph 29 of Mr Callaway's affidavit of 1 September 1995, which I have taken into account and which includes evidence that the applicant is also negotiating with Tattersall for various other supply contracts relating to games of one kind or another including a horse racing game which, if the agreement is successful and comes to fruition, obviously will generate very large sums of money indeed for the applicant.

The respondent says that if it is restrained it will suffer substantial damage also.  The evidence of this is given by Mr N.G. Pakes, the general manager of the respondent, and in particular in paragraph 34 of his affidavit of 7 September 1995, he says in brief:

If the respondent is restrained from dealing with the product of its efforts over the last year or so, its ability to generate income will be drastically impeded because it will have to start new projects from scratch and there is a long lead time before customers will pay for the results of new product development.

He says further that the pace of technological change and the fact that Mr Callaway has, as he put it, boasted about relevant technology in the marketplace, means that the respondent will have only three to six months before other people can copy what they have seen demonstrated by the respondent.  These are opportunities that can never, he says, be recovered or recompensed. 

This morning a development occurred in the case which is of some significance.  The solicitor acting for Vidco and for another corporation, Precise Craft Pty Limited, appeared and informed the Court that there had been arrangements made between the respondent and Vidco whereby the respondent undertook to Vidco not to deal with what he described as the subject matter of the proceeding - which I assume means the programmes as I have come to call them - with anyone other than Vidco in the absence of seven days notice.

This, of course, means exactly what it says.  It means that the respondent, provided it gives the seven days notice, can then, if not restrained from doing so, deal with the programmes with anybody it wishes.  Counsel for the respondent, during the course of argument, has extended the undertaking to include provision of seven days notice to the applicant. 

Mr Klotz, the solicitor for Vidco and Precise Craft Pty Limited, also informed the Court that there had been an agreement reached between the applicant and Vidco to the effect that the applicant would not deal with the programmes if the relevant material is delivered up by the respondent to the applicant, as sought in paragraph 3 of the application in this matter.  The arrangement is said to be unlimited in time.

It has been submitted by counsel for the respondent that damages would be an adequate remedy for the applicant if interlocutory relief is refused and if, in due course, the applicant wins and it is found that its rights have been jeopardised by the respondent dealing with the programmes in the marketplace. 

These questions of balance of convenience are sometimes easy, sometimes not.  I do not find them easy in this case, but having considered all the matters to which I have briefly referred, and taking into account the statements made by the solicitor for Vidco and Precise Craft this morning, in my view it is a case where the balance of convenience favours the refusal of interlocutory injunctive relief.  The matter can be left to sort itself out as best it can pending the trial of the matter.

If, however, the respondent gives the seven days notice to Vidco and to the applicant, to which I have referred earlier, and the applicant seeks to bring the matter back to the Court, then that will be different.  The Court will have to reassess the situation.  In one sense, this may be said to be deferring dealing with the question of interlocutory relief; but in truth it is not, because the possibility of notice being given and the matter returning to Court is simply a fact that I have taken into account.  If the applicant does bring the matter back to the Court upon receipt of seven days notice from the respondent, then the Court will have to reassess the matter in the light of the facts as they then are. 

In the meantime, although the Court's list for final hearings is heavily jammed at present, the Court will do what it can to give the earliest possible date for the hearing of the matter.  It is a case that, it would seem, would take up to three days to hear.  I cannot indicate a date at the moment, but all will be done that can be done without formally expediting the hearing of the matter.

I should say in conclusion that I have the impression that this is a case that really, in the interests of both parties, should be settled.  The skirmish that has been before the Court today, with the full evidence that has been adduced, seems to me to point to sensible businessmen, aided by proper advice from solicitors and counsel, being able to resolve the dispute between them in full, no doubt with the aid of Vidco, which is a key player in the matter on any view of the facts.

Accordingly, I have declined to grant interlocutory injunctive relief. 

Costs in the motion for an interlocutory injunction shall be costs in the proceeding.

The Court notes the undertaking of the respondent by its counsel that the respondent will not sell, let for hire, or offer for sale or hire, or otherwise deal with third parties other than Vidco Distributors Pty Limited, with what are defined as the programmes in the application filed on 1 September 1995, without giving seven days notice in writing thereof to both Vidco and the applicant. 

I certify that this and the preceding eleven (11) pages are a true copy of the reasons for judgment herein of the Honourable Justice Lockhart.

Associate

Dated:  11 September  1995

Counsel for the Applicant    :    Mr S D Rares

Ms J S Gleeson

Solicitors for the Applicant :    Clayton Utz

Counsel for the Respondent   :    Ms A H Bowne

Solicitors for the Respondent     :    Mallesons Stephen Jaques

Date of Hearing             :    11 September 1995

Date of Judgment            :    11 September 1995