Aironic Pty Limited v Cleanair (NSW) Pty Limited

[2003] FCA 1126

FEDERAL COURT OF AUSTRALIA

Aironic Pty Limited v Cleanair (NSW) Pty Limited [2003] FCA 1126

PRACTICE AND PROCEDURE – application for dismissal – where no case pleaded against some of the respondents – where individual respondents only involvement with actionable conduct was relationship of director/shareholder/employee of corporate respondents

PRACTICE AND PROCEDURE – security for costs – whether applicant should provide security for respondents’ costs – where applicant previously under external administration – where applicant has delayed in bringing action for final relief – where evidence suggests applicant would be unable to meet respondents’ costs in the event of the action being unsuccessful

Circuit Layouts Act 1989 (Cth) s 27
Copyright Act 1968 (Cth) s 115
Designs Act 1906 (Cth) s 30

Milpurrurru v Indofurn Pty Ltd (1994) 54 FCR 240 cited
Microsoft Corporation v Uschina Polaris Pty Ltd (1996) 71 FCR 231 cited
Allan Manufacturing Co Pty Ltd v McCallum & Co Pty Limited (2001) 63 IPR 400 cited

AIRONIC PTY LIMITED v CLEANAIR (NSW) PTY LIMITED & ORS
NG 773 OF 1996

HELY J
20 OCTOBER 2003
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 773 OF 1996

BETWEEN:

AIRONIC PTY LIMITED
(ACN 002 594 274)
APPLICANT

AND:

CLEANAIR (NSW) PTY LIMITED
(ACN 062 159 184)
FIRST RESPONDENT

ALFRED PAUL VELLA
SECOND RESPONDENT

CLEANAIR AIR PURIFIERS AUST PTY LIMITED
(ACN 078 198 919)
THIRD RESPONDENT

J & J VELLA PTY LIMITED
(FORMERLY CLEANAIR SERVICES (AUST) PTY LIMITED)
(ACN 077 772 475)
FOURTH RESPONDENT

JASON SCOTT VELLA
FIFTH RESPONDENT

CHERYL ANN VELLA
SIXTH RESPONDENT

JUDGE:

HELY J

DATE OF ORDER:

20 OCTOBER 2003

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:

1.        That the fourth, fifth and sixth respondents cease to be a party to these proceedings.

2.That the applicant provide security for the second respondent’s costs of the proceedings in such sum and in such manner as shall later be fixed.

3.That the applicant pay the costs of the fourth, fifth and sixth respondents of the motion filed on 9 September 2003.

4.        The matter be relisted for directions on a date to be fixed.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 773 OF 1996

BETWEEN:

AIRONIC PTY LIMITED
(ACN 002 594 274)
APPLICANT

AND:

CLEANAIR (NSW) PTY LIMITED
ACN 062 159 184)
FIRST RESPONDENT

ALFRED PAUL VELLA
SECOND RESPONDENT

CLEANAIR AIR PURIFIERS AUST PTY LIMITED
(ACN 078 198 919)
THIRD RESPONDENT

J & J VELLA PTY LIMITED
(FORMERLY CLEANAIR SERVICES (AUST) PTY LIMITED)
(ACN 077 772 475)
FOURTH RESPONDENT

JASON SCOTT VELLA
FIFTH RESPONDENT

CHERYL ANN VELLA
SIXTH RESPONDENT

JUDGE:	HELY J
DATE:	20 OCTOBER 2003
PLACE:	SYDNEY

REASONS FOR JUDGMENT

1. These proceedings were commenced on 19 September 1996 against the first respondent and the second respondent. 

2. Between 10 February 1997 and 11 August 1999 the applicant was trading under external administration, the administrator being Mr W J Hamilton.

3. On 13 November 1997 Beaumont J gave directions including directions permitting the joinder of the third respondent, and fixed the matter for hearing on 23 February 1998.

4. On 27 November 1997 an amended application and a Further Amended Statement of Claim were filed pleading a case against the first, second and third respondents of infringement of s 27 of the Circuit Layouts Act 1989 (Cth) and the applicant’s copyright pursuant to s 115 of the Copyright Act 1968 (Cth) in relation to the applicant’s circuit boards contained in the applicant’s A1 3000 and AC 5000 air cleaners and of s 30 of the Designs Act 1906 (Cth) in relation to the applicant’s filter holder registered design no 100280. There was also a claim based upon a breach by the first and/or second respondent of a distributorship agreement said to have been made on 28 February 1991.

5. The matter came before Beaumont J on 23 February 1998.  It did not proceed to a final hearing.  At that time, the second respondent was in Liverpool Hospital suffering from a heart complaint, and I infer that it was for that reason that the matter did not proceed to a final hearing as envisaged by the directions given on 13 November 1997.  Instead, Beaumont J made orders:

   -joining the fourth, fifth and sixth respondents to the proceedings;

   -that until further order, the respondents or each or any of them, their servants and agents, be restrained from selling, delivering or installing any circuit boards or filter holders referred to in par 1 of the applicant’s amended application filed on 27 November 1997 and also be restrained from further infringing the copyright and other rights of the applicant set forth in par 1 of the applicant’s amended application filed on 27 November 1997;

   -reserving liberty to any respondent to apply on such notice as a judge may allow to vary or discharge the injunction;

   -reserving liberty to the applicant to restore the matter for the purpose of seeking final injunctive or other relief on seven days written notice to the respondents or their solicitor; and

   -reserving liberty to the applicant to further amend the application and Statement of Claim as it may be advised.

6. The applicant’s attitude was that its commercial interests were sufficiently protected by the interlocutory orders which had been made.  The second respondent’s instructions to his then solicitor were:

   ‘we do not use the filter frames any more and we can modify the circuit board’,

   hence there was either agreement to the grant of the interlocutory injunction, or at least the absence of any opposition to it.

7. In March 1998 Mr Hamilton decided that the applicant was not in a financial position to enforce the orders.  At that point there is no evidence of any breach of the orders.  According to the sole director of the applicant, Mr Marceau, after consultation with the administrator, it was decided that the orders were sufficient to protect the goodwill and reputation of the applicant company.

8. On 24 December 1998 the matter was marked ‘inactive’.  Nothing further happened in the proceedings until 21 November 2002.  However, in the meantime, the following events occurred:

   -in July 1999 the business of the third respondent was sold to Michael Rich;

   -in July 1999 the business of the fourth respondent was sold to Prim & Proper Pty Ltd;

   -on 12 August 1999 Mr W J Hamilton filed a notice of termination of the deed of company arrangement; and

   -on 22 January 2002 the registration of registered design no 100280 expired.

9. On 21 November 2002 the applicant filed a motion to ‘reopen’ the matter and ‘reinstate’ the orders of Beaumont J of 23 February 1998.  It is unclear why a motion in those terms was filed, because the orders of Beaumont J of 23 February 1998 had never been varied or discharged.  The fact that the matter had been marked ‘inactive’ did not mean that orders made prior to that marking were in some way rescinded.  This motion was supported by an affidavit of Mr Marceau of 21 November 2002 which included the following:

   ‘12It has come to my attention that the Respondents Alfred Paul Vella, Jason Scott Vella, Cheryl Anne Vella, Cleanair Air Purifiers Aust Pty Limited and Cleanair Services (Aust) Pty Ltd have continued since Beaumont J’s order of 23 February 1998 to operate and infringe Aironic’s copyright and design which were set out in paragraph 1 of the applicant’s amended application filed on 27 November 1997.’

10. On 3 December 2002 Beaumont J gave directions in relation to the motion of 21 November 2002 including a direction which required the respondents to make any requests for particulars of the Amended Statement of Claim by 20 December 2002, and a direction that the applicant answer the respondents’ requests by 13 January 2003.  The Amended Statement of Claim did not include any claim against the fourth, fifth and sixth respondents.

11. On 23 December 2002 the solicitors for the respondent requested some particulars of the Further Amended Statement of Claim, but more importantly for present purposes, advised as follows:

    ‘… in order for us to consider the motion [of 21 November 2002] further and to formulate our views, we require you to provide by 5.00 pm on Tuesday, 24 December 2002 full particulars and all details of the facts and circumstances in relation to the activities of the Respondents referred to in paragraph 12 of that Affidavit [ie, the affidavit of Mr Marceau sworn 21 November 2002].  We require this as a matter of urgency.

    Please note that the first and third Respondents no longer exist as they have been deregistered.  None of the respondents nor any of the companies controlled by them have had anything to do with the air filter business since 1998.  Mr Alfred Vella was forced into retirement due to health problems and has not traded in the relevant industry since 1998.  Mr Jason Vella has also not traded in the industry since 1998.  The business of Cleanair Services (Aust) Pty Limited was sold and that company changed its name to J & J Vella Pty Limited.

    Accordingly, our clients are very unclear, as are ourselves, as to the conduct which your client refers to in paragraph 12 of his Affidavit of 21 November 2002.  As all activities in relation to the industry have been ceased by the Respondents, we have some difficulty in ascertaining your client[’]s concern.’

12. The applicant has never replied to that part of this letter quoted immediately above, and only provided the other particulars requested on 8 October 2003, two days prior to the hearing of the present motion.

13. On or about 29 January 2003 Mr Marceau claims to have received some information suggesting that the third respondent had sold CF 4000 air purifiers on 10 April 1998 and 17 November 1998 and ACT 600 filter replacements on 7 December 1998 and 19 March 1999.  There is a conflict in the evidence as to whether or not the sale of those products infringe the orders made by Beaumont J on 23 February 1998, but if there was any infringement of those orders it was on the part of the third respondent.

14. On 19 February 2003 Beaumont J made orders which included the following:

    -the applicant’s motion of 21 November 2002 be dismissed;

    -the particulars sought by the respondent on 23 December 2002 be provided by 25 February 2003; and

    -the applicant should file and serve all affidavits including as to quantum on which he intends to reply by 19 March 2003.

15. Thereafter various directions hearings were fixed which were dislodged initially due to illness on the part of the respondents’ solicitor and later due to illness on the part of Beaumont J.  On 26 August 2003 a registrar of the Court made orders which included an order extending the time for the applicant to file and serve all affidavits including as to quantum on which it intends to rely until 8 September 2003.  That order contemplated that the respondents would file a motion for the removal of the fourth, fifth and sixth respondents as parties to the proceedings by a specified date.

16. On 9 September 2003 the second, fourth and sixth respondents filed a motion seeking orders including the following:

    1         that the Application be dismissed;

    2in the alternative, that Order 3 of the Orders made by the Court on 23 February 1998 be discharged [ie the interlocutory injunction];

    3         …;

    4that each of the Fourth, Fifth and Sixth respondents cease to be a party and be removed from the proceedings;

    5that the Applicant provide security for costs of the Respondents in a form and amount as directed by the Court;

    6         …;

    7         Costs;

    8         … .

17. On 29 September 2003 a registrar of the Court made an order that evidence in opposition to the current motion should be filed by 12:00 midday 7 October 2003.  On 7 October 2003 an affidavit was sworn and filed by Mr Marceau.  Annexure G to that affidavit is a spreadsheet giving some information of a ‘preliminary damages claim against the First and Second respondents’.  The affidavit stated that the applicant was ‘in the process of providing updated evidence in relation to the damages for the period 23 February 2003 to date and continuing’.  The spreadsheet is largely uninformative.

18. The evidence as to the position of the various respondents is as follows:

    -the first respondent was deregistered on 12 September 2002;

    -the second respondent was a director of the first respondent and of the third respondent;

    -the business of the third respondent was sold in July 1999 to Mr Rich.  The third respondent was deregistered on 18 February 2002;

    -the business of the fourth respondent was sold to Prim & Proper Pty Limited on 2 July 1999;

    -the fourth respondent changed its name to J & J Vella Pty Limited;

    -the fifth respondent was a director of the fourth respondent and an employee of the first respondent and the third respondent;

    -the sixth respondent was a director of the first respondent.  The business of the first respondent was managed by the second respondent, and the first respondents’ activities consisted of the provision of clerical and accounting assistance from time to time.

19. One of the claims made by the second, fourth, fifth and sixth respondents in the motion filed on 9 September 2003 is that the interlocutory injunction granted on 23 February 1998 should be discharged on the grounds that the applicant’s financial position was such that it could not satisfy the undertaking as to damages which was then given, and this fact was not disclosed to the Court.  Ultimately, under some pressure from me, the respondents did not persist with this aspect of their claim, because the interlocutory injunction, on the respondents’ evidence, was devoid of any practical impact, and the purpose of seeking its discharge was only to provide a vehicle for the determination of whether these proceedings should be permitted to continue, and if so against whom, and on what terms.

    The claim against the fourth, fifth and sixth respondents

20. Notwithstanding the liberty granted on 23 February 1998, the applicant has not amended its Further Amended Statement of Claim to make a case against the fourth, fifth or sixth respondents.  Notwithstanding the request for particulars on 23 December 2002, the applicant has never provided the particulars requested in relation to the allegations contained in par 12 of Mr Marceau’s affidavit sworn 21 November 2002, notwithstanding Beaumont J’s orders of 3 December 2002 and 19 February 2003.  Nor has the applicant complied with the orders made by Beaumont J on 19 February 2003 or by Registrar Hedge on 26 August 2003 that it should file all affidavits including as to quantum on which it relies in its claim against the fourth, fifth and sixth respondents.

21. One is therefore left in the position that:

    -the pleadings make no case against the fourth, fifth or sixth respondents;

    -the particulars requested by those respondents as to the case made against them have not been supplied;

    -there is no evidence of any wrongdoing on the part of the fourth respondent in relation to the applicant;

    -the only evidence against the fifth and sixth respondents is dependent upon their participation in actionable conduct on the part of the first respondent.  The only evidence of that participation is that the fifth respondent was a shareholder and employee in the first respondent and the sixth respondent was a shareholder in and director of the first respondent.

    As against that, there is positive, albeit hearsay evidence of the lack of relevant involvement on the part of those respondents.  The mere fact that the fifth and sixth respondents held the positions in relation to the first respondent referred to above is insufficient to establish a liability on the part of the fifth or sixth respondents for the conduct of the first respondent.  See Milpurrurru v Indofurn Pty Ltd (1994) 54 FCR 240 at 266; Microsoft Corporation v Uschina Polaris Pty Ltd (1996) 71 FCR 231 at 241; Allan Manufacturing Co Pty Ltd v McCallum & Co Pty Limited (2001) 63 IPR 400 at [39]. It was not suggested that the fifth or sixth respondents were liable upon any other basis.

22. In my view, the applicant has had ample opportunity to plead, to particularise and to expose by evidence a case against the fourth, fifth and sixth respondents but it has failed to do so.  There is nothing in the materials before me which would suggest that a case against the those respondents is tenable.  Accordingly, orders should be made pursuant to Order 10 r 7, Order 30 r 5 and Order 6 r 9 of the Federal Court Rules which would have the effect of precluding the continued prosecution of these proceedings against the fourth, fifth and sixth respondents.  In the circumstances, I propose to make an order that the fourth, fifth and sixth respondents cease to be a party to these proceedings.  A consequence of making that order is that the interlocutory injunction granted against those respondents by Beaumont J on 23 February 1998 will lapse.

23. The dismissal application does not relate to the first and third respondents which have been deregistered.  The dismissal application does, however, relate to the second respondent.  However, a case against that respondent has been pleaded, particularised, and supported by some evidence.  I am not persuaded that the application against the second respondent should be dismissed, and the only question to my mind is whether security for the costs of the proceedings should be ordered in favour of the second respondent.

24. Both the applicant and the second respondent were content, until recent times, to allow the application against the second respondent to remain dormant.  Delay in prosecuting a security for costs application is a relevant factor in determining whether security for costs will be ordered.  However, whatever may have been the original basis for a claim against the second respondent, on the evidence, the current claim is principally one for damages or an account of profits grounded in activities of the first and third respondents prior to their deregistration.

25. The applicant has a paid up capital of $2.  It traded under external administration until 11 August 1999.  Whilst the applicant was under administration it was not in a financial position to enforce the orders made by Beaumont J.  By letters dated 21 February 2003 and 12 May 2003 the respondents sought information as to the applicant’s financial position, and as to its ability to meet any order for costs which might be made against it in these proceedings.  The applicant did not respond to either of those letters.  On 8 October 2003 the respondents issued a notice to produce to the applicant calling for the production of financial information.  No documents were produced pursuant to the notice.  Nor has the applicant filed any specific evidence in relation to its financial position.  It was not contended that the applicant’s financial difficulties which led to it being placed under external administration were a result of the conduct on the part of the second respondent of which the applicant now complains.

26. For all practical purposes, the revival of those proceedings which the applicant now seeks is equivalent to a fresh start.  I am satisfied on the evidence that there is reason to believe that the applicant will be unable to pay the costs of the second respondent should the applicant fail in its claim.  I am also satisfied that it is a proper case for ordering the provision of security for the future costs of these proceedings.  A factor which supports the making of such an order is the failure on the part of the applicant to comply with orders made on 3 December 2002, 19 February 2003 and 26 August 2003 as to the taking of steps designed to progress the matter.

1. The solicitor for the applicant relied in opposition to the making of an order for security for costs upon the fact that the second respondent has a case to answer as well as the delay in making the application.  It was also submitted that as the second respondent is apparently a retired pensioner, given his financial circumstances the making of an order for security is inappropriate.  I have already dealt with the issue of delay.  In my view, the financial circumstances of the second respondent are irrelevant to the making of an order; it is the financial circumstances of the applicant which are relevant in that respect.

2. The second respondent has not filed any evidence on the issue of quantum of the security, but sought an opportunity of doing so if I was of the view that the proceedings should not be dismissed as against the second respondent for want of prosecution, but I was of the view that an order for security for costs should be made in his favour.  The applicant did suggest that a security in the form of a bank guarantee of $25,000 would be appropriate, but I do not think that I am in a position to make any reliable estimate of what is an appropriate sum without the benefit of evidence or a report from a registrar.

3. I order:

   -that the fourth, fifth and sixth respondents cease to be a party to these proceedings;

   -that the applicant provide security for the second respondent’s costs of the proceedings in such sum and in such manner as shall later be fixed;

   -that the applicant pay the costs of the fourth, fifth and sixth respondents of the motion filed on 9 September 2003.

4. I propose to give directions for completing the application for security for costs.

I certify that the preceding thirty (30) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Hely.

Associate:

Dated:             20 October 2003

Solicitor for the Applicant:	Access Legal
Counsel for the Respondent:	Ms J Baird
Solicitor for the Respondent:	Maxwell IP
Date of Hearing:	10 October 2003
Date of Judgment:	20 October 2003