AR Jamieson Investments P/L v Robak Engineering & Construction P/L
[1998] VSC 69
•17 September 1998
SUPREME COURT OF VICTORIA
CAUSES JURISDICTION Do not Send for Reporting Not Restricted
No. 6513 of 1998
| A.R. JAMIESON INVESTMENTS PTY LTD (ACN 007 400 366) | Applicant/Plaintiff |
| v | |
| ROBAK ENGINEERING & CONSTRUCTION PTY LTD (ACN 006 288 062) | Respondent/Defendant |
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JUDGE: | Ashley, J. | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 24 July 1998 | |
DATE OF JUDGMENT: | 17 September 1998 | |
MEDIA NEUTRAL CITATION: | [1998] VSC 69 | |
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| CATCHWORDS: | Appeal - Application for leave to appeal from order made by County Court Master - Relevant principles Pleading- Application to strike out parts of defence and counterclaim - Rule 23.02 Contract - Pleading by defence and counterclaim that plaintiff vendor had infringed third party patent - Whether defendant could rely upon that matter, if established, as repudiation of contract by vendor and/or as a basis for rescission, and as foundation of counterclaim |
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APPEARANCES: | Counsel | Solicitors |
For the Applicant/Plaintiff | MR P. NORRIS | De Marco & Co |
| For the Respondent/Defendant | MR P. NUGENT | Deacons Graham & James |
HIS HONOUR:
The Application and Appeal
This is an application for leave to appeal from an order made by the County Court Master dismissing a summons filed by the plaintiff on 5 June 1998; and, in the event that leave is granted, then an appeal against the order which was made.
The date upon which the order was made is in fact uncertain. The order, as authenticated by a judge of the County Court, notes the relevant date as 10 June 1998. But submissions, apparently in response to the Master's request, were provided as late as 22 June. It seems that the parties were not informed of the disposition of the summons until 2 July. It is likely that the order was made some time between 22 June and 2 July.
On any view the application was late filed. I have power to extend the time for filing: Rule 58.03. I shall exercise that power, although I am not much impressed by the plaintiff's disclosed reasons for delay. The issues raised by the plaintiff's summons are not unimportant. The manner of the disposition below - about which I shall say more later - was not very satisfactory. It cannot be said that the application, late‑filed though it was, took the defendant by surprise. I shall extend the time for filing the application, now for then, to 4.30 p.m. on 16 July 1998.
The Summons
The summons sought this relief:
"1.An order pursuant to Rule 23.02, of the Rules of the County Court, that paragraphs 26(1), 32(b), 32(e), 32(f), 32(g), 36, 37, 38, 39, 40, 43(b), 43(f), 43(g), and 44 of the Defence, and to the extent that such paragraphs are pleaded in the Counterclaim, be struck out on the grounds that they:
a)do not disclose any cause of action;
b)may prejudice, embarrass or delay the fair trial of this proceeding;
and/orc)are otherwise an abuse of process of the Court.
2.The Defendant pay the Plaintiff's costs of this application on an indemnity basis.
3.Such further order as the Court considers appropriate."
The defence and counterclaim
The relief sought by paragraph 1, being founded upon Rule 23.02, fell to be considered by reference simply to the pleadings. The essence of the matter, revealed by the pleadings, was this:
In June 1996 the defendant entered into a contract with Melbourne Parks and Waterways for the installation of a bridge and boardwalk at Koomba (which is apparently near Dandenong). In July 1996 it entered into a contract with the plaintiff for the supply and installation of certain components of the boardwalk. The components were what are called "screw in piles". The components were prepared, but the defendant would not take delivery of them. The defendant, in denying the plaintiff's claim for damages - a claim framed in a number of ways - and in pursuing a counterclaim, relied inter alia upon what it pleaded were terms and/or warranties and/or conditions of the agreement (paragraph 26 of the amended defence). It asserted that the plaintiff breached some of the same (paragraph 32), the breaches being either fundamental or a repudiation of the contract (paragraph 33) which was accepted by the defendant (paragraph 34). Alternatively, the defendant pleaded, the plaintiff was not entitled to exploit the design which it supplied under the agreement, its exploitation constituting a patent infringement. There was a total failure of consideration (paragraph 39) and the defendant rescinded the contract in consequence thereof (paragraph 40). Alternatively again, the plaintiff was alleged to have represented, falsely, that it was entitled to exploit the design (paragraphs 41(c) and (d) and 43(b) and (f)), the defendant was induced by those and other representations to enter into the agreement (paragraph 42), and that on discovering the falsity of the representations the defendant rescinded the agreement (paragraph 45). The claim based upon misrepresentation was also given a statutory basis (paragraph 46). By a counterclaim the defendant alleged, inter alia, that by reason of the breaches of representations and/or warrants and/or conditions it had suffered loss and damage.
In pleading the matters just described the amended defence (the defence) set out and relied upon what are said to be portions of a head contract made between the defendant and Melbourne Parks and Waterways. The head contract, according to the defence, formed part of the agreement between plaintiff and defendant (see the particulars to paragraph 2(b) of the defence), the plaintiff having the same obligations thereunder as the contractor under that contract (paragraph 26(a)).
Issues raised by the defence and counterclaim
The matters pleaded by the defence and counterclaim which are presently in point raise these questions: first, did the agreement made between plaintiff and defendant include terms as pleaded (I do not use the word "terms" in the technical sense)? With the exception of the term alleged by paragraph 26(i) of the defence, all the terms derive, it seems, from the head contract. The source of the term alleged by paragraph 26(i) is unstated. It is apparently linked with the representations alleged by paragraph 41(c) and (d).
Second, if some and which of the terms pleaded were contained in the agreement between the plaintiff and the defendant, is the defendant entitled to prove their breach and then obtain the remedy contended for by paragraph 34 (read in conjunction with paragraph 33) or by paragraph 39 (read in conjunction with paragraph 38)?
Third, did the plaintiff make the representations alleged by paragraph 41(c) and (d); and, if so, then how?
Fourth, if those two representations were made, is the defendant entitled to prove their falsity in this proceeding - that is, in order to have recourse to the remedy contended for in paragraphs 45 and 46?
Within each of the second and fourth questions there are two sub-questions:
First, do the provisions of the Patents Act 1990 (Cth) altogether preclude the defendant from pleading the terms and representations, and seeking to prove their breach? Second, if the defendant is not so precluded in principle, is it unable to plead the terms and representations and seek to prove their breach in the County Court? Those sub-questions alone were the subject matter of the plaintiff’s summons filed on 5 June 1998.
The plaintiff's argument before the Master
The gist of the plaintiff’s argument below was that the defendant, by its defence and counterclaim, alleged that the plaintiff had infringed the patent of a third party, Instant Foundations (Australia) Pty Ltd. Thereby, according to the defendant’s case, were the terms breached. For that reason were the representations false. But these matters could not be raised, according to the plaintiff, because:
First, the County Court has no jurisdiction in matters "arising under" the Patents Act: see ss.154(1) and 155(1) and the definition of “prescribed court” in Schedule 1. The Patents Act in a large number of sections, discloses what are “matters arising under this Act”.
Second, the defendant was neither the patentee nor an exclusive licensee of the patent upon which it relied; and so could not bring a proceeding for infringement: see ss.13 and 120(1) and (2) and the definition of “infringement proceeding” in Schedule 1.
Third, the plaintiff could not defend the defendant’s allegations by challenging the validity of the patent (s.121), or by seeking its revocation (ss.138(1) and 139(1)).
A necessary exercise in unreality
In determining the application the Master, considering the pleadings alone, had to assume that as a matter of fact the agreement between the plaintiff and the defendant contained the terms alleged, that the plaintiff made the representations alleged, that breach of the terms had occurred, that the representations were false and had induced the making of the agreement; and so on. Whether or not he was entitled to look at the documents referred to in the pleadings - and, if so, then at the entirety of the documents, or only the parts which were specifically pleaded - it seems that he did not do so.
The course required by Rule 23.02, necessary though it was, was in one sense an exercise in unreality. It is, I consider, obvious indeed that only fragments of the head contract have been pleaded; that the meaning and operation of those fragments would be a fertile ground for debate - a debate which might well not be concluded without reference to other portions of the head contract; and that whether the representations set out in paragraph 41(c) and (d) were made, and if they were made, then how - for the particulars sub-joined to paragraph 41 are unsuitably ambiguous - would be likely to require a careful evaluation of evidence. Again, issues of breach and inducement would very likely be matters admitting of much factual debate.
Certain submissions made by counsel for the plaintiff, before me, underline the accuracy of the observations which I have just made. It was contended that the defendant could not pursue in this proceeding defences based upon alleged infringement of a third party’s patent. The true effect of the agreement, counsel contended, was to give the defendant an indemnity against his client in the event that an infringement of a third party patent was pleaded and proved in a proceeding brought by the patentee against the defendant; the proved infringement constituting a breach of the warranty of quiet possession. So to read the agreement, counsel submitted, would give operation to the terms relied upon by the defendant without impermissibly permitting the defendant to raise and plead infringement of a third party patent as a basis for terminating the contract, and for defending the plaintiff’s money claim against it. But this was not the way, counsel for the plaintiff emphasised, in which the defendant had pleaded its case.
The manner of disposition below
The basis upon which the Master dismissed the application is a matter of anecdote and inference. The matter was argued, in court, on 10 June 1998. It appears that the Master met informally with counsel on the following day, and indicated that his preliminary view was that the question of law raised by the defendant was an arguable one; and that in the absence of further submissions he would dismiss the application with costs. He invited the parties to make further submissions if they so desired. The plaintiff thereafter made further submissions, by document dated 22 June. Thereafter, in the absence of the parties and their counsel, the summons was dismissed. The parties learned of this by communication from the associate. As I understand it, no written reasons were handed down; and there was no one on hand to hear oral reasons - if any were delivered. The notice of appeal filed on 16 July 1998 implies that the Master gave reasons to a certain effect. The notice creates, according to what I understand of the matter, a false impression - perhaps derived from things that the Master said in argument. One thing is clear. The manner in which the summons was resolved was not at all satisfactory. The most that can be gleaned from the sequence of events - it is a matter of inference - is that the Master’s preliminary view remained unchanged. That view was that the defence raised arguable questions of law.
Appeal only by leave
The plaintiff may only appeal from the Master’s order by leave: R.58.02(1). The following considerations are pertinent:
First, the well known principles upon which leave will be granted to appeal from an interlocutory judgment or order of a Judge of this Court to the Court of Appeal (see Niemann v Electronic Industries Ltd [1978] VR 431) are in point: see, for example, Deputy Federal Commissioner of Taxation v Reading (1991) 91 ATC 4711 (Young CJ, judgment 30 July 1991).
Second, the requirement that the applicant must show that the decision below was wrong, or was at least attended with sufficient doubt to justify the grant of leave, may be the more easily satisfied where the order sought to be impugned is final in effect: Reading at 4713. That is not this case.
Third, the power conferred on the court by Rule 23.02 (whose subject matter was governed by the old Order 19 Rule 27 and Order 25 Rule 4) “is not to be used in cases of doubt or difficulty or where the pleading raises a debatable question of law: Dey v Victorian Railways Commissioners (1949) 78 CLR 62 at 91 per Dixon J; and see the cases cited by his Honour in support of that proposition.
Fourth, use of the power to strike out a pleading which now resides in Rule 23.02 is discretionary: see Williams, Civil Procedure Victoria, paragraph 23.02.20. The approach of the courts to appeals from discretionary judgments must not be overlooked; as to which see Australian Coal and Shale Employees Federation v Commonwealth (1953) 94 CLR 621 at 627 per Kitto J. That does not render the decision below inviolable, but it does add to the burden borne by the applicant. The fact that no reasons were given for the Master’s decision may aid the applicant plaintiff’s attack, for the reasons described by McDonald J in Swinstead and Ors v Chiappalone and Ors (Supreme Court of Victoria, judgment 10 November 1993, unreported).
Fifth, it has been repeatedly emphasised that it is not enough for an applicant to show that the decision below was wrong, or at least attended by sufficient doubt to justify granting leave. The applicant must also show that substantial injustice would be done by leaving the decision unreversed. An applicant will generally find it more difficult to show substantial injustice if the order below was interlocutory rather than final in its effect; or if it did not change substantive rights. That approach, enunciated in Niemann, was applied by Young CJ in Reading - that is, in an application brought under Rule 58.02(1); and by McDonald J in Chiappalone. Here the order was interlocutory in effect. I do not think that its effect was to change substantive rights.
Was the Master's decision clearly wrong or attended with sufficient doubt to justify grant of leave?
Against the background of the considerations to which I have just referred counsel for the plaintiff submitted that the decision of the Master was clearly wrong. He contended that it was not arguable, inter alia, that:
· the County Court had jurisdiction to entertain the matters pleaded;
· the defendant had standing to bring an infringement proceeding;
· the defendant could make out its defence and counterclaim without there being an infringement proceeding as defined by the Patents Act.
He submitted that the vice of the defence was highlighted by the fact that neither the patentee nor any exclusive licensee was party to the proceeding; and by the fact that the plaintiff was precluded from challenging the validity of the patent - which is a frequent response to a patentee’s claim of patent infringement.
Counsel relied, in support of proposition (1) above, upon authorities pertaining to the application of the Mozambique principle (British South Africa Co v Cia de Mocambique [1893] AC 602) in intellectual property matters: Potter v The Broken Hill Proprietary Company (1906) 3 C.L.R. 479, Norbert Steinhardt & Son Ltd v Meth & Anor (1961) 105 CLR 440 and Tyburn Productions Ltd v Conan Doyle [1990] 1 All ER 909. In each of those cases the holder or alleged holder of intellectual property rights was a party to litigation. The question was whether the existence of an intellectual property right created or allegedly created in one jurisdiction could be the subject of a proceeding in another jurisdiction.
In support of his second and third propositions counsel referred me to a number of American cases. They arose in the context of the United States Patent Act. Counsel sought to make the point that only a patentee (or licensee) has standing to bring an infringement proceeding. It is not necessary to go to American authorities to make that point. The substance of the issue raised by propositions (2) and (3) is somewhat different. It is whether the defendant’s pleading, taken at face value, necessarily collides with provisions of the Patents Act.
A second point which the plaintiff’s counsel sought to make, by reference to the American cases, was this: if the trial court in the present case determined, in dealing with the defence, that the patent was valid and that the plaintiff had infringed it, those findings would give rise to an issue estoppel or res judicata operative as between the plaintiff and the patentee. How could that be so, I think counsel was submitting, in consequence of a proceeding to which the patentee was not a party and in which a challenge to the validity of the patent could not be made? I doubt that the authority cited, Buckley v Airshield Corporation (1997) US PQ 2d 1268 goes so far. There the patentee was a plaintiff on the first and second occasions; and there were, put shortly, common defendants.
Counsel for the plaintiff conceded that there is no Australian authority - as distinct from the provisions of the Patents Act upon which he relied - that plainly denies the defendant’s right to plead and rely upon the matters now under discussion. He submitted, however, that United States authorities are in point. He referred me, particularly, to Tart v Walker and Anor (1978) 248 SE 2d 736 (Court of Appeals of North Carolina), Schachel and ICO Corporation v Closet Concepts Inc (1981) 405 SO 2d 487 (District Court of Appeal of Florida), Geni-Chlor International Inc v Multisonics Development Corporation (1978) 580 F 2d 981 (Ninth Circuit) and Miracle Boot Puller Company Limited v Plastray Corporation (1978) 269 NW 2d 496 (Court of Appeals of Michigan). Those cases illustrate, I think, the continuing jurisdictional tension between the federal and state jurisdictions in the United States. Federal courts exercise jurisdiction in cases “arising under any Act of Congress relating to patents”. State courts may exercise jurisdiction if the subject matter of the proceeding, in whole or part, arises under state law - for example, contract law. In each of the cases to which counsel referred me the patentee was a plaintiff. The main question was whether, by framing a claim in contract (and in one case, tort also) - which claim depended upon proof of infringement (and in one case, conversion of patent rights) - the patentee could sue in a state court. I do not understand the courts which determined jurisdiction to have decided that the plaintiffs could not sue in contract or tort in such circumstances; but only that by so framing the proceeding state jurisdiction was not in the particular circumstances attracted. I do not say that the plaintiff may not obtain some comfort from those cases. But, as with the quiet possession cases to which I shall in a moment refer, I do not consider that they lead to the inevitable conclusion that the defendant’s pleaded case is unarguable. An examination of cases cited in the United States Code Service, updated as at May 1994, 35 USCS paragraph 281, notes 6 and 7, reinforces my impression that the import of the American cases is not clear-cut. See also an older but useful monograph: Venue in Actions for Patent Infringement, R.C. Wydick, 25 Standford Law Review, p.551.
Counsel for the defendant submitted that the provisions of the Patents Act relied upon by the defendant did not address the case pleaded by his client. The proceeding, counsel submitted, was relevantly concerned with a contractual defence standing outside the matters dealt with by the Patents Act. This was not an infringement proceeding as that term is defined by that Act. Counsel submitted that, were the Patents Act construed to deny the defendant the contractual defence allegedly available to it, his client could be left without any - or any effective - remedy. Moreover, so to construe the Patents Act would cut across the protection given by s.17 of the Goods Act 1958 - which section implies into a contract for the sale of goods, unless the circumstances of the contract are such as to show a different intention:
· an implied condition that the seller has a right to sell the goods;
· an implied warranty that the buyer shall have and enjoy quiet possession thereof.
Counsel cited Niblett, Limited v Confectioners Materials Company, Limited [1921] 3 KB 387 in support of the proposition that breach of an intellectual property right may be relied upon to prove breach of the implied condition that a seller has a right to sell goods the subject of sale. In that case the seller admitted the breach of trademark. The court did not have to deal with the issue raised by the plaintiff’s pleading summons.
Counsel for the defendant also cited Microbeads AC v Vinhurst [1975] 1 All ER 529 and Corrs Pavey Whiting and Byrne v Collector of Customs (1987) 74 ALR 428. In the first of those cases goods were sold by the plaintiff to the defendant. The buyer did not pay all the purchase price. The seller sued for its money. The buyer pleaded by its defence that the goods were not reasonably fit for the purpose for which they had been sold. Later on, a third party was granted a patent. It had operation from a time preceding the sale. The patentee brought an infringement proceeding against the buyer. The latter amended its defence, in the proceeding brought by the seller, to plead breach of the condition and warranty respectively implied by the English counterparts of s.17(1) and (2) of the Goods Act. A preliminary question was set down for determination. It was whether in the circumstances the seller was in breach of contract by virtue of those provisions. The Court of Appeal resolved that the buyer could rely, in the circumstances, upon the equivalent of s.17(2), but not upon the equivalent of s.17(1). It was assumed, in determining the issue, that the patent was valid; and that the goods were within the scope of the claims in the specifications - that is, the goods infringed the patent. In the latter case, which involved a freedom of information request whose purpose was to ascertain whether a trade competitor had infringed a product patent, Gummow J, who dissented, referred to Microbeads. He did so, as I understand it, to support the proposition that “the importation into Australia of goods which infringe an Australia patent is a matter of concern beyond the rights that arise immediately under the Patents Act between the patentee and the importer” (at 439). His Honour made no reference to the important assumptions upon which the argument in Microbeads had proceeded. He did not consider what the situation would have been, as between buyer and seller in that case, had those assumptions not been a matter of agreement.
Neither of Niblett nor Microbeads was concerned with an express contractual term. They concerned alleged breaches of a condition and a warranty respectively implied by the English equivalent of s.17(1) and (2) of the Goods Act. Terrell on the Law of Patents 14th ed, 1994, paragraph 6.97 cites the cases as authority for the proposition that a warranty of quiet possession is disturbed when the goods infringe the patent; and that “Where an infringer has obtained the infringing items under a contract to which the Sale of Goods Act applies, although he will have no defence to the infringement action, he will be entitled to be indemnified by the vendor”.
In neither Niblett nor Microbeads was the validity of the intellectual property right in issue. In Niblett, the seller admitted breach - which presupposed validity. In Microbeads the parties assumed, for the purposes of the resolution of the preliminary issue, validity and breach. Moreover, in each of those cases action was taken which directly impacted upon the buyer. In Niblett, the Customs Service detained the goods. In Microbeads, the patentee brought an infringement proceeding against the buyer.
Counsel for the plaintiff referred me to another case involving breach of an implied warranty of quiet possession. In Par Excellence Colour Printing (Pty) Ltd v Ronnie Cox Graphic Supplies (Pty) Ltd [1983] 1 AD 295, the appellate division of the Supreme Court of South Africa considered a buyer’s claim for damages against a seller, in circumstances where a patentee had threatened the buyer with an infringement proceeding; and where the buyer had incurred expense in disputing and settling the patentee’s claim. The way in which the matter had been conducted meant, according to the appellant division, that resolution of the buyer’s claim must be resolved on the footing that the patentee’s claim of infringement was unassailable. The case was thus resolved on a factual basis akin to that which was assumed in Microbeads.
I have, I think, fairly fully set out the competing arguments advanced for the plaintiff and the defendant in connection with the present application - arguments which were carefully and skilfully developed. I have, in describing those arguments, pointed out from time to time difficulties in the authorities upon which the parties respectively relied. In the event, the plaintiff has failed to satisfy me, by reference to the language of the Patents Act considered apart from authority, and with the aid of those authorities upon which it relied, that the decision of the Master was clearly wrong or attended by sufficient doubt to justify a grant of leave to appeal. I cannot say that the Master’s exercise of discretion miscarried, notwithstanding the absence of reasons. I cannot say that the defence does not raise a debatable question of law - which was the substance, it seems, of the Master’s decision.
But if I had reached a contrary conclusion the plaintiff has not in any event satisfied me that substantial injustice would be done by leaving the decision unreversed. I will accept, for sake of argument, the plaintiff’s contention that it is a small company fighting a much larger and better resourced opponent. I do not accept, however, the contention that the consequence of leaving the decision unreversed is that the plaintiff “may be unable to prosecute its claim due to the expense of running a patent case in which it would need to challenge the validity of the patent”. There appears to me to be quite a strong case for saying, notwithstanding a reluctance of courts to embrace determination of preliminary issues with enthusiasm (as to which see Williams, op cit, at paragraphs 47.04.0 - 47.04.60) that Rule 47.04 could sensibly be given operation in this case. Earlier in these reasons I identified four questions (two of which had two parts). They might provide some assistance in framing issues for preliminary determination. It would be necessary, if some such questions were framed, for evidence to be taken - at least in documentary form and perhaps orally. Upon the hearing and determination of the preliminary issues, carefully stated, the plaintiff would be able to argue that, if there were terms in the agreement which opened up the question of patent infringement, those terms should be read as doing no more than giving a right of indemnity in the event that the patentee succeeded in an infringement action against the defendant; that any such term ought be construed as a warranty not as a condition; that the terms did no more than mirror the statutory warranty of quiet possession; and that, if there were relevant misrepresentations, they were incorporated into the terms of the contract, this possibly making the doctrine of merger relevant in all the circumstances. In support of those submissions the plaintiff might wish to contend that such an approach would avoid collision between the substance of the provisions of the Patents Act and the terms of the contract. The plaintiff would also be able to raise the matters particularly argued in support of the present application. The defendant, for its part, would have an opportunity of establishing that the terms upon which it relies were terms of the contract; and that the representations upon which it relies were made. It would be able to contend, in that event, that those terms did not conflict with the provisions of the Patents Act, and entitled it in the circumstances to rescind the agreement; and to contend that the representations could stand apart from the terms, and be relied upon as a discrete basis for rescission. These various competing arguments, at least, seem to emerge from consideration of the legislation, authorities and texts to which I have referred in considering the present application.
Orders
Subject to anything counsel may say as to form, I shall order that the application be dismissed with costs.
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