BEST Australia Ltd v Aquagas Marketing Pty Ltd

[1988] FCA 358

Re: B.E.S.T. AUSTRALIA LIMITED; BROWN'S ENERGY SYSTEMS; TECHNOLOGY PTY LIMITED
and YULL BROWN
And: AQUAGAS MARKETING PTY LIMITED; HYDROX CORPORATION LIMITED; JAMES DAVID
CHAPLIN and MORRIS WILLIAM WALKER
No. NSW G260 of 1988
Practice and Procedure

COURT

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Wilcox J(1).

CATCHWORDS

Practice and Procedure - Application to set aside service outside Australia - Patent infringement claim with associated claim for breach of confidential information - Case against foreign respondent, in connection with infringement claim, that this respondent participated in the infringement within Australia by other respondents - Whether the evidence shows a prima facie case - Whether Court should refuse to entertain claim in the exercise of its discretion.

Patents Act 1952, ss.113, 118, 124.

Federal Court Rules, Order 8 rules 1, 2.

HEARING

SYDNEY

#DATE 15:7:1988

Counsel for the Applicants: Mr D M Yates

Solicitors for the Applicants: Abbott, Tout, Creer & Wilkinson

Counsel for the Second Respondent: Mr R V Gyles QC with Mr P G Mahoney

Solicitors for the Second Respondent: McCourt Ward-Harvey

ORDER

The Notice of Motion dated 4 July 1988 be dismissed.

The applicant in the motion, Hydrox Corporation Limited, pay to the respondents to the motion, B.E.S.T. Australia Limited, Brown's Energy Systems & Technology Pty Limited and Yull Brown, their costs of the motion.

Note: Settlement and entry of orders is dealt with in Order

36 of the Federal Court Rules.

JUDGE1

By a Notice of Motion filed on 4 July 1988 the second respondent to the principal proceeding, Hydrox Corporation Limited, seeks an order discharging an order made on 18 May 1988 whereby, amongst other things, leave was granted to the applicants to serve their amended Application and amended Statement of Claim upon Hydrox outside the Commonwealth of Australia. Hydrox is a New Zealand corporation and it contends that the proceeding does not fall within the category of cases in which, under the Rules of this Court, service may be effected outside Australia.

1. The principal proceeding was commenced on 23 February 1988. At that time only one respondent was named, Aquagas Marketing Pty Limited, a company carrying on business in a Sydney suburb. No Statement of Claim was filed at that stage but the Application and certain affidavits then filed showed that the applicants claimed that Aquagas had infringed, or threatened to infringe, Australian patent number 487,062 issued to the third applicant, Yull Brown, on 1 February 1978. This patent is entitled "Improvements in and relating to welding". The specification to the patent includes both method and apparatus claims. The essential feature of the claimed invention is that it involves a safe method of using hydrogen and oxygen in welding operations. The first and second applicants, B.E.S.T. Australia Limited and Brown's Energy Systems & Technology Limited, are said to be licensees of the patent.

2. On 18 May 1988 the applicants sought leave to amend their Application and Statement of Claim. The amendments involved the joinder of three additional respondents. Two of those respondents, Hydrox and a Mr M W Walker, were not able to be served within Australia. Two claims were made by the amended Statement of Claim against Hydrox: infringement, in conjunction with Aquagas, of the patent granted to Mr Brown and breach of confidential information.

3. I acceded to the application made on 18 May. I granted leave to the applicants to amend the Application and Statement of Claim and to serve these documents upon Hydrox and Mr Walker in New Zealand. At that time I had the benefit of two affidavits made by Professor C D Ellyett, which satisfied me that there was a prima facie case that the equipment being marketed by Aquagas, as Australian licensee of Hydrox, infringed the patent held by Mr Brown.

4. Service was effected on Hydrox on 27 May 1988. A conditional appearance was entered and thereafter the present Notice of Motion was filed. An affidavit filed in support of the motion reveals that Hydrox has recently commenced defamation proceedings in the New Zealand High Court against Mr Brown and other defendants, the proceedings arising out of an interview said to have been given by Mr Brown in which, to put the matter simply, Mr Brown accused Hydrox of stealing his invention.

5. Order 8 rule 1 of the Federal Court Rules sets out the situations in which, subject to rule 2, originating process may be served outside Australia. These situations include:
   
   

"(g) where the proceeding is properly brought against a person served or to be served in the Commonwealth and the person to be served outside the Commonwealth is properly joined as a party to the proceeding."

Rule 2(1) provides that service outside the Commonwealth is not valid under Order 8 unless service is effected with the prior leave of the Court under sub-rule (2), the Court confirms service under sub-rule (4) or the person served waives objection by entering an appearance. Sub-rule (2) empowers the Court to grant leave to serve originating process outside Australia where it is satisfied:

"(a) that the proceeding is a proceeding in which the Court has jurisdiction;

(b) that the proceeding is a proceeding to which rule 1 applies; and

(c)that the applicant has a prime facie case for the relief which he seeks."

1. It is common ground between the parties that, in considering this motion to discharge the order permitting service outside Australia, the criteria to be applied are those set out in rule 2(2); in other words, that the present application should be judged in the same way as if the material now before the Court had been in evidence when leave was originally granted. I think that this is the correct approach. Hydrox has had no previous opportunity to contest the appropriateness of the Court granting leave to effect service outside Australia. It should not be prejudiced because that order was made.

2. Counsel for Hydrox does not contest that para.(a) of rule 2(2) is made out. This Court now has original jurisdiction in intellectual property matters, including proceedings to restrain the infringement of an Australian patent: see Patents Act 1952 ss.113, 118 noting the amendments made to the definition of "prescribed court" in s.6 of the Act by the Jurisdiction of Courts (Miscellaneous Amendments) Act 1987. Counsel does dispute that the evidence discloses that there is a prima facie case that the articles being offered for sale by Aquagas infringe Mr Brown's patent. The contention was not developed in the argument. I think that it is enough for me to say -- without going into the technical evidence -- that, having re-read Professor Ellyett's reports, I remain satisfied that there is such a case. Whether that prima facie case will stand up to examination at the trial is, of course, another matter.

3. Two substantial matters are put by counsel for Hydrox in support of their contention that the order should be discharged. First, they say that, even if Aquagas is infringing Mr Brown's Australian patent, there is no evidence that Hydrox is doing so. Secondly, counsel argue that, in the exercise of its discretion, the Court should decline to allow the proceeding against Hydrox to be maintained in this Court.

4. The evidence suggests that the article being offered for sale by Aquagas, or its component parts, is manufactured by Hydrox in New Zealand and exported by that company to Aquagas in Australia. But these actions by Hydrox are not enough, in themselves, to constitute an infringement by Hydrox of the Australian patent. In Walker v Alemite Corporation (1933) 49 CLR 643 at p.658, Dixon J said:
   
   

"... it is settled law that the exclusive property in a combination invention is not infringed upon by the sale of the components ...; that selling articles to persons to be used for the purpose of infringing a patent is not an infringement of the patent ...; and that sale with a knowledge that the purchaser will use the articles for infringement is not itself an infringement although the vendor gives the purchaser an indemnity: the vendor must have made himself a party to the act of infringement ..."

See also, for a more recent discussion of the same principles:

Kalman v PCL Packaging (UK) Limited (1982) FSR 406 at p.421.

1. However, there may be cases in which the activity of a supplier goes beyond mere supply; cases in which it appears that the supplier has acted to procure the infringement. Where procurement is shown, liability may be established. As Buckley LJ pointed out in Belegging-En Exploitatiemaatschappij Lavender BV v Witten Industrial Diamonds Limited (1979) FSR 59 at p.65: "Facilitating the doing of an act" -- as by supplying materials, even with knowledge of the proposed use" -- "is obviously different from procuring the doing of the act". At p.66 his Lordship, in referring to a finding of the trial judge, mentioned the type of evidence necessary in order to show procurement:
   
   

"But if it means that the defendants sold the grits in circumstances which in some way made them participants in their subsequent embodiment in resin bonded grinding wheels, or that they induced someone so to embody them, the plaintiffs might well establish infringement by the defendants in this way, but this is not pleaded. To support such a claim the plaintiffs would clearly have to plead the circumstances which made the defendants participants in the infringement or which constituted the inducement."

1. Morton-Norwich Products Inc v Intercen Ltd (1978) RPC 501 is a case in which a finding was made that a supplier of goods contravened a patent. The defendant was a Dutch company which sold certain chemicals to a group of English companies. Property in the goods passed at the time of shipment from Rotterdam. Nevertheless it was held that there had been a concerted design between the Dutch company and the English buyers to sell the chemicals in England, the Dutch company being aware of the English patent. Graham J held that the principle of joint tortfeasance applied to patent infringements. He said at p.512: "persons whose respective shares in the commission of a tortious act are done in furtherance of a common design are properly regarded as joint tortfeasors". At p.515 he said:
   
   

"Provided a tort is in fact committed in the United Kingdom and it is proved that the defendants had a common design to commit it, it does not in my view matter whether the agreement which is the basis of such design was made in this country or outside the jurisdiction, nor does it matter that the person sued has not himself done within the jurisdiction any act which taken by itself could be said to amount to several infringement. ... Common design or conspiracy to commit a crime is different in many respects from common design or conspiracy to commit a tort."

1. So far as I can detect, there are no differences between the United Kingdom legislation and the Australian legislation which would warrant the taking in this country of an approach different from that adopted by Graham J. Indeed, it is interesting to note the comment by King J, of the Supreme Court of Victoria, in Spotless Group Limited v Proplast Pty Limited (not reported, 9 September 1987) at p.4:
   
   

"In respect of these grounds ... counsel for the defendants has submitted that the design and patent infringements alleged were not 'torts' but were statutory offences, ... In my opinion a tort is a civil wrong, whether it arises at common law or under statute."

I respectfully agree with this observation. It seems to me that the principles applicable to joint tortfeasors equally apply to contraventions of those statutory rights which are enforceable by civil remedies.

1. As I understand the concept of "common design" discussed by Graham J, it is not necessary that the parties to the design realise that the action intended by them will constitute an infringement of a patent. A defendant's state of mind is generally irrelevant to the question of infringement, although it may be relevant to the assessment of damages: see s.124 of Patents Act. What is necessary is that there be participation, rather than mere facilitation, by the alleged joint tortfeasor.

2. There are in evidence copies of two agreements involving Hydrox, both dated 25 March 1988. The first agreement is called a "Joint Venture agreement". The parties are Hydrox, Depoto Pty Limited and Ceff & Ciff Equities Limited. This agreement recites that Ceff & Ciff and Depoto are the holders of shares in Aquagas and that they have agreed with Hydrox to co-operate in the re-organization of the company "to market and distribute certain licensed products" as described in the second agreement, the Exclusive Licence Agreement. That agreement identifies the relevant products as "hydroxy gas generators manufactured for the purposes of welding, cutting, brazing and all other adaptions, applications to the welding industry". This is a description appropriate to the appliances the subject of Mr Brown's patent; although, of course, that description may also be appropriate to generators not within the patent. However, prima facie and given the evidence as to the type of apparatus held by Aquagas, it is a reference to the subject appliances.

3. The Joint Venture agreement provides for the issue of shares in Aquagas to each of the companies who are parties to that agreement. A debt for a licence fee ($9,000) said to be due by Aquagas to Hydrox is to be capitalised and 9,000 shares allotted to Hydrox. The effect of the agreement is that, after the capital of Aquagas is re-organized in the manner set out therein, Hydrox will hold 30% of the issued shares. However, the agreement provides that Hydrox has the right to nominate two of the four directors of the company. Different provisions, as to appointment of directors, apply if, in the future, Hydrox should acquire 49% of the shares in the company.

4. The argument is pressed on behalf of the applicants that the participation of Hydrox in the ownership and management of Aquagas makes it a participant in the infringement by the latter company of Mr Brown's patent. I do not think that this argument can be sustained. It seems to me to give insufficient weight to the fact that Aquagas is a separate legal entity. The actions of that company in marketing the subject apparatus are actions performed on its own behalf, for its own profit; and this notwithstanding that, as a shareholder of Aquagas, Hydrox may expect to take the benefit of a portion of the profits earned by Aquagas. Similarly, the directors of Aquagas act in relation to that company's affairs on behalf of Aquagas, not Hydrox; and this notwithstanding that some owe their appointment to Hydrox.

5. In my opinion the Joint Venture agreement is not enough to constitute Hydrox a participant in the alleged infringement by Aquagas of the subject patent.

6. However, the matter does not end there. The second agreement of 25 March 1988 is the Exclusive Licence Agreement, the only parties to which are Aquagas as licensee and Hydrox as licensor. By this agreement Hydrox confers an exclusive licence on Aquagas, for a period of three years, to import, market and sell the subject product -- already described -- in Australia and Papua New Guinea. The agreement provides for the manufacture and delivery of the licensed product at a main port of convenience within the licensed territory. Conditions regarding payment and warranties appear. Clause 5.1 of the agreement states that Hydrox is the "sole owner of the entire worldwide right, title and interest in and to the Licensed Product and the Licensor has the full right, power and authority to grant the Licence". Clause 8.2 casts upon the licensor the obligation to defend any infringement suit brought against the licensee with respect to the licensed product. Presumably this clause covers the present case, so that by force of this obligation Hydrox is in any event indirectly involved. However, these provisions do not themselves mean that Hydrox is participating in the alleged infringement.

7. However, the agreement goes further than to confer a bare licence. Clause 5.5 provides:
   
   

"5.5 Licensor shall make available to Licensee at all reasonable times and places requested by Licensee and at Licensee's expense the services of Licensor and its officers, employees and representatives to instruct and assist Licensee its employees, agents and assigns in packaging, demonstrating, marketing or selling the Licensed Product. The Licensor shall visit the designated principal offices of the Exclusive Territory at its own expense for general marketing assistance twice per annum."

Moreover, cl.6.2 requires Aquagas to provide to Hydrox each six months during the term of the agreement "a report on the market conditions, state of competiton and other general developments regarding the marketing of the Licensed Product within the Exclusive Territory". This report is to "contain the names of all persons who have purchased or agreed to purchase Licensed Product and Licensor shall have the right to require Licensee to provide detailed information on any such person and to refuse to make available Licensed Product to Licensee for sale to any party where it reasonably considers that such sale may adversely affect Licensor and Licensee shall not make any such sale upon being advised by Licensor of its refusal".

1. It seems to me that the effect of the Exclusive Licence Agreement is to take Hydrox beyond the role of facilitator and into the role of participant. Clause 5.5 is particularly significant. It casts upon Hydrox a positive obligation to assist Aquagas in marketing the product. Moreover, the evidence discloses that Hydrox has already taken some action to open up market opportunities in Australia. On 12 April 1988 Hydrox submitted to the New South Wales Department of Industrial Relations an application for review of a pressure vessel. From the description given in the application, it seems that this pressure vessel is within the description of the licensed product contained in the Exclusive Licence Agreement. The submission was lodged in the name of Hydrox, under cover of a letter from that company.

2. It follows from the above that, in my opinion, there is a prima facie case of infringement by Hydrox, in association with Aquagas, of the patent held by Mr Brown. Consequently, the present proceeding is a proceeding to which Order 8 rule 1 applies. The conditions of rule 2(2) of that Order are satisfied.

3. I accept the submission made on behalf of Hydrox that, notwithstanding compliance with Order 8 rule (2(2), the Court retains a discretion whether to grant leave to serve a respondent outside Australia. The nature of that discretion was recently discussed in the House of Lords: see Spiliada Maritime Corporation v Cansulex Ltd (1987) 1 AC 460. Lord Goff of Chieveley, whose speech was expressly approved by the other members of the House, dealt at some length with the principles underlying the discretion to grant leave to effect service outside the jurisdiction, noting a difference of approach evinced in earlier decisions of Lord Diplock and Lord Wilberforce. He ultimately adopted the principle stated by Lord Wilberforce "that in order to decide whether the case is a proper one the court must take into account the nature of the dispute, the legal and practical issues involved, such questions as local knowledge, availability of witnesses and their evidence and expense". At p.481, his Lordship said that "the burden of proof rests on the plaintiff to persuade the court that England is the appropriate forum for the trial of the action"; moreover, "he has to show that this is clearly so".

1. But for one matter, it would not, in my opinion, be possible for the applicants to discharge that burden in the present case. In relation to the comparative advantages of Australia and New Zealand in justly resolving the disputes between the applicants and Hydrox, some matters are neutral. For example, a major issue at the trial will apparently be the technical question whether the apparatus distributed by Aquagas as licensee of Hydrox infringes Mr Brown's patent. That will be a matter to be decided upon expert evidence; including the evidence of experts associated with the parties. It is difficult to think that there is any advantage in relation to that evidence, one way or the other, as between a trial in Australia or in New Zealand. The cost of flying the expert witnesses from Australia to New Zealand, or vice versa, is hardly a significant consideration.

2. In relation to some other aspects of the case, New Zealand has a marked advantage. This is particularly true in connection with the claim for breach of confidential information. As I understand that claim, almost the whole of the relevant events took place in New Zealand. Most of the persons able to give evidence relevant to that claim appear to be resident in New Zealand. No doubt relevant documents are presently situate in New Zealand. Moreover, litigation is presently pending in the High Court of New Zealand in which, depending upon the defences selected by the various defendants, the circumstances in which Hydrox obtained the technology embodied in its product may fall for investigation. That litigation might require consideration of much the same material as would be relevant to the breach of confidential information claim raised by the present applicants.

3. The above reasons create a temptation to accede to the present application and to compel the applicants, if they so desire, to litigate their claims against Hydrox in New Zealand. But there is one fundamental objection to that course: the applicants cannot litigate in a New Zealand court the question whether Hydrox has infringed the Australian patent. According to an affidavit of Mr Brown read in this application, he also has a New Zealand patent; but the terms of this patent are not in evidence. Mr Brown would be able to take proceedings for infringement of that patent in New Zealand. If he were successful, he could obtain injunctive relief restraining the infringement of that patent not only by sales in New Zealand but also by manufacture in New Zealand of products to be sold elsewhere. However, without knowledge of the terms of the New Zealand patent, it is not possible to say whether such proceedings would cover the product the subject of this proceeding. Nor is it possible to say that, even if it did, Mr Brown would be able to obtain all of the relief to which he would be entitled if he succeeded in the present proceeding in enforcing the Australian patent.

4. Furthermore, it does not appear that the first two applicants, who are licensees of the Australian patent, would have a right of action in New Zealand. So far as appears, they have no rights under the New Zealand patent and they could not, of course, enforce in a New Zealand court their rights in respect of the Australian patent. Inconvenient though the position may be, it appears to be the fact that to deny the first and second applicants the right to proceed in this Court against Hydrox is to deny them any remedy against that company. I accept that it may turn out that these applicants, and also Mr Brown, do not in fact need remedies against Hydrox in relation to the Australian patent. They may obtain injunctions against Aquagas of sufficient width to protect them against any infringement of the Australian patent. They may succeed in recovering from Aquagas any damage which they have suffered as a result of any infringement of the Australian patent. But, on the other hand, they may not. It is not possible to be confident that the computation of damages against each of the respondents would be for the same amount of money; especially bearing in mind s.124 of the Patents Act. Nor is there any material from which I can infer that any award of damages against Aquagas is likely to be actually collectable.

5. It is, of course, fundamental to any decision to withhold, on discretionary grounds, leave to serve originating process outside Australia that there exists some other jurisdiction in which the claim sought to be made in this Court may be fully litigated. Only if that condition is fulfilled does the Court reach the stage of looking at the matters referred to in Spiliada. Once it be concluded, as I think that it must, that the applicants are not entitled to prosecute in New Zealand all aspects of their present claim, the Court cannot properly decline to hear their case.

6. The Notice of Motion should be dismissed with costs.