Eastland Technology Australia Pty Ltd v Whisson - [2005] WASCA 144

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

TITLE OF COURT : THE COURT OF APPEAL (WA)

CITATION: EASTLAND TECHNOLOGY AUSTRALIA PTY LTD & ORS -v- WHISSON & ORS [2005] WASCA 144

CORAM: MALCOLM CJ
STEYTLER P
MCLURE JA

HEARD: 11 & 12 APRIL 2005

DELIVERED : 4 AUGUST 2005

FILE NO/S: FUL 104 of 2002

BETWEEN: EASTLAND TECHNOLOGY AUSTRALIA PTY LTD (059 479 391)
First appellant
FEE-ZONE PTY LTD
Second appellant
INTER-CONTINENTAL CORPORATION PTY LTD
Third appellant
AND
MAXWELL EDMUND WHISSON
First respondent
DEAN BRIAN PRESTIDGE
Second respondent
SILVERFERN NOMINEES PTY LTD as trustee of the Prestidge Family Trust (070 887 722)
Third respondent

ON APPEAL FROM:
Jurisdiction              :  SUPREME COURT OF WESTERN AUSTRALIA
Coram  :TEMPLEMAN J
Citation  :EASTLAND TECHNOLOGY AUSTRALIA PTY LTD & ORS -v- WHISSON & ORS [2002] WASC 150
File No  :COR 347 of 1999

Catchwords:

Corporations Law - Whether release in breach of s 241 of the Corporations Law - Scope of s 241 - Scope of director's duty - Whether breach of fiduciary duty - Nature and effect of a concession - Turns on own facts

Legislation:

Commercial Arbitration Act 1985 (WA), s 3(5), s 53

Companies Act 1981 (Cth), s 237

Corporations Law 1990 (Cth), s 79, s 232, s 241, s 1317DB, s 1317HD, s 1317JD, s 1318, s 1324

Result:

Appeal dismissed

Category: B

Representation:

Counsel:

First appellant                :     Mr P I Jooste QC and Mr R J Price
Second appellant           :     Mr P I Jooste QC and Mr R J Price
Third appellant              :     Mr P I Jooste QC and Mr R J Price
First respondent            :     Mr C G Colvin SC and Mr B W Ashdown
Second respondent        :     Mr C G Colvin SC and Mr B W Ashdown
Third respondent           :     Mr C G Colvin SC and Mr B W Ashdown

Solicitors:

First appellant                :     Gadens Lawyers
Second appellant           :     Gadens Lawyers
Third appellant              :     Gadens Lawyers
First respondent            :     B W Ashdown
Second respondent        :     B W Ashdown
Third respondent           :     B W Ashdown

Case(s) referred to in judgment(s):

Angas Law Services Pty Ltd (In liq) v Carabelas (2005) 79 ALJR 993
Australian Growth Resources Corp Pty Ltd v Van Reesema (1988) 13 ACLR 261
Bell v Lever Bros Ltd [1932] AC 161
Bhullar v Bhullar [2003] EWCA Civ 424
Canadian Aero Services Ltd v O'Malley (1973) 40 DLR (3d) 371
Commonwealth Homes & Investment Co Ltd v MacKellar (1939) 63 CLR 351
Fine Industrial Commodities Ltd v Powling (1954) 71 RPC 253
Forge v Australian Securities and Investments Commission (2004) 213 ALR 574
Industrial Development Consultants Ltd v Cooley [1972] 1 WLR 443
London & Mashonaland Exploration Co Ltd v New Mashonaland Exploration Co Ltd [1891] WN 165
Maguire v Makaronis (1997) 188 CLR 449
Marchesi v Barnes [1970] VR 434
Massey v Wales (2003) 57 NSWLR 718
Miller v Miller (1995) 16 ACSR 73
Neeta (Epping) Pty Ltd v Phillips (1974) 131 CLR 286
Pascoe Ltd (In liq) v Lucas (1998) 27 ACSR 737
Re Joint Stock Trust and Finance Corporation Ltd (1912) 56 SJ 272
Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134
SEA Food International Pty Ltd v Lam (1998) 16 ACLC 552
Selim v McGrath (2003) 177 FLR 85
Thomas National Transport (Melbourne) Pty Ltd v May & Baker (Australia) Pty Ltd (1966) 115 CLR 353
Whisson & Anor v Eastland Technology Australia Ltd [2004] WASCA 272

Case(s) also cited:

Boardman v Phipps [1967] 2 AC 46
Bond Corporation Holdings Ltd v Sulan (1990) 3 WAR 49
Building and Engineering Constructions (Aust) Ltd v Property Securities No 1 Pty Ltd [1960] VR 673
Bunbury Foods Pty Ltd v National Bank of Australasia Ltd (1984) 153 CLR 491
Carabelas v Scott (2003) 177 FLR 334
Chan v Zacharia (1984) 154 CLR 178
Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373
Crimmins v Stevedoring Industry Finance Committee (1999) 200 CLR 1
Cummings v Claremont Petroleum NL (1992) 9 ACSR 583
Doleman & Sons v Ossett Corporation [1912] 3 KB 257
Edwards v The Queen (1992) 173 CLR 653
Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (2001) 37 ACSR 672
Furs Ltd v Tomkies (1936) 54 CLR 583
Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41
Lawson v Mitchell [1975] VR 579
Marson Pty Ltd v Pressbank Pty Ltd (1987) 12 ACLR 465
Metzger v Department of Health and Social Security [1978] 1 WLR 1046
R v Byrnes (1995) 183 CLR 501
Re Lawrence; Ex parte Goldbar Holdings Pty Ltd (1994) 11 WAR 549
Row Weeder Pty Ltd v Nielsen (1997) 39 IPR 400
Tickner v Chapman (1995) 57 FCR 451
Trans Realties Pty Ltd v Grbac [1975] 1 NSWLR 170
Vitamins Australia Ltd v Beta-Carotene Industries Pty Ltd (1987) 9 IPR 41

MALCOLM CJ: In my opinion, this appeal should be dismissed for the reasons to be published by McLure JA with which I am in entire agreement. I would only add that the proceedings at trial suffered greatly from the lack of proper pleadings so as to identify clearly the issues which were required to be addressed at the trial. This was a case in which the approach on behalf of the appellants was to split the case so that part went off to arbitration and the remainder was to be litigated. The disadvantages to the appellants in adopting that course ought to have been obvious to the appellants' legal advisers.
STEYTLER P: I have read the judgment of McLure JA. I agree with it and with her conclusion that the appeal should be dismissed.
MCLURE JA: The appellants' appeal from the decision of Templeman J to dismiss the appellants' application to set aside a settlement agreement and their claims of breach of fiduciary and statutory duties and to enter judgment for the first and second respondents on their counterclaim.
The first appellant, Eastland Technology Australia Pty Ltd ("Eastland"), was incorporated in March 1993 by members of a syndicate who wished to develop and exploit certain parenteral devices that had been invented and patented by Dr Maxwell Whisson, the first respondent. A parenteral device enables fluid to be introduced into or withdrawn from the body, the most common form of which is a hypodermic syringe. Dr Whisson, who was also a member of the syndicate, was appointed to Eastland's Board in June 1993 and became its Chairman. In March 1993 Dr Whisson licensed three of his inventions to Eastland and in November 1993 he assigned them to Eastland.
In the course of its business, Eastland used design and drafting services provided by Mr Dean Prestidge, the second respondent. Mr Prestidge had worked closely with Dr Whisson before their respective involvement with Eastland. Mr Prestidge's family company, Silverfern Nominees Pty Ltd ("Silverfern"), is the third respondent.
In September 1998 Dr Whisson and Mr Prestidge invented a novel form of parenteral device. Shortly afterwards, they made five joint patent applications in relation to the invention and registered the name "Di‑Med" as the business name relating to an informal partnership which arose from their joint invention ("the Di‑Med invention").
On 25 January 1999 Eastland entered into a licence agreement with Dr Whisson and Mr Prestidge for the purpose of exploiting the Di‑Med

invention ("licence agreement"). In the licence agreement, Dr Whisson and Mr Prestidge warranted that they had full right and title to the Di‑Med invention. However, the directors of Eastland came to the view that Eastland might be entitled to claim the intellectual property in the Di‑Med invention. On 31 March 1999 Eastland commenced an action in the Supreme Court against Dr Whisson, Mr Prestidge and Silverfern ("first action"). Eastland sought relief which included declarations that the intellectual property in the Di‑Med invention was its property which the respondents held on constructive trust for Eastland. The claim was based on alleged breaches of fiduciary duty and confidence by Dr Whisson and on breaches of confidence by Mr Prestidge, with the knowledge and approval of Silverfern.

Dr Whisson ceased to be a director of Eastland on 18 April 1999. The first action was settled at a meeting between the parties and their legal representatives on 16 May 1999 when a handwritten deed of settlement ("first Deed") was executed. The parties entered into a formal deed of settlement on 5 June 1999 ("Deed of Settlement"). The terms of settlement included amendments to the licence agreement and a release and bar provision (cl 6 of the Deed of Settlement).
In December 1999 Eastland commenced the application seeking to set aside the deeds of settlement of May and June 1999 and, in effect, to pursue the claims made in the first action. Fee‑Zone Pty Ltd ("Fee‑Zone") and Inter‑Continental Business Corporation Pty Ltd ("Inter‑Continental") were joined as applicants. They are shareholders in Eastland and claimed to be persons whose interests were affected by conduct that constituted a contravention of the Corporations Law 1990 (Cth) ("Law") so as to entitle them to relief pursuant to s 1324 of the Law.
Dr Whisson and Mr Prestidge counterclaimed for a declaration that they had validly terminated the licence agreement. They served notice of default under the licence agreement followed by notice of termination of that agreement after Eastland's failure to pay moneys allegedly due under the licence agreement. After notice of default was served, Eastland served notice of appointment of an arbitrator pursuant to s 7 of the Commercial Arbitration Act 1985 (WA).
I turn now to the grounds of appeal. This Court gave leave to the appellants to amend their notice of appeal in accordance with a minute dated 22 March 2005 notwithstanding difficulties with the way in which the grounds were formulated. It did so because the appeal was conducted, with the concurrence of all parties, on the basis of issues identified by the appellants in a minute of proposed statement of issues dated 22 March 2005. I propose to deal, firstly, with the challenge to the orders on the application and then with the challenge to the orders on the counterclaim.

The Application Appeal

The broad issues identified by the appellants for determination in the appeal from the dismissal of the application are whether the trial Judge erred:
(a)in concluding that cl 6 of the Deed of Settlement was not void by virtue of s 241 of the Law;
(b)in finding that Dr Whisson had not breached his fiduciary and statutory duties as a director of Eastland. In particular, whether the trial Judge erred in finding that:
(i)Dr Whisson did not usurp or direct a business opportunity (the Di‑Med invention) from Eastland to the advantage of himself and Mr Prestidge;
(ii)the Di‑Med partnership was not in competition with Eastland;
(iii)there was no conflict of interest between Dr Whisson and Eastland;
(c)in finding that Mr Prestidge and Silverfern were not executive officers of Eastland;
(d)in finding that Mr Prestidge and Silverfern did not contravene any of their duties under the Law;
(e)in not finding that Mr Prestidge and Silverfern were in breach of their fiduciary and statutory duties by reason of being knowingly concerned in Dr Whisson's breaches pursuant to ss 79 and 1317DB of the Law;
(f)in not finding that Fee‑Zone and Inter‑Continental were persons whose interests had or would be affected by the respondents' conduct and had standing to seek relief under s 1324 of the Law.

Whether a Contravention of s 241 of the Law

The recitals in the Deed of Settlement acknowledge that the parties thereto (Eastland, Dr Whisson, Mr Prestidge and Silverfern) were in dispute over matters the subject of the first action and agreed to settle that action on the terms contained in the first Deed and on the terms contained in the Deed of Settlement.
Pursuant to the Deeds, the parties acknowledged and agreed that Eastland had ownership of all the intellectual property in the Eastland patents and that Dr Whisson and Mr Prestidge had ownership of all the intellectual property in the Di‑Med patents. The Deed of Settlement also required the parties to execute a deed of variation of the licence agreement ("Deed of Variation").
Clause 6 of the Deed of Settlement contains a release and bar to action in the following terms:
"6.1By execution of this Deed, each of the parties hereto release each other from all sums of money, suits, causes of action, claims, accounts, demands, costs and expenses which they have or may have had against one or all of the others or but for this Deed may have been entitled to raise against one or all of the others arising out of, incidental or related to the issues raised in the Action or which could have been raised by any of the parties as an equitable set‑off or counterclaim in the Action.
6.2This Deed may be pleaded as a bar to any action, suit, claim, demand or other proceedings whatsoever now or at any time hereafter instituted by any one of the parties against another with respect to any claim the subject of the release contained in clause 6.1 of this Deed."
Thus, the release was for valuable consideration in the context of a compromise of the claims the subject of the first action. The trial Judge found that cl 6 of the Deed of Settlement was, subject to the effect of s 241, a complete defence to the claims against the respondents. The appellants do not challenge that finding.
Section 241 of the Law as it was at the relevant time (May/June 1999) provided:
"241.COMPANY NOT TO INDEMNIFY OFFICER OR AUDITOR:
(1)A company or a related body corporate must not:
(a)indemnify a person who is or has been an officer or auditor of the company against a liability incurred by the person as such an officer or auditor; or
(b)exempt such a person from such a liability.
(1A)A constitution, or any other instrument, or an agreement or arrangement, is void in so far as it provides for a body corporate to do something that subsection (1) prohibits."
The term "officer" is defined to include a director of a company (s 241(4)). The question in this case is whether cl 6 of the Deed of Settlement exempts a person who is or has been an officer from a liability incurred by the person as such an officer. The potential liability of the respondents is claimed to arise under the general law (for breach of fiduciary duty) and the Law (in particular, s 232(2), (5) and (6)).
A proper understanding of the parties' contentions requires some background as to the genesis of provisions such as s 241. That information is conveniently collected in discussion paper number 9 of the then Companies and Securities Law Review Committee ("Committee") entitled "Company Directors and Officers: Indemnification, Relief and Insurance". The discussion paper addresses s 237 of the Companies Act 1981 (Cth) which is in similar terms to s 241 of the Law. Section 237 (and s 241) was derived from United Kingdom legislation that was passed after the Greene Committee in 1926 expressed disquiet about provisions in company articles that sought to relieve directors from liability for all but dishonesty. At the time, it was common to include in the articles of association of a company a provision exempting or indemnifying directors from liability for costs, losses and expenses incurred by them in the discharge of their duties "except such as may happen from their own respective wilful or wrongful act or default". In some articles directors were exempted from liability as long as they were not dishonest.
The Greene Committee recommended:
"… that any contract or provision (whether contained in the company's articles or otherwise) whereby a director, manager or other officer is to be excused from or indemnified against his liability under the general law for negligence or breach of duty or breach of trust should be declared void."
The Greene Committee recommendation resulted in the enactment of s 152 of the English Companies Act 1929 which is the model on which s 237 and its successors are based. Thus, the history discloses that the mischief the various legislatures sought to address was blanket exemptions of the types to which I have referred.
The trial Judge in this case concluded that s 241 did not invalidate cl 6 of the Deed of Settlement because that section is directed at blanket exemptions from liabilities such as those contained in corporate constitutions (and perhaps even only blanket exemptions from prospective liability [387]). There is support in New South Wales for the view that s 241 is confined to blanket exemptions: Selim v McGrath (2003) 177 FLR 85 at [152]; Miller v Miller (1995) 16 ACSR 73.
Santow J in Miller v Miller concluded that s 241 did not override the rules relating to ratification of an officer's corporate related conduct. In Miller, the plaintiff brought an action seeking the Court's determination of questions relating to the construction of a will. One of the potential beneficiaries of the will was a company of which the testator had been a director for many years until his death. Under cl 3 of the will, the testator bequeathed certain property to the company subject to conditions set out in cl 4. One of the conditions was the company "releasing and indemnifying [the testator] and [his] legal personal representatives from any claims whether actual prospective or contingent … which it may have against [the testator] or [his] legal personal representatives arising out of any transactions by [the testator] with the Company or on its behalf during [the testator's] lifetime …" (cl 4(b)).
The plaintiff contended that cls 3 and 4 of the will were void under s 241(1) of the Law. The defendants contended that s 241 could be reconciled with the release and indemnity in cl 4(b) by recourse to the doctrine of ratification. In particular, they contended that the established principle that a fully informed company in general meeting can prospectively or retrospectively validate the action of its directors, even though those actions may be negligent, a breach of fiduciary duty or an exercise of power for an improper purpose, was not overridden by s 241.
Santow J's reasoning is based on his acceptance of the proposition that ratification, save when used in the sense of affirming a voidable transaction, does not itself effect the release of a claim (see R Partridge, "Ratification and the Release of Directors From Personal Liability" (1987) 46 CLJ 122). However, Santow J regarded ratification of cl 4 as achieving that result. He concluded that the release of a claim was not to "exempt … from a liability". He said (at p 88):
"The notion of 'exempt' is to 'free from an obligation or liability' … Whereas to release means 'to surrender a right'. The former notion of 'exempt' again leaves the underlying right (of the company against the director in this context) intact. But it embargoes any attempt to free the director from his or her consequential liability for contravening that right.
This is conceptually distinct; but is the distinction one which is truly without a difference? In my judgment no. The clear policy of s 241, as evinced in its earlier reference to 'indemnify', is to deal with the consequences of breach of obligation owed to the company, not the release of rights which give rise to those obligations. There is a long history known to the legislature, of ratification of such releases, with limits established by the cases. One would not expect that history to have been expunged with no reference in any explanatory memorandum or ministerial speech, or in the words of s 241 itself. Section 241 is concerned with 'blank cheque' indemnification and exemption, while ratification requires specific release after full disclosure of the particular cause for claim."
I have reservations as to the correctness of the first part of the analysis dealing with the scope of the terms "exempt" and "release". At common law parties can agree to absolve a party from liability for the consequences of a breach of duty or define substantively the limits of a duty by negativing obligations the law would otherwise impose: Thomas National Transport (Melbourne) Pty Ltd v May & Baker (Australia) Pty Ltd (1966) 115 CLR 353 at 385. Santow J's construction of "exempt" appears to have the consequence that a blanket provision that excluded or limited the duties of, not just the remedy against, defaulting directors would fall outside s 241(1). That cannot be correct. However, it appears to be generally accepted that s 241 does not override or exclude the principles of ratification (Miller v Miller; Ford Austin and Ramsay, Ford's Principles of Corporations Law, 11th ed, 8.410; Partridge (supra) at p 144 and fn 24).

On the other hand, the weight of authority supports the view that a company cannot ratify a breach of statutory duty such as, for example, a breach of s 232 of the Law: Miller at 89; Forge v Australian Securities and Investments Commission (2004) 213 ALR 574 at [383] per McColl JA; contraPascoe Ltd (In liq) v Lucas (1998) 27 ACSR 737 at 772 per Debelle J. That question was recently considered by Gleeson CJ and Heydon J in Angas Law Services Pty Ltd (In liq) v Carabelas (2005) 79 ALJR 993. The Court was considering alleged breaches of sub‑s (2) and (4) of s 229 of the Companies (South Australia) Code ("Code") which are in the same terms as sub‑s (4) and (b) of s 232 of the Law. They said (at [32]) that where ratification operates to protect a director from civil liability to a company, it does so upon the principle that "those to whom [fiduciary] duties are owed may release those who owe the duties from their legal obligations and may do so either prospectively or retrospectively, provided that full disclosure of the relevant facts is made to them in advance of the decision" (citing Gower and Davies' Principles of Modern Company Law, 7th ed (2003) at 437). The shareholders of a company cannot release directors from the statutory duties imposed by "sub‑s (2) or sub‑s (4) of s 229".
The appellants placed considerable emphasis on s 1317HD of the Law in support of their submission that there could be no exemption from liability for, or ratification of, a breach of sub‑s (4) and (6) of s 232, which were civil penalty provisions under the Law. Section 1317HD provides:
"If a person contravenes a civil penalty provision in relation to a corporation or a registered scheme, the person must account to the corporation or scheme for:
(a)if that or another person has made a profit because of the act or omission constituting the contravention - an amount equal to the amount of that profit; and
(b)if the corporation or scheme has suffered loss or damage as a result of that act or omission - an amount equal to the amount of that loss or damage;
whether or not:
(c)the first‑mentioned person has been convicted of an offence in relation to the contravention; or
(d)a civil penalty order has been made against the first mentioned person in relation to the contravention."
The appellants contended that s 1317HD was the source of the respondents' liability. That is incorrect. The source of liability is s 232 of the Law and s 1317HD provides the relief available to a corporation for a contravention.
Section 229(7) of the Code was in materially the same terms as s 1317HD of the Law. It is apparent from the reasons of Gleeson CJ and Heydon J in Angas Law Services concerning s 227(7) of the Code that the fact that shareholders of a company cannot ratify a breach of statutory duty imposed by s 232 does not necessarily answer the question whether a company can lose its right of action under s 1317HD. They said at [32]:
"A company's right to recover under s 229(7) depends upon the existence of a contravention. If such a contravention has occurred, the question whether a company has lost its right of action under s 229(7) because of some binding decision on the part of its shareholders to release the potential defendants is another matter, and one that did not arise in this case."
However, this Court is not directly concerned with the question whether a company in general meeting can ratify a release of a company's entitlement to a remedy for breach of statutory duty. It is common cause that Eastland's shareholders in general meeting did not ratify the Settlement Deed.
The novel question for this Court is whether a release for valuable consideration in the compromise of a disputed claim is outside the scope of s 241(1) of the Law. However, the logically anterior question is whether a company (by resolution of its board) has the power to release an officer from liability or the consequence thereof as part of a bona fide compromise of a disputed claim. There is authority that, apart from s 241, a company does have the power to compromise a disputed claim against a former officer for breach of the general law on terms that include a release: Re Joint Stock Trust and Finance Corporation Ltd (1912) 56 SJ 272; Massey v Wales (2003) 57 NSWLR 718 at 730, 738.
The next question is whether, apart from s 241, a company has the power to release an officer from his duties under s 232 of the Law or alternatively its right to relief under s 1317HD of the Law, as part of a bona fide compromise of a disputed claim.
A bona fide compromise of a disputed claim can prevent a breach of statutory duty from arising as demonstrated in Commonwealth Homes & Investment Co Ltd v MacKellar (1939) 63 CLR 351. In that case, MacKellar, a Sydney architect, was approached by representatives of a South Australian company with a proposal that he join a local board of directors which it was intended to establish in Sydney. MacKellar was told the qualification for a director of the Sydney board was holding 1000 shares in the company, and he was invited to apply for shares. MacKellar, on the faith of an undertaking in express terms that he was to be the only architect on the Sydney Board, agreed to become a director and take shares in the company. He applied for, and was allotted, 1000 shares. MacKellar, having learnt that another architect had been appointed to the Sydney board, wrote to the company complaining of a breach of contract, notifying it that he had ceased to have any connection with the company and requesting a refund of moneys paid by him and cancellation of his application form. The company denied MacKellar's allegation of breach of contract, but a compromise was arrived at under which the company refunded a portion of the moneys paid by MacKellar in full satisfaction and termination of his contract with the company, as embodied in his proposal for shares in the allotment notice.
Some time later the company went into liquidation and the liquidator claimed rectification of the register to include MacKellar's name as the holder of 1000 shares. The relevant provisions of the companies legislation at the time provided that a company could not reduce its capital without the leave of the Court. It was accepted that the return to a shareholder of money paid for shares is a reduction of capital. However, there would be no reduction of capital if the relevant transaction was void or voidable. The High Court further held that a company could reduce its share capital without complying with the statutory requirements if there was a bona fide compromise of a claim that the allotment was void or had been lawfully avoided.
However, there are material differences in the statutory regime relating to civil penalty provisions, the most important of which is the nature and scope of the available remedies. Subsections (2), (4) and (6) (but not (5)) of s 232 were civil penalty provisions under the Law. An application for a civil penalty order could only be made by the then National Companies and Securities Commission, its delegate or a person authorised by the Minister. If the Court declared that a person had contravened a civil penalty provision, it could in appropriate circumstances make a banning order prohibiting the contravenor from managing a corporation for a period. Further, criminal proceedings could result from a breach of the civil penalty provisions (s 1317HB). In that statutory framework, it is unlikely the legislature intended that the parties have the power to determine the limits of an officer's statutory duties whether pursuant to a bona fide compromise or by way of ratification.
The same considerations do not apply to a release by a company of its rights of action under s 1317HD. The public interest is protected by the continued availability of penalties in an action by the Commission. The appellants contended that s 1317JD(2) and s 1318 of the Law provide the sole source of power to excuse an officer from a breach of the civil penalty provisions and other parts of the Law respectively. Under those sections the Court has the power to relieve a person from liability if he or she has acted honestly and having regard to all the circumstances, ought fairly to be excused. However, these sections do not in terms expressly or impliedly modify or limit the usual powers of a company to ratify or compromise a claim. In my view, there is nothing in the scheme of the legislation relating to civil penalty provisions that necessitates or justifies restricting the company's power, as part of a bona fide compromise of a disputed claim, to release a director from a claim for relief under s 1317HD.
That leaves only the proper construction of s 241 of the Law. I am not persuaded that s 241 only applies to exemption from prospective liabilities; there is nothing in the language of the section, in principle or in the mischief that the legislation sought to address which supports that conclusion.
However, there are indications in the language of the section that it is not intended to apply to a release that constitutes part of the consideration by a company for the bona fide compromise of a disputed claim the subject matter of the release. What in substance is achieved in those circumstances is not an exemption from liability but rather a release from a bona fide disputed claim of liability. Further, on a proper construction of s 241(1) and (1A) of the Law, only the offending provision excluding or indemnifying the officer from liability is invalidated. That would be a very odd consequence where the release comprises all or part of the company's consideration for the compromise agreement. For those reasons, I am of the opinion that s 241 does not prohibit a release as part of and related to a bona fide compromise of a disputed claim. This conclusion is supported by Gore‑Browne on Companies (Boyle and Sykes), 44th ed, at par 27.21.4 and Partridge (supra) at 147 ‑ 148. It is unnecessary for the purpose of this appeal to decide what may be a wider question, namely, whether s 241 only applies to blanket exemptions.
For these reasons the trial Judge was correct to conclude that cl 6 is a complete defence to the appellants' general law claims and their claim for statutory relief. However, for the sake of completeness I propose to deal with the other issues raised in the appeal from the application.

Breaches of Duty

The appellants contended that the trial Judge ought to have found that Dr Whisson usurped or diverted a business opportunity, was in competition with the Eastland business and had a conflict of interest. The appellants further contended that the conduct alleged to give rise to the breaches of fiduciary duty also placed the respondents in breach of s 232 of the Law.
The relevant background and findings made by the trial Judge are as follows. Dr Whisson had long been concerned with the prevention of needle‑stick injuries, being injuries caused by a needle that has been contaminated by its exposure to the tissue of one person and accidentally puncturing the skin of another person, usually a health care worker. Dr Whisson is a specialist haematologist. In 1980 he joined the Western Australian Red Cross Blood Transfusion Service and in 1990 he became its director of research and development. Dr Whisson remained in full‑time employment with the service until July 1998. In 1987 he invented a parenteral device embodying a syringe with a retractable needle which became known as the Retralock.
In March 1993 Dr Whisson licensed three of his inventions to Eastland. The licences were for the Selecta syringe, the Autoinjecta and the Clip‑on Retracta, all of which were the subject of patent applications. The consideration for the licence agreement for the Autoinjecta was the allotment of 40 per cent of the issued shares in Eastland and a seat on the board. Each licence agreement granted Eastland an exclusive worldwide licence for the life of the product, to commercialise, manufacture, market and sell the product. Eastland also had the right to enter into joint venture arrangements.
The licence agreements also provided that improvements to the product made by Eastland be granted back to Dr Whisson free of royalty and if the improvements were patentable, they would be patented at Eastland's cost but in Dr Whisson's name. However, the licence agreements did not impose on Dr Whisson any obligation to undertake research or development of the licensed products.
On 4 March 1994 Eastland entered into a joint‑venture agreement with Kemayan Oil Berhad ("Kemayan"), a Malaysian corporation. In November 1993 Dr Whisson assigned the licensed products to Eastland because of concerns that the negotiations with Kemayan for the joint venture might not proceed if they were not assigned. The joint‑venture agreement with Kemayan led to the formation of a joint venture company known as Kemayan Eastland Medical Sdn Bhd ("KEM"). Kemayan agreed to pay Eastland $1,850,000 as its contribution to the costs incurred by Eastland for research and development of what is described as the Whisson parenteral products ("the Eastland technology"), by this stage defined to be:
(1)Safeline winged infusion set;
(2)Reversyringe;
(3)Retraneedle;
(4)Retracta group of needles;
(5)Autoinjecta group of needles.
On 5 March 1994 Eastland and Kemayan entered into a licence agreement whereby Eastland granted Kemayan an exclusive licence and authority to manufacture, market and sell the Eastland technology.
As a result of technical and other problems, Kemayan ceased funding KEM in January 1998. This resulted in significant financial difficulties for Eastland.
On 23 September 1998 Dr Whisson and Mr Prestidge came up with the idea for the Di‑Med invention. It was not in dispute that what occurred was "a momentary insight … a flash of inspiration … a blinding flash".
The Eastland technology involves the complete retraction of the needle into the body of the syringe thereby rendering the device safe. The Di‑Med invention was quite different. It involves a composite needle. The sharp steel needle is encased in a plastic sleeve for all but 2‑3 mm of its length. The sleeve is the term used by Dr Whisson to identify what is also described as a catheter or cannula. On injection, the sharp tip of the needle and the end of the plastic sleeve enter the patient's tissue. The sharp tip can then be retracted some 2‑3 mm inside the sleeve, which remains in place. In that position, the needle is protected and the possibility of needle‑stick injury eliminated.
The trial Judge rejected a submission made for the first time in closing by senior counsel for the appellants that Mr Prestidge was the inventor of the Di‑Med invention. The trial Judge found that the Di‑Med invention was a joint invention. Both Dr Whisson and Mr Prestidge participated fully in the process, including turning the idea into an invention by preparing the drawings and, in Dr Whisson's case, in drafting a provisional patent application.
In the period 6 October 1998 to 22 January 1999 five provisional patent applications in respect of the Di‑Med invention were prepared and lodged on behalf of Dr Whisson and Mr Prestidge.
The trial Judge concluded that the Di‑Med invention had no relevant connection with the Eastland technology. He said (at [115]):
"… I am satisfied and find as a fact that the Di‑Med inventions are based on a concept which is quite different from that embodied in the devices the subject of the Eastland technology. I find also that the Di‑Med invention did not constitute an improvement, modification or alteration to Eastland's technology: and that none of Eastland's intellectual property was utilised in developing the concept which is embodied in the Di‑Med inventions or in those inventions themselves. I find that the genesis for the insight which came to Dr Whisson on 23 September 1998 was his long term interest and experience in safe parenteral devices. That knowledge and experience pre‑dated Dr Whisson's involvement with Eastland. Mr Prestidge's interest in the subject also pre‑dated his involvement with Eastland. And his idea for a safe parenteral device, being derived from a needle and a short length of tubing, owed nothing to Eastland's technology."
In October 1998 Dr Whisson sought to interest Heytesbury Pty Ltd ("Heytesbury") in the Di‑Med invention. On 26 October Dr Whisson wrote to Dr William Ryan, the executive manager of research and development for Heytesbury, concerning the Di‑Med invention. A meeting between Dr Whisson, Mr Prestidge and Dr Ryan was scheduled for, and took place on, 4 November 1998. Prior to the meeting, Dr Whisson and Mr Prestidge agreed that Dr Whisson would represent Eastland at the meeting with Dr Ryan. Dr Whisson saw the invention as a means of saving Eastland and Mr Prestidge acquiesced in that. The trial Judge concluded that Dr Whisson and Mr Prestidge saw no prospect of commercialising the Di‑Med invention themselves.
The trial Judge accepted Dr Whisson's evidence that when he arranged the meeting with Dr Ryan, he had no thought of competing with Eastland. He also accepted Dr Whisson's evidence that he regarded the approach to Heytesbury as primarily an exercise to find a way to salvage Eastland from its financial difficulties.
In the afternoon of 4 November 1998 following the meeting with Dr Ryan, Dr Whisson attended an Eastland board meeting. The meeting had been scheduled to discuss how funding would be obtained to enable Eastland to continue. Dr Whisson informed the meeting that he had a new invention and that Heytesbury had suggested there might be a way in which a new invention could be promoted as new research and development which would qualify for taxation relief so as to be more attractive to potential investors. He said the new technology involved an outside joint inventor and that a formula would have to be found whereby that inventor could be rewarded properly. Dr Whisson suggested the possibility that he himself might be rewarded by virtue of his shareholding in Eastland and that he could agree to pay a proportion of the dividend to the joint inventor. Dr Whisson declined to reveal what the new invention was. This was the first disclosure by Dr Whisson to Eastland concerning the Di‑Med invention.
The trial Judge accepted Dr Whisson's evidence and explanation for the delay as justifying Dr Whisson's actions. Dr Whisson said that when the core inventive concept behind the Di‑Med inventions was discovered, it was not necessary or prudent to discuss the invention with the Eastland board because the embodiments of the invention had not been finalised, nor properly documented. Dr Whisson said:
"The inventive process must be highly confidential. Inadvertently disclosing the invention would destroy the chances of obtaining patent protection for it. For this reason, any disclosure, even to the board of Eastland, prior to the lodging of provisional patents, would have been extremely foolish. The provisional patent applications were related mainly to exploring ways in which the invention could be applied or adapted to known injection techniques."
The trial Judge made the following findings:
"I find as a fact that Dr Whisson honestly and justifiably believed … that it was neither necessary nor prudent to disclose the invention to the Eastland board. I find further that in taking that view, Dr Whisson was not motivated by a desire to advance his own interests at the expense of or in competition with Eastland. Indeed, as I have already found, it was Dr Whisson's hope and intention that the inventions would be used to the advantage of Eastland in order to overcome its financial difficulties."
Following further discussions and negotiations, the parties entered into the licence agreement on 25 January 1999.
A meeting was held at Eastland's premises on 5 February 1999 with Dr Capes from Becton Dickinson, a firm identified by Eastland's board in mid‑1998 as a potential investor in Eastland. Dr Whisson gave a presentation concerning the Di‑Med inventions.

By 10 February 1999 Eastland was coming to the view that Eastland did not, or may not, have a right to the Di‑Med invention. Lawyers became involved. After lengthy negotiations, the parties entered into the first Deed and the Deed of Settlement.
Two rules underlie the specific breaches upon which the appellants rely. The first is the conflict rule which prohibits directors from placing themselves in a position of conflict whereby a personal interest or duty conflicts with their duty to the company. There must be either an actual conflict or a real sensible possibility of a conflict. The second is the profit rule which provides that a fiduciary is accountable for profits made in connection with his or her fiduciary office. Particular applications of one or both of the rules include prohibitions against the misuse of corporate property, information and opportunities.
The appellants claim, firstly, that Dr Whisson diverted a business opportunity away from Eastland. In their statement of issues and outline of submissions, the appellants identified the diversion as Dr Whisson keeping for his own benefit, as distinct from Eastland's benefit, "the opportunity and information presented to him by [Mr Prestidge] in relation to the Di‑Med Technology, ie, the opportunity to be a co‑inventor and the opportunity to receive and benefit from [Mr Prestidge's] technical information and ideas".
This is but a slight variation of the submission put by senior counsel for the appellants for the first time in closing which was that Mr Prestidge was the inventor of the Di‑Med invention. Both propositions are foreclosed by the trial Judge's finding that Dr Whisson and Mr Prestidge were joint inventors. Each of them contributed to the idea and development of the Di‑Med invention which became the subject of the provisional patent applications. In oral submissions the appellants sought to rely on the pursuit by Dr Whisson (jointly with Mr Prestidge) of the development of the idea to the provisional patent stage as the relevant diversion of a business opportunity. The essence of their contention was that, following the conception of the idea, Dr Whisson should have given Eastland the opportunity to be a co‑inventor with Mr Prestidge.
The law on misuse of corporate opportunities is in a state of development and a number of tests of differing scope have been formulated. They include: whether the opportunity was obtained "by reason and in the course of" the office of director (Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134 at 145, 147 per Lord Russell); whether the opportunity received by the director was of "concern" and "relevance" to the company (Industrial Development Consultants Ltd v Cooley [1972] 1 WLR 443 at 451); whether there is a "sufficient temporal or causal connection" between the fiduciary obligation and the opportunity (SEA Food International Pty Ltd v Lam (1998) 16 ACLC 552 at 557); a multiple factors test where regard is had to, inter alia, the "position or office held, the nature of the corporate opportunity, its ripeness, its specificness and the director's or managerial officer's relation to it, the amount of knowledge possessed, the circumstances in which it was obtained and whether it was special or, indeed, even private" (Canadian Aero Services Ltd v O'Malley (1973) 40 DLR (3d) 371 at 391). Austin has suggested ("Fiduciary Accountability for Business Opportunities" in P D Finn (ed) Equity and Commercial Relationships (1987) at 158 ff) that the courts should develop a "line of business" test to the effect that a director or officer may not take up an opportunity for profit if it is within the scope of the business of the company as currently carried on and as planned to be carried on. On my reading, however, this proposed stringent standard is confined to executive directors and officers.
The appellants rely on what they describe as the "conflict of interest test" applied in Bhullar v Bhullar [2003] EWCA Civ 424. In that case the question was whether the appellants breached their fiduciary duty to a company of which they were directors in acquiring, for their personal benefit, land ("Property") adjacent to land owned by the company. The Property was used by the lessee of the company's land as a carpark. The objects of the company included the acquisition of property for investment. The appellants discovered by chance that the Property was on the market. The Court of Appeal identified the relevant question as whether the "fiduciary's exploitation of the opportunity" attracted the conflict of interest rule. Finding that the opportunity to acquire the Property would have been commercially attractive to the company, the Court concluded that the existence of the opportunity was information that was relevant for the company to know from which it was said to follow that the appellants were under a duty to communicate that information to the company. There seems to be some circularity in the reasoning (the potential for conflict gives rise to a duty, which duty is the source of the conflict). It might be a practical example of the "line of business" test.
Applying the approach taken in Bhullar (without any circular reasoning), the first question is whether a duty had arisen with which Dr Whisson's interest may conflict. To make good their argument, the appellants must establish that Dr Whisson had a duty to offer to Eastland the opportunity of being a co‑inventor of the Di‑Med invention in his place. In my view, there was no such duty. Eastland had no contractual entitlement to Dr Whisson's ideas or inventions, save for those assigned to Eastland which were developed by Eastland (not Dr Whisson) to become the Eastland technology. Dr Whisson was under no obligation to Eastland to undertake research and development of the Eastland technology. Dr Whisson (and Mr Prestidge) had not (mis)used Eastland's information and the "opportunity" did not come to Dr Whisson as a result of, or in connection with, his position as a director of Eastland. Further, Dr Whisson and Mr Prestidge were engaged in a creative process that was evolutionary and could be jeopardised by premature disclosure; they were the source, and developers, of an idea that may (or may not) become a business opportunity. I am not persuaded there was a relevant business opportunity until Dr Whisson and his co‑inventor had completed the initial stages of the inventive process. However, once that stage was reached, Dr Whisson (and Mr Prestidge) offered Eastland the opportunity, which was accepted by Eastland, to develop, commercialise and market the Di‑Med invention. As the trial Judge found, at all material times it was Dr Whisson's intention that the Di‑Med invention be used to Eastland's advantage.
However, in my view the appellants' focus on diversion of an opportunity masks the real question which is whether, despite being a director of Eastland, Dr Whisson was free to invent the Di‑Med parenteral device, and protect his invention by lodging patents. For the purposes of answering this question I accept that the Di‑Med invention may have the potential to impact adversely on the development and/or commercialisation prospects of the Eastland technology. If he was not free to do so, the Di‑Med invention would belong in equity to Eastland. If he was free to do so, there can be no improper diversion of a business opportunity. The trial Judge concluded that Dr Whisson was entitled to invent (and protect) the new parenteral device, relying on Fine Industrial Commodities Ltd v Powling (1954) 71 RPC 253. That case is authority for the proposition that the mere fact that a person is a director or employee of a company does not disqualify a person from taking out a patent for an invention made by him during his period of service even though the invention may relate to or be useful in the company's business. On the facts found by the trial Judge the only potential disqualifying factor is Dr Whisson's position as a director of Eastland. I am not persuaded that Dr Whisson was obliged to stifle his creative capacity or, alternatively, hold its fruits on trust for Eastland when that is outside what was bargained for. However, if Dr Whisson wished to attempt to commercialise the Di‑Med invention without Eastland's involvement, it is my view he could not have done so whilst he remained a director of Eastland. I am satisfied that the trial Judge did not err in rejecting the appellants' claim that Dr Whisson usurped or diverted a business opportunity.
The appellants also contended that Dr Whisson breached his fiduciary duty by engaging in a directly competitive business. The alleged business is the inventive process leading to the filing of the provisional patent applications and the informal Di‑Med partnership.
There is uncertainty as to whether a director is prohibited from competing with the company. There is authority in favour of directors being permitted to compete: see London & Mashonaland Exploration Co Ltd v New Mashonaland Exploration Co Ltd [1891] WN 165 approved by Lord Blanesburgh in Bell v Lever Bros Ltd [1932] AC 161 at 195. Unease has been expressed by courts and commentators with that view of the law.
However, it is unnecessary for this Court to engage in a review of the case law in this area because, on the facts to which I have already referred when dealing with diversion of an opportunity, Dr Whisson was not at any material time in competition with Eastland. The trial Judge found as a fact that there was no Di‑Med partnership business. Dr Whisson, together with Mr Prestidge, were in the process of creating something which may in due course be valuable and he did so with the intention of giving Eastland the opportunity to exploit the value, which opportunity was subsequently offered and accepted. Further, on these facts there was no actual or potential conflict of interest. The appellants rely on a statement made by the trial Judge in his conclusion that Dr Whisson did place himself, inadvertently, in a position of conflict, but nothing came of it. That appears to link back to an earlier observation that Dr Whisson made it difficult for Heytesbury to proceed because of Heytesbury's perception of a conflict. However, it is clear from the trial Judge's reasons on the question of breach of duty that he concluded there was no conflict of interest because Dr Whisson was representing Eastland at the meeting.
I turn now to the alleged breaches of s 232(2), (5) and (6) of the Law. Those subsections provide:
"232(2)[Officer to act honestly] An officer of a corporation shall at all times act honestly in the exercise of his or her powers and the discharge of the duties of his or her office.
232(5)[No improper use of inside information] An officer or employee of a corporation, or a former officer or employee of a corporation, must not, in relevant circumstances, make improper use of information acquired by virtue of his or her position as such an officer or employee to gain, directly or indirectly, an advantage for himself or herself or for any other person or to cause detriment to the corporation.
232(6)[No gain by improper use of position] An officer or employee of a corporation must not, in relevant circumstances, make improper use of his or her position as such an officer or employee, to gain, directly or indirectly, an advantage for himself or herself or for any other person or to cause detriment to the corporation."
Based on the appellants' statement of issues, the facts relied on to support the breaches of the general law are also relied on for the alleged breaches of statutory duty. The appellants' written outline of submissions went beyond the statement of issues and, in relation to s 232(5), raised matters outside the scope of the pleadings and the trial. However, the appellants, properly in my view, did not press the appeal issues related to s 232(5) and (6).
In any event, all of the alleged breaches of statutory duty depend upon this Court finding that Dr Whisson either usurped or diverted a business opportunity, improperly competed with Eastland or permitted his personal interests to conflict with his duties to Eastland. Allied with those claims were alleged breaches of duties of disclosure which appear to be associated with the claim of diversion of a business opportunity. The relevant duty is said to be a duty to disclose the opportunity to the company so it can pursue it if it so chooses (as in Bhullar). There is no other basis for a duty to disclose the fact or detail of the Di‑Med invention. Under the general law, full disclosure and informed consent simply prevent a breach of duty from arising (Maguire v Makaronis (1997) 188 CLR 449).
Further, there is no arguable claim of a breach of s 232(2) of the Law that is independent of the unsuccessful general law claims. That is the case even applying the wider test of dishonesty formulated by King CJ in Australian Growth Resources Corp Pty Ltd v Van Reesema (1988) 13 ACLR 261 in contrast to that of Gowans J in Marchesi v Barnes [1970] VR 434.
For the reasons already given, Dr Whisson did not breach his fiduciary duties. Accordingly, I would dismiss the appellants' challenge to the trial Judge's conclusions on breach of statutory duty.

Second and Third Respondents

At the hearing, the appellants confined the appeal to the issue of whether Mr Prestidge and Silverfern were knowingly concerned in each of Dr Whisson's alleged breaches. As the claims are derivative on Dr Whisson being in breach, the appeal against the second and third respondents must also be dismissed.

Claims by Fee-Zone and Inter‑Continental

Fee‑Zone and Inter‑Continental were shareholders and creditors of Eastland. They contended that if Eastland's claims were barred by cl 6 of the Deed of Settlement, they were persons whose interests were affected by the respondents' conduct and were entitled to claim relief under s 1324(1) and (10) of the Law. Under s 1324(10) the Court may order the payment of damages to any person either in addition to or in substitution for the grant of an injunction. The trial Judge ruled that s 1324 did not apply, but even if it did, he would refuse relief in the exercise of his discretion. In view of the outcome on the other issues it is unnecessary to determine the question of power. Assuming, without deciding, that s 1324 applies, there is no proper basis for interfering with the trial Judge's exercise of discretion.

Appeal on the Counterclaim

The respondents' counterclaimed for a declaration that they had validly terminated the licence agreement.
On 7 October 1999 the respondents, by their solicitors, served a notice of default on Eastland. It materially provided:
"WHEREAS:
A…
BBy clause 5.2 of the Licence Agreement you, as licensee, shall on or before 30 September 1999 advance to the Licensor a sum of money up to but not exceeding $30,000 to assist the Licensor to register the Australian and International applications for patents in respect of the Di‑Med Products.
CIn breach of the Licence Agreement you have failed on or before 30 September 1999, to advance to the Licensor the amount payable pursuant to clause 5.2 of the Licence Agreement.
NOW HEREBY TAKE NOTICE THAT:
The Licensor requires you to remedy your default as specified in Recital C of this notice of default within sixty (60) days of the date this notice is deemed to have been given, failing which the Licensor may exercise any or all of its rights and remedies including termination of the Licence Agreement pursuant to clause 16.1(f) of the Licence Agreement."
The Deed of Variation deleted cl 5.1 of the licence agreement and inserted, inter alia, cls 5.2 and 5.3 which provided:
"5.2Subject to the provisions appearing below, the Licensee shall, on or before 30 September 1999, advance the Licensor a sum of money up to but not exceeding $30,000 to assist the Licensor to register the Australian and International applications for patents in respect of the Di‑Med Products.
5.3Before the payment of the sum or sums under paragraph 5.2 the Licensor shall provide the Licensee with evidence of the amount payable for registration within the Territory."
The term "Territory" is defined "with specific references to countries in which products are presently capable of being registered under any intellectual property statute or regime and likely to be commercially exploited therein" (cl 1(b)(ii) of the Deed of Variation).
Eastland responded to the notice of default by serving a notice for the appointment of an arbitrator ("arbitration notice"). The issues in dispute identified in the arbitration notice covered matters raised by the appellants in the application, including Eastland's entitlement to, or an interest in, the Di‑Med invention. Another issue was whether Eastland was in breach of its obligations under cl 5.2. Eastland also claimed in the arbitration notice that Dr Whisson and Mr Prestidge (referred to as DiMed) were in breach of the licence agreement by failing to register the applications and new applications in all countries contemplated in the licence agreement and by varying the form and substance of the applications (referring to the provisional patent applications).
By notice served on Eastland on 22 March 2000 the respondents purported to terminate the licence agreement ("termination notice").
The trial Judge concluded that, having regard to s 3(5) of the Commercial Arbitration Act, an arbitration was deemed to have been commenced by the arbitration notice. He held that the commencement of the arbitration did not prevent Dr Whisson and Mr Prestidge from launching their counterclaim, relying on s 53 of the Commercial Arbitration Act; if the other party does not agree to that course, he may apply to have the proceedings stayed; and that if he has delivered pleadings, or taken any step in the proceedings (other than the entry of an appearance), he must first obtain the leave of the Court. The trial Judge continued:
"547.In the present case, Eastland has made no application for a stay. If it made such an application now, I should decline to grant it on the ground that because Eastland has failed to take any steps in the arbitration since November 1999, it has not proved that it was, and remains, ready and willing to do all things necessary for the proper conduct of the arbitration. Furthermore, Eastland took no objection to the filing of the counterclaim and did not seek to stay that application so that the matter could be referred to arbitration. Eastland must therefore be taken to have acquiesced in the course pursued by Dr Whisson and Mr Prestidge: to have their counterclaim determined in these proceedings.
548.It was contended in the notice of appointment of arbitrator, that Di-Med had committed various breaches of the licence agreement … . However, it is common ground in the present application that I am not to be concerned with those matters. The only question for me is whether the reference to arbitration precludes the respondents from proceeding on their counterclaim.
549.In all the circumstances I am satisfied that Dr Whisson and Mr Prestidge are entitled to prosecute their counterclaim which, since no argument has been raised against it, must succeed.
…
555.Eastland … breached its obligations to Dr Whisson and Mr Prestidge pursuant to cl 5.2 of the licence agreement of 25 January 1999, as amended by the Deed of Settlement. On the case as presented in this application, there is no answer to the counterclaim based on that breach."
The trial Judge made a declaration that the first and second respondents had validly terminated the licence agreement as varied by the Deed of Variation.
The issues raised by the appellants in their appeal on the counterclaim are whether the trial Judge:
(1)erred in failing to consider and make findings on the evidence as to whether cl 5.3 of the licence agreement had been satisfied as a precondition to any liability under cl 5.2;
(2)erred in failing to consider and make findings as to whether the notice of default was invalid for failing to specify the amount due and payable;
(3)could make any finding in relation to cls 5.2 and 5.3 and adjudicate on the counterclaim in circumstances where his Honour found:
(a)in effect, if an arbitration was on foot, all breaches of the licence agreement which justify the notice of termination would go to arbitration for the Arbitrator to determine and not the Court; and
(b)an arbitration was on foot;
(c)that it was "common ground that the contentions in the Notice of Appointment of Arbitrator that DiMed had committed various breaches of the licence agreement … would not attract the concern of the learned trial Judge".

Ground 3(a) depends upon a claim that the trial Judge made a ruling to that effect in the early stages of the trial.
The respondents contended that senior counsel for the appellants, in effect, conceded that the only relevant defence to the counterclaim concerned whether the Court could or should deal with it in light of the commencement of the arbitration. A concession of that nature would be unusual. Whether or not it was made depends on an objective consideration of the transcript of proceedings. Unfortunately, it is necessary to refer to large sections of transcript.
The appellants successfully opposed the respondents' pre‑hearing application for pleadings. The lack of pleadings meant the respondents and the trial Judge were dependent upon a clear and comprehensive opening by senior counsel for the appellants, Mr Jooste. Unfortunately, the opening did not satisfy either requirement. Mr Jooste referred in opening to the appellants' claim that the notice of termination of the licence agreement had been accepted by Eastland as a repudiation of the Deed of Settlement and that in relation to the licence agreement "the formal position of the [appellants] is that they have not accepted the notice of termination of the licence agreement as in any way affecting the licence agreement or the arbitration pending thereunder (T403)".
At the end of the opening, senior counsel for the respondents, Mr Colvin, expressed concern as to its inadequacy on certain matters, including the counterclaim. He suggested that if the only case for the appellants was that the notice of termination was a repudiation of the Deed of Settlement and that the dispute should go to arbitration and if the claim failed, the termination notice should take effect under the licence agreement because "we haven't heard any case that's put against the notice of termination otherwise operating". It might be thought that only an invalid notice of termination could potentially constitute a repudiatory breach of the Deed of Settlement. However, it appears from what follows that this was not the appellants' position.
The question of what was in issue in the counterclaim arose again. Mr Jooste referred to a claimed breach of cl 7 of the licence agreement in connection with a United Kingdom patent. The trial Judge asked whether he was seeking any relief in relation to it. Mr Jooste said no because that would be a matter ultimately for arbitration. The following exchange then occurred:
"TEMPLEMAN J:   All right. Then that's clear, thank you. Then the next question is whether I need to be concerned with evidence about breaches of the licence agreement itself in these proceedings in the context of your contention that the notice of termination of the licence agreement is a repudiation of the settlement agreement and if that's so, then it seems to me at the moment that I don't need to get involved in questions about whether there were any breaches of the licence agreement which would justify termination.
JOOSTE, MR:   No, indeed, your Honour. In fact, just for the sake of clarity, I do believe my learned friend might - well, I shouldn't let what my learned friend - go by without saying that I don't agree with the way - of what I had attempted to put was the position with regard to arbitration and the licence agreement.
TEMPLEMAN J:   No. I think we clarified that.
JOOSTE, MR:   Or the effect of the notice of termination, insofar as a repudiation being only of the settlement agreement.
TEMPLEMAN J:   The question is will I be required to determine whether there were breaches of the licence agreement which justified the notice of termination?
JOOSTE, MR:   Not in the view of the applicants because it's a matter for arbitration.
TEMPLEMAN J:   You see, Mr Colvin tells me that in that case that will cut short cross examination because it won't be necessary to explore those matters about which there is apparently a considerable - well, some evidence. Let me pause there. Mr Colvin, is that right?
COLVIN, MR:   Yes, it is, your Honour.
TEMPLEMAN J:   So that position is clear. We don't need to go into - - -
COLVIN, MR:   Into that. That's my understanding from - - -
TEMPLEMAN J:   Yes, all right. Thank you."
Then Mr Jooste refers to the possible need for orders for directions in the pending arbitration (to which an arbitrator had not been appointed because of a failure to agree). The following exchange then occurred:
"TEMPLEMAN J:   Yes, but if I come to the conclusion that the matter has properly been referred to arbitration, and you tell me that no arbitrator has been appointed, it would then be a matter for the appointment of an arbitrator who would then progress the matter as he or she thought fit.
JOOSTE, MR:   Yes, indeed, your Honour. In other words, the applicants' position - - -
TEMPLEMAN J:   I wouldn't be giving any directions.
JOOSTE, MR:   You would not be giving any directions?
TEMPLEMAN J:   No. If you are wrong about the arbitration being on foot, that's the end of it. If you are right, then it has to go to arbitration and that's a matter for the arbitrator.
JOOSTE, MR:   Yes. The evidence shows that there have been attempts to agree an arbitrator and that's where eventually the ‑ ‑ ‑
TEMPLEMAN J:   Yes, but there are procedures for selecting an arbitrator. Moving on …".
The appellants contend that the statement in bold is a ruling by the trial Judge that if an arbitration was on foot, all breaches of the licence agreement relating to the notice of termination would go to arbitration. The trial Judge did not make any such ruling. There was no application before him upon which he was required or asked to rule. He was commenting in the course of a continuing exchange aimed at trying to understand the appellants' case and what was proposed by the appellants. Further, Mr Jooste could not have been misled into believing this was a ruling as a result of further exchanges about the need for the appellants to apply for a stay. These are detailed below.
It is apparent that others were having difficulty in following Mr Jooste's line or logic. This is illustrated when the issue of cl 6 of the Deed of Settlement arose. After listening to Mr Jooste's explanation, Mr Colvin said he was unclear whether the trial Judge was being invited to determine the question of construction or whether there was a dispute which should be arbitrated.
Mr Jooste appears to accept (at T451) that the trial Judge had to determine whether cl 6 was a term of the settlement (it not being a term of the first Deed). Then the following exchange occurred:
TEMPLEMAN J:   Yes, but I have to decide that question.
JOOSTE, MR:   Yes, indeed.
TEMPLEMAN J:   Once I have decided it, then the arbitration falls away.
JOOSTE, MR:   Matters will take their course. If you decide that it isn't a term, there may well be a dispute instituted by the other side that it is a term. In fact that's the whole basis on which - - -
TEMPLEMAN J:   But if I decide it, there can't be a dispute, can there, because it has been adjudicated upon? The question has been adjudicated upon. They would go to appeal, not to an arbitrator.
JOOSTE, MR:   Yes, indeed, but it all depends on what you decide, your Honour. If you decide it is a term - - -
TEMPLEMAN J:   Whichever way I decide it, it has been decided. There's no room then for an arbitration, I would have thought, because the very question which would otherwise have been referred to an arbitrator would be decided by me.
JOOSTE, MR:   Yes, indeed, but, your Honour, there is a threshold question to that.
TEMPLEMAN J:   Which is what?
JOOSTE, MR:   Which is should that question go to arbitration?
TEMPLEMAN J:   It's common ground that I have to decide the question.
JOOSTE, MR:   Your Honour, the question is on the doctrine of separability and the whole line of situations, the question is, is the question of whether it is or isn't a term a matter for arbitration? If it isn't a matter for arbitration, your Honour decides it and that's it. If it is a matter for arbitration, that's the question, with respect. It must logically be so. That's precisely in line with every submission that we - - -
TEMPLEMAN J:   What are you inviting me to decide?
JOOSTE, MR:   Whether that is a question for arbitration.
TEMPLEMAN J:   Whether clause 6 applies is or is not a question for arbitration. That's what I have to decide.
JOOSTE, MR:   Yes, your Honour.
TEMPLEMAN J: But then I can't resolve the case, can I, because if that's a question which has to be resolved by arbitration, I can't then go on and decide the section 241 point?
JOOSTE, MR:   That may well be so, your Honour.
TEMPLEMAN J:   That's not going to suit anybody's purpose.
JOOSTE, MR:   No, and that may be something that we would have to conference on.
TEMPLEMAN J:   It may what?
JOOSTE, MR:   That may be something that we would have to confer on."
It is apparent from this discussion that Mr Jooste's understanding was that the first question for the Judge to decide was whether he would determine an issue or whether it should be determined at arbitration. One of the orders for relief sought by the appellants was in the following terms:
"3.Such other orders for damages, compensation or alternative … consequential relief as the Court deems fit which may if the Court does not grant declarations or orders under paragraphs 1 and 2 above, include an order for the appointment of an arbitrator under the provisions of the Commercial Arbitration Act 1985 (WA)."
Mr Colvin then made submissions to the Court to the effect that the trial Judge must determine all the issues in the application and the counterclaim unless there was a stay ordered. The following exchange occurs:
"TEMPLEMAN J: Yes, thank you, Mr Colvin. I think that's right, Mr Jooste, isn't it? Unless and until you apply for a stay, I just go on with it?
JOOSTE, MR: Your Honour, I agree with you. Let me say this though: without concessions to what is put forward by my learned friend as to the integrity of the argument because in fact that is how it does end up, the situation is just as pertinent for my learned friend because he asserts in fact the settlement agreement and therefore is left with that as a start‑out point as well."
By this stage Mr Jooste must have known or should be taken to have known that he was obliged to identify and make submissions on all live issues in the event that (as he saw it) the trial Judge exercised a discretion to hear and determine all matters.
Having been alerted to the error of his ways, Mr Jooste does not seek to change or qualify in any way the submissions he has made or the approach he is taking to the application or the counterclaim. In particular, he does not at any stage during the trial identify the appellants' grounds for disputing the validity of the termination notice.
Mr Colvin then opened for the respondents. He identified the issues in relation to the termination of the licence agreement as follows:
"(1) was the notice [of termination] given, and in our submission that is on the evidence, established; secondly, the way in which the response was put to this issue on the counterclaim was that the court should recognise the existence of the notice of dispute under the arbitration clause. So the only issue we see that is raised on the counterclaim in substance is … whether the court should not make any determination as to whether the licence agreement has been validly terminated. If your Honour finds against the applicants on that question, then the necessary result is success on the counterclaim. It was for that reason we identified and clarified with my learned friend whether any issue was taken in relation to other matters."
Mr Jooste did not take issue with Mr Colvin's statement or his identification of the relevant issues.
The subject arose again in the course of cross‑examination by Mr Jooste on whether the respondents had breached cl 7 of the licence agreement in relation to the UK patent. Mr Colvin objected to the question on the basis that it was outside the issues. He opposed any application to amend because of unfairness to the respondents. Mr Jooste's response to the objection is as follows:
"JOOSTE, MR:   Your Honour, in those circumstances, having the benefit of the transcript, the principal point that the applicant was making was that it was a matter for arbitration.
TEMPLEMAN J:   Yes.
JOOSTE, MR:   Therefore, the only submission would be that if your Honour in regard to the arbitration finds in favour of referring licence matters to the arbitration, that it be included therein. In other words that it's not left behind. So the applicant doesn't wish to complicate matters in the way my learned friend would say.
…
TEMPLEMAN J:   Yes, but so far as the counterclaim is concerned, when I consider whether there has been a valid termination of the licence agreement, I do not take into account the fact that the UK patent - an application was made in June, whatever it is, 1999 if it's not in issue.
JOOSTE, MR:   No, your Honour. No, I agree but your Honour may find that, when you take that into account, that it is in fact a matter for arbitration.
TEMPLEMAN J:   If I come to the conclusion that the question whether or not there has been a valid termination is a matter for arbitration then the arbitration is wide open.
JOOSTE, MR: Yes.
TEMPLEMAN J:   Yes.
JOOSTE, MR:   It's only within that context that the applicant wishes just to place on the record that it has at the forefront of its matters to take to arbitration the UK patent."
Mr Colvin took another objection when Mr Jooste cross‑examined on the question of the territories for the Di‑Med patents under the licence agreement. Mr Prestidge said there was a dispute with Eastland and Mr Colvin objected. The following exchange occurred:
"COLVIN, MR:   I object, your Honour. This is an issue which goes to questions of proper performance of the licence agreement. It's a question of breach. It's a matter which has been disavowed as part of the case of the applicants.
TEMPLEMAN J:   Mr Jooste?
JOOSTE, MR:   I'm not sure I understand what my learned friend is saying, your Honour.
TEMPLEMAN J:   That breach of the licence agreement isn't in issue except insofar as the counterclaim is concerned."
As Mr Jooste pointed out, the trial Judge stated that breach was relevant to the counterclaim. That was not what he intended, as the following exchange shows:
"TEMPLEMAN J:   What's the point of the question? What's the question directed to?
JOOSTE, MR:   The question is directed to the territories that were contended for by Eastland as opposed to the territories contended for by the DiMed partnership.
TEMPLEMAN J:   Yes, but how does that arise on the issues that I have to deal with? How does that relate to those issues, I should say?
JOOSTE, MR:   Your Honour, as I understand it, the counterclaim raises an issue of the validity of the notice of termination and in effect the applicant, it appears now, is constrained entirely to matters which cannot be raised in regard to any breach of that licence agreement.
TEMPLEMAN J:   You haven't put them in issue. That's the way the case was opened and that was clarified at a very early stage. As I said yesterday, I'm not conducting an inquiry. I'm trying a case on the issues which the parties have raised and this is not an issue which has been raised.
JOOSTE, MR:   Your Honour, the issue that has been raised is the question of the validity of the notice of termination and there needs to be - - -
TEMPLEMAN J:   Pausing there, that simply says that money wasn't paid. I think that's the basis on which the notice of termination is served, isn't it?
JOOSTE, MR:   Your Honour, with the greatest of respect, that notice of termination encompasses all defects or all delinquencies or all failures. In those circumstances there is an entire constraint on the applicants in being able to raise any matters in defence of that claim.
TEMPLEMAN J:   Where's the notice of termination? Let me look at that again.
JOOSTE, MR:   The counterclaim, your Honour, is in - sorry. The notice of - - -
TEMPLEMAN J:   The counterclaim, yes, is volume 1 early on, page 15. That's simply a declaration that the respondent had validly terminated the licence agreement.
JOOSTE, MR:   Your Honour, in the extreme pressure of providing particulars under direction of your Honour not a thought was given to the question of particularising all claims.
TEMPLEMAN J:   Particularising?
JOOSTE, MR:   All claims, counterclaims and the like, which left the counterclaims out on their own, as it were, almost out of sight, might I say. There were no particulars given in that regard. To be constrained then or what might normally have happened would be that there would be a defence or points of defence, points of claim and points of defence.
TEMPLEMAN J:   That's a matter for you to raise. If you don't raise it at the appropriate time and the trial proceeds, it's too late.
JOOSTE, MR:   Your Honour, the - - -
TEMPLEMAN J:   It's not for me to advise the parties what they should or should not - - -
JOOSTE, MR:   If your Honour please, I raised in [sic] on the point of equities. I said it would go to a matter of discretion.
TEMPLEMAN J:   What would?
JOOSTE, MR:   Actions under the licence agreement, your Honour.
TEMPLEMAN J:   Yes, but the case has proceeded without these matters being addressed, except insofar as the opening disclosed that they would be addressed.
JOOSTE, MR:   And I opened, your Honour, on the basis of equities going to the exercise of the ultimate discretion in the end. Those would be matters that could only be conduct under the obligations pursuant to that agreement. …"
It is unclear what Mr Jooste is referring to when he said they are relevant to the equities going to the exercise of the ultimate discretion. Perhaps he meant they were relevant to the Court's discretion to refer matters to arbitration.
Mr Jooste's closing submissions on the counterclaim are as follows:
"JOOSTE, MR: Your Honour, the position with regard to the applicant in relation to the breaches of the licence agreement which preceded the notice of termination was that there was an existing arbitration on foot … and the position in that regard, your Honour, was that there was a letter from Mr Picton Warlow which set out the applicants' position.
It is thus submitted by the applicants that, in effect, the point of stay is irrelevant because there was an arbitration on foot and therefore the notice was ineffective to that extent and the questions of all the breaches in that regard; namely, that there had been a consolidation under the licence agreement without consent and that the respondents had, in effect, failed to register throughout the world are set out in the notice of arbitration, and your Honour will note that at point 3 of the applicants' closing notes, there are a number of principal documents set out and the arbitration notice carries a reference of TB62156."
He again returns to the theme and after repeating his view that there was an arbitration which was on foot he said:
"The relevant authorities in the applicants' view then are not relevant in regard to any question of stay or the like, and the applicants' position in regard to that remains within the arbitration notice and the letter of Mr Picton Warlow claiming the reserving of a position on the licence for damages and/or specific performance."
In these passages Mr Jooste appears to make the untenable suggestion that the termination notice had no legal effect because an arbitration had already commenced.
Difficulty is occasioned in following many of Mr Jooste's submissions because they are not always put in a recognisable or orthodox legal framework. However, a number of propositions are clear. Both the trial Judge and the respondents' counsel understood Mr Jooste to concede that the only defence to the counterclaim was whether the Court could (or should) deal with it as a result of the commencement of the arbitration. Although it is a surprising concession, I am satisfied that is the effect of Mr Jooste's conduct. He says the concession was limited to the respondent's (Di‑Med's) alleged breaches of the licence agreement. I do not accept that there was such an express or implied limitation. At no stage during the trial did Mr Jooste inform the Court (or the respondents) of the appellants' substantive defences to the counterclaim such as those identified in the appeal issues. I accept that if the respondents' advisers knew those issues were live, they would have led evidence and cross‑examined the appellants' witnesses as to whether, inter alia, the respondents had provided Eastland with evidence of the amount payable for registration within the Territory, the Territory being a matter on which the parties disagreed, and the extent to which Eastland knew or had the means of knowing the amount payable under cl 5.2.

Further, for the reasons previously given, the trial Judge did not rule that, if the arbitration was on foot, the breaches of the licence agreement would have to go to arbitration.
It is the case that the trial Judge made no finding as to the amount owing under cl 5.2 of the licence agreement (Whisson & Anor v Eastland Technology Australia Ltd [2004] WASCA 272). The appellants contended for the first time in the appeal that it is an error to give declaratory relief without orders for consequential relief. That is a matter going to discretion: Neeta (Epping) Pty Ltd v Phillips (1974) 131 CLR 286 at 307. The appellants are bound by the way their counsel conducted the trial. Having regard to the unusual course it took, I am not persuaded that the trial Judge was in error in granting the declaration without consequential relief.
As there was evidence that Eastland had not, before or after the service of the default notice, paid any money pursuant to cl 5.2 of the licence agreement and as the appellants conceded that they raised no substantive defence to the counterclaim or the relief sought, the appeal against the counterclaim should be dismissed.