Impact Office Systems Pty Ltd v Impact Computers & Electronics Pty Ltd
[1996] FCA 775
•2 Sep 1996
IN THE FEDERAL COURT OF AUSTRALIA )
VICTORIA DISTRICT REGISTRY ) No. VG323 of 1996
GENERAL DIVISION )
BETWEEN:IMPACT OFFICE SYSTEMS PTY. LTD.
Firstnamed Applicant
AND:IMPACT DATA SERVICES PTY. LTD.
Secondnamed Applicant
AND:IMPACT COMPUTERS AND ELECTRONICS PTY. LTD.
Firstnamed Respondent
AND:MARK BRACKEN
Secondnamed Respondent
CORAM: Jenkinson J.
PLACE: Melbourne
DATE: 2 September, 1996
MINUTES OF ORDER
THE COURT ORDERS THAT:
The applicant Impact Office Systems Pty. Ltd. give security for the respondents' costs of the proceeding by the said applicant in the sum of $5,000.
The said security be given by the applicant Impact Office Systems Pty. Ltd. on or before 30 September 1996 in such manner and in such terms as the District Registrar shall direct.
The applicant Impact Data Services Pty. Ltd. give security for the respondents' costs of the proceeding by the applicant Impact Data Services Pty. Ltd. in the sum of $25,000.
The said security be given by the applicant Impact Data Services Pty. Ltd. on or before 30 September 1996 in such manner and in such terms as the
District Registrar shall direct.
If an applicant fails to comply with the order that it provide security on or before 30 September 1996 the proceeding by that applicant be thereupon dismissed.
Each party be at liberty to apply .
The respondents' costs of the motion for security for costs of the proceeding by the applicant Impact Office Services Pty. Ltd. be the respondents' costs in the proceeding by that applicant.
The respondents' costs of the motion for security for costs of the proceeding by the applicant Impact Data Services Pty. Ltd. be the respondents' costs in the proceeding by that applicant.
The applicants' costs of the said motions be reserved.
(Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.)
IN THE FEDERAL COURT OF AUSTRALIA )
VICTORIA DISTRICT REGISTRY ) No. VG323 of 1996
GENERAL DIVISION )
BETWEEN:IMPACT OFFICE SYSTEMS PTY. LTD.
Firstnamed Applicant
AND:IMPACT DATA SERVICES PTY. LTD.
Secondnamed Applicant
AND:IMPACT COMPUTERS AND ELECTRONICS PTY. LTD.
Firstnamed Respondent
AND:MARK BRACKEN
Secondnamed Respondent
CORAM: Jenkinson J.
PLACE: Melbourne
DATE: 2 September, 1996
REASONS FOR JUDGMENT
The first applicant ("I.O.S.") until some time in 1994, and thereafter the second applicant ("I.D.S."), have carried on the business of maintaining and servicing computers, both the computers of large organizations pursuant to contracts between the organization and the applicant and also the computers of other persons, as agent of the person who had given the person who owned the computer a warranty of maintenance and servicing. The word "Impact" was the trade name of each applicant successively. In June 1994 the first respondent commenced and has since carried on a business of selling computer programs and software, using a logo in which the word "Impact" is prominent. In this proceeding each of the applicants claims against the first respondent damages for passing off and breaches of ss. 52 and 53(c) of the Trade Practices Act 1974 (Cth) and breaches of similar provisions in the legislation of the States in which the first respondent trades, and against the first respondent's managing director, the second respondent, damages for his involvement in those breaches, as well as injunctive relief. The applicants contend that the mistaken belief, which use by the first respondent of the word "Impact" induces in persons engaged in giving warranties of maintenance and servicing of computers which those persons sell - persons whose patronage the second applicant enjoys or solicits - that the first applicant has itself entered the market of selling computer programs and software, results in a disinclination in the sellers of computers, who are commonly themselves also sellers of computer programs and software, to employ the second applicant as the agent to provide the warranted maintenance and servicing. There are serious questions to be tried in the proceeding, the outcome of which cannot be predicted with any confidence.
The business of the second applicant, like that of the first respondent, is expanding. I.O.S has an issued capital of twelve $1 shares and carries on no business, having sold all its assets to I.D.S. in 1994. Its equal shareholders are Roger Boyd and his wife. Mr. Boyd and his wife are directors also of I.D.S., half the 1200 issued $1 shares in which are held by I.O.S. The other member of I.D.S. is Datamatic Pty. Ltd., a wholly owned subsidiary of Datamatic Holdings Ltd. The business conducted by I.D.S. is described as a joint venture by its two shareholders, each of which holds half the units in a unit trust of which I.D.S. is trustee, and of which the business carried on by I.D.S. is the principal trust asset. I.D.S. carries on no other economic activity.
The trust deed was in evidence. The deed provides that in respect of each accounting period the income of the period, either as determined by the trustee or, in default of such a determination during the period, deemed to be the net income of the trust estate for the period under the provisions of the Income Tax Assessment Act 1936, "shall be paid and applied to the Unit Holders absolutely in proportion to the number of Units registered in their respective names" and that at the end of the accounting period the Unit Holders shall have "a vested indefeasible interest in and be entitled to call for an immediate payment" of that income. The trustee is empowered at its discretion to appoint new trustees in respect of the whole or part of the trust, and at its discretion to terminate the trust at any time, and to mortgage the trust fund, other than the income to which I have referred.
Expert evidence was given that I.D.S. is "well able to meet an order for costs". But I.D.S. is under the control of I.O.S. and Datamatic Pty. Ltd., each of which has caused to be appointed two of its four directors. The exercise, or the failure to exercise, the rights of indemnity and contribution I.D.S. has, by means of which an order against it for costs may be satisfied, is under the control of those directors, who have also the power to cause I.D.S. to exercise the powers under the trust deed to which I have referred. The situation is essentially the same as that under consideration in Lagarna Pty. Ltd. v. Bridge Wholesale Acceptance Corporation (Australia) Ltd. [1995] 1 V.R. 150. In that case lack of evidence led the Court to assume that which the evidence in this case demonstrates, that "the trustee may ... be required at any time to transfer its legal interest in [the trust] property to the beneficiaries of the trust or to encumber it". ([1995] 1 V.R. at 154) The considerations to which Smithers J. referred in Laundry Coin-Wash Nominees Pty. Ltd. v. Dunlop Olympic Ltd. (1985) A.T.P.R. 46,726, and to which I referred in Chester & Fein Pty. Ltd. v. Candarn Pty. Ltd. (1985) 9 F.C.5. 419 lead to the conclusion that an order for the provision of security for costs should be made against I.D.S.
I.O.S. is not shown to have carried on the business until 1994 as a trustee. Dr. Bleechmore of counsel for the applicants submitted that any order for the costs of the proceeding in favour of the respondents will be against both applicants and that , by an analogic application of the principles summarised in Williams' Civil Procedure para. 1.62.02.95 (p.5582), no order for security should be made against I.O.S. That submission was based on the premise that I.D.S. would not be ordered to give security, which has been falsified in the event. In any case, I do not think it at all unlikely that I.O.S. will fail in making out its cause of action, which is quite distinct from the cause of action alleged by its successor in the business. There could well be only one order for the costs of the action in favour of the respondent, namely the costs of the action by I.O.S.
There is evidence by which it might be inferred that I.O.S. has assets capable of providing funds with which to satisfy an order for costs against it : the units it holds in the trust. But it is the availability of funds at the time in the future when such an order is made that has to be considered. If I.O.S. and I.D.S. and those who control those companies chose to take steps to frustrate execution of an order for costs by processes of execution in respect of the trust units, great trouble and difficulty might be caused the person or persons in whose favour the order had been made. This is in my opinion a case in which the shareholders of I.O.S. should be offered the opportunity to afford the company the means of providing security, for theirs will be the gain if I.O.S. obtains a judgment. There was no suggestion that impecuniosity would frustrate the prosecution of the proceeding by either applicant if an order for security were made.
An undertaking was belatedly offered by I.D.S. to guarantee payment by I.O.S. of any order that I.O.S. pay costs to the respondents. An undertaking by a body corporate is an unsatisfactory alternative to an order for security when the body corporate is a trustee, the only asset of which is its right of contribution and indemnity.
The amount of security to be provided by I.O.S. should in my opinion be assessed on the basis that only a small proportion of the respondents' costs of the proceeding will be incurred in defence of the shadowy claim by I.O.S. Security in the sum of $5,000 will be ordered. In the case of I.D.S. the evidence suggests that the sum of $25,000 is appropriate.
I certify that this and the 5 preceding pages are a true copy of the Reasons for Judgment of the Honourable Justice Jenkinson.
Associate
Date: 2 September, 1996
Counsel for the Applicant : Dr. J. Bleechmore
Counsel for the Respondents : Mr. P.R. Glissan
Solicitors for the Applicant : Glennan, Burstyner & Co.
Solicitor for the Respondents : John Cunningham
Date of hearing : 25 July, 1996
Date of Judgment : 2 September, 1996
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