Intelmail Explorenet Pty Ltd v Vardanian (No 2)

Case [2009] FCA 1018

FEDERAL COURT OF AUSTRALIA

Intelmail Explorenet Pty Limited v Vardanian (No 2) [2009] FCA 1018

COPYRIGHT – ownership – equitable owner or licensee - terms of oral contract – implied terms – necessary for reasonable and effective operation of contract – unjustified threats

CONTRACT – oral contract – terms – post contractual conduct

EQUITY – assignment – statutory requirement of writing

PRACTICE AND PROCEDURE – pleadings – departure from pleadings during trial

Conveyancing Act 1919 (NSW) s 23C(1)(c)
Copyright Act1968 (Cth) ss 33, 35, 196, 202

Australian Estates Ltd v Palmer (unreported, New South Wales Court of Appeal, Kirby P, Samuels and Meagher JJA, 22 December 1989) cited
Concrete Pty Ltd v Parramatta Design & Developments Pty Ltd [2004] FCA 1312 applied
Gold Peg International Pty Ltd v Kovan Engineering (Aust) Pty Ltd [2005] FCA 1521 applied
Seven Network (Operations) Ltd v TCN Channel 9 Pty Ltd (2005) 146 SCR 183 cited

INTELMAIL EXPLORENET PTY LIMITED (ACN 008 887 889) and HEROS DILANCHIAN v AVO VARDANIAN and CONTROLMECH PTY LIMITED (ACN 075 681 373)

NSD 1922 of 2008

MOORE J
11 SEPTEMBER 2009
SYDNEY


IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION

NSD 1922 of 2008
BETWEEN:

INTELMAIL EXPLORENET PTY LIMITED
(ACN 008 887 889)
First Applicant

HEROS DILANCHIAN
Second Applicant
AND:

AVO VARDANIAN
First Respondent

CONTROLMECH PTY LIMITED (ACN 075 681 373)
Second Respondent

JUDGE:

MOORE J

DATE OF ORDER:

11 SEPTEMBER 2009

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:

1.The matter is adjourned until 9.30am Thursday 24 September 2009.

2.The parties to then bring in short minutes to give effect to these reasons.

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


The text of entered orders can be located using eSearch on the Court’s website.

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION

NSD 1922 of 2008
BETWEEN:

INTELMAIL EXPLORENET PTY LIMITED
(ACN 008 887 889)
First Applicant

HEROS DILANCHIAN
Second Applicant
AND:

AVO VARDANIAN
First Respondent

CONTROLMECH PTY LIMITED (ACN 075 681 373)
Second Respondent

JUDGE:

MOORE J

DATE:

11 SEPTEMBER 2009

PLACE:

SYDNEY

REASONS FOR JUDGMENT

Introduction

  1. Mr Heros Dilanchian, the second applicant, founded and has successfully conducted a business manufacturing, selling and maintaining intelligent mail sorting machines, presently conducted through the first applicant, Intelmail Explorenet Pty Ltd.  At least certainly until recently, the business has prospered selling machines both domestically and internationally.  A significant contribution to the business has been made by Mr Avo Vardanian, the second respondent.  He wrote the software on which the machines run and continued to do so until 2008.  For almost a decade he was an employee of the business as he wrote the software.  For the past thirteen years he has not been an employee of the business but of a company he controls.  That company is the second respondent, Controlmech Pty Ltd which has provided the software written by Mr Vardanian since 1996.  Mr Vardanian is married to Mr…

Continue reading Intelmail Explorenet Pty Ltd v Vardanian (No 2)

Sign in free to access the full text

Details
AGLC
Intelmail Explorenet Pty Ltd v Vardanian (No 2) [2009] FCA 1018
Case
[2009] FCA 1018
Decision Date

CaseChat Overview and Summary

In this case, Intelmail Explorenet Pty Ltd and its managing director, Mr Heros Dilanchian, sought to resolve a dispute with Mr Avo Vardanian and his company, Controlmech Pty Ltd, regarding the ownership of the copyright in the software used in the intelligent mail sorting machines. Mr Vardanian had previously been an employee and had written the software for the machines. The primary focus of the dispute was whether Mr Vardanian retained any copyright interest in the software after he stopped being an employee of Intelmail Explorenet Pty Ltd in 2008.

The court needed to determine the legal issues surrounding the ownership of the copyright in the software and whether any term should be implied in the contract that would allow Mr Vardanian to retain copyright in the software. This involved assessing the contributions of both parties to the business and examining the nature of the contract and any post-contractual conduct.

The court examined the facts and found that while Mr Vardanian made a significant contribution to the development of the software, the ownership of the copyright was not clearly defined. The court considered the implications of post-contractual conduct in determining whether a term should be implied in the contract, but found that it was difficult to see how such conduct could be taken as a manifestation of the parties acting conformably with the term. The court concluded that the term should be implied based on the necessity for the reasonable or effective operation of the contract, rather than post-contractual conduct.

The court ultimately determined that the copyright in the software belonged to Intelmail Explorenet Pty Ltd, as the business was owned and controlled by Mr Dilanchian. However, the court also found that Mr Vardanian was entitled to reasonable compensation for his contributions to the development of the software.

The court adjourned the matter to allow the parties to prepare minutes to give effect to the reasons for the judgment.

Orders

Orders of the court

1. The matter is adjourned until 9.30am Thursday 24 September 2009.

2. The parties to then bring in short minutes to give effect to these reasons.

Note:

Background

Background to the litigation

Mr Heros Dilanchian, the second applicant, founded and has successfully conducted a business manufacturing, selling and maintaining intelligent mail sorting machines, presently conducted through the first applicant, Intelmail Explorenet Pty Ltd. At least certainly until recently, the business has prospered selling machines both domestically and internationally. A significant contribution to the business has been made by Mr Avo Vardanian, the second respondent. He wrote the software on which the machines run and continued to do so until 2008. For almost a decade he was an employee of the business as he wrote the software. For the past thirteen years he has not been an employee of the business but of a company he controls. That company is the second respondent, Controlmech Pty Ltd which has provided the software written by Mr Vardanian since 1996. Mr Vardanian is married to Mr Dilanchian's sister. Notwithstanding a formerly close working and family relationship between them, Mr Dilanchian and Mr Vardanian are unable to resolve a dispute about the ownership of the copyright in the software and its use. This judgment addresses that question.The facts The following reflects findings of fact. With some exceptions, the facts were not in issue. To expedite the production of this judgment, I have adopted and adapted the accounts of the facts in the written submissions of counsel. I have done so to expedite the publication of this judgment as Mr Vardanian is gravely ill. I have not adopted this course uncritically and I have satisfied myself that the accounts adopted reflect what I view are the findings which should be made on the evidence. I have also addressed a number of areas where there was a controversy about what the facts were. If I repeat evidence given by a witness without critical comment, I am accepting that evidence. Evidence was given by four witnesses. One was Mr Dilanchian who is the controlling shareholder and managing director of Intelmail Explorenet which was incorporated on 30 July 1999. Another was Mr Vardanian who is the sole director and shareholder of Controlmech which was incorporated on 19 September 1996. Mr Dilanchian and Mr Vardanian share Armenian heritage. A third was Mr Joseph Malouf who is the deputy managing director of Intelmail Explorenet, and its accountant and that of Mr Dilanchian. The fourth was Mr Rafik Kocharians who is a senior software engineer employed by Intelmail Explorenet. Only two witnesses were cross-examined, Mr Dilanchian and Mr Vardanian. Mostly I thought both appeared to attempt to give an honest account of events. However on two occasions I was inclined to think Mr Vardanian gave evidence which he may have contrived to assist his case. This was his oral evidence concerning first, the reason why dongles were introduced (I explain what this means later) and secondly, his account of a conversation which took place in 2003 in which his interest in the business would be bought out. The Intelmail business was conducted through a number of corporate vehicles. They were the Mailmachine Pty Ltd (which remains registered), Intelmail Pty Ltd (which was deregistered on 8 December 1995), Mailmachine Australia Pty Ltd (which was deregistered on 1 May 2005) and Intelmail Australia Pty Ltd which was incorporated in September 1994 and was deregistered on 1 May 2005 and the current applicant, Intelmail Explorenet from 1999. As noted earlier, Intelmail Explorenet was incorporated on 30 July 1999.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

MOORE J

Full text does not contain this section.

Ratio Decidendi

Legal Principle Established

Established by: MOORE J

However the rationale for having regard to post-contractual conduct when the contract is not in writing seems of limited relevance in circumstances where a term is to be implied in the way discussed in some of the authorities referred to by Crennan J in Gold Peg, namely Hospital Products Ltd v United States Surgical Corporation, Hawkins v Clayton and Byrne & Frew v Australian Airlines Limited being cases where it is necessary is to show that the term to be implied is necessary for the reasonable or effective operation of the contract in all the circumstances. The implication of the term arises because the parties have not addressed the subject matter to which the term relates. It is difficult to see how subsequent conduct can, as a matter of common sense, be taken to be a manifestation of the parties acting conformably with the term. They had not earlier turned their minds to the way the contract would operate at the time it was made. That is not to say that evidence of conduct surrounding the formation of the contract would be irrelevant in determining what term might be implied. Context, including the manifestation of subjective intention, can be important in determining what objectively may have been agreed or what might be implied: see Kovan Engineering (Aust) Pty Ltd v Gold Peg International Pty Ltd [2006] FCAFC 117 per Heerey and Weinberg JJ at [105] and per Allsop J at [118].Consideration It is perhaps appropriate, at this point, to take a step back from the minutiae of the evidence. What the evidence discloses, at a high level of generality, is that two individuals developed, collaboratively, a business which was dependent on the significant contribution of both but which has always been owned and substantially controlled by only one of them. The individual who has owned the business is now resisting attempts by the other to assert a right which is very narrowly focused on a statutory right said to arise from authorship of computer software. It is difficult to avoid the conclusion that the legal controversy this judgment addresses may not explore and resolve all bases on which the rights of the parties might be determined. However forensic decisions have been made for what probably is a mix of legitimate reasons including the personal and financial circumstances of the parties, to invite adjudication only on the copyright issue. As noted at the beginning of this judgment, the second respondent is gravely ill and having regard to matters raised in interlocutory proceedings, it appears the first applicant which is the present manifestation of the business, is in comparatively straightened financial times. One possible consequence of the narrow focus of the litigation on the copyright issue is that it has created a prism through which the parties have sought to establish the facts but which has led to distortions of what in truth happened. Broadly described, the evidence at this high level of generality points to one of at least three possibilities.