Jack Brabham Engines Ltd v Beare
[2010] FCA 872
•19 August 2010
FEDERAL COURT OF AUSTRALIA
Jack Brabham Engines Limited v Beare [2010] FCA 872
Citation: Jack Brabham Engines Limited v Beare [2010] FCA 872 Parties: JACK BRABHAM ENGINES LIMITED, ALAN CASEY, GAIL CASEY and SIR JOHN ARTHUR BRABHAM OBE v MALCOLM JOHN BEARE, STYLIANOS ELEFTHERIADIS, BEARE TECHNOLOGY PTY LIMITED, SIXSTROKE ENGINE DEVELOPMENTS PTY LTD and REFERENCE AUDIO VISUAL PTY LTD; MALCOLM JOHN BEARE v ALAN CASEY and JACK BRABHAM ENGINES LIMITED File number(s): NSD 2132 of 2007 Judge: JAGOT J Date of judgment: 19 August 2010 Catchwords: PRACTICE AND PROCEDURE – function and importance of pleadings
CORPORATIONS – ss 180 to 183 of the Corporations Act 2001 (Cth)
TRADE PRACTICES – misleading and deceptive conduct
CONTRACTS – construction – implied terms
TORTS – elements of the tort of injurious falsehood – elements of the tort of intimidation – elements of the tort of deceit
Legislation: Corporations Act 2001 (Cth)
Evidence Act 1993 (Cth)
Fair Trading Act 1987 (SA)
Fair Trading Act 1989 (QLD)
Fair Trading Act 1999 (Vic)
Trade Practices Act 1974 (Cth)Cases cited: Allied Pastoral Holdings Pty Ltd v Commissioner of Taxation [1983] 1 NSWLR 1
Australian Competition and Consumer Commission v INFO4PC.com Pty Ltd [2002] FCA 949
Australian Securities Commission v Gallagher (1993) 10 ACSR 43
Ballina Shire Council v Ringland (1994) 33 NSWLR 680
Browne v Dunn (1894) 6 R 67
Bulstrode v Trimble [1970] VR 840
Commonwealth v Amann Aviation Pty Limited (1991) 174 CLR 64
Commonwealth v Verwayen (1990) 170 CLR 394
Coward v Stapleton (1953) 90 CLR 573
Creative Brands Pty Ltd v Franklin [2001] VSC 338
Dare v Pulham (1982) 148 CLR 658
Keen Mar Corporation Pty Ltd v Labradour Park Shopping Centre Pty Ltd [1988] ATPR 40-853
Re Elders Trustee and Executor Company Limited v EG Reeves Pty Limited [1987] FCA 332
Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd (2003) 196 ALR 257; [2003] HCA 10
Sellars v Adelaide Petroleum NL (1994) 179 CLR 332; [1994] HCA 4
Tabet v Gett (2010) 84 ALJR 292; [2010] HCA 12
Western Australia v Wardley Australia Limited (1991) 30 FCR 245Date of hearing: 26-30 October 2009, 17-20 November 2009, 27-29 January 2010 and 19 February 2010 Date of last submissions: 24 May 2010 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 375 Counsel for the Applicants and Cross-Respondents: Mr P E King Solicitor for the Applicants and Cross-Respondents: Grahame W Howe & Co Solicitors Counsel for the Respondents and Cross-Claimant: Ms S Gatford Solicitor for the Respondents and Cross-Claimant: Lewis & Weir Solicitors
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 2132 of 2007
BETWEEN: JACK BRABHAM ENGINES LIMITED
First Applicant/Second Cross-RespondentALAN CASEY
Second Applicant/First Cross-RespondentGAIL CASEY
Third ApplicantSIR JOHN ARTHUR BRABHAM OBE
Fourth ApplicantAND: MALCOLM JOHN BEARE
First Respondent/Cross-ClaimantSTYLIANOS ELEFTHERIADIS
Second RespondentBEARE TECHNOLOGY PTY LIMITED
Third RespondentSIXSTROKE ENGINE DEVELOPMENTS PTY LTD
Fifth RespondentREFERENCE AUDIO VISUAL PTY LTD
Sixth Respondent
JUDGE:
JAGOT J
DATE OF ORDER:
19 AUGUST 2010
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
1.The application and statement of claim (as amended) be dismissed.
2.The cross-respondents return to the cross-claimant, within 28 days of the date of these orders, the following items (identified at paragraph 14 of the cross-claim):
(a)A shim reed valve steel coil;
(b)1 MoteC M400;
(c)8 Kawasaki throttle bodies and fuel rails and injectors;
(d)125 Suzuki oil line;
(e)1, 35mm Mukini carburetor for Ducati 680;
(f)2 into 1 exhaust for Ducati 680 with reverse cone megaphone;
(g)Honda 125 sixstroke head. Cast iron. One piece; and
(h)Bridgestone Battlax BT 58 R Radial, 160/60ZR17 tire.
3.The cross-claim otherwise be dismissed.
4.The applicants pay the respondents’ costs of the proceeding (including of the cross-claim), as agreed or taxed.
5.Leave be granted to each party to notify the Associate to Jagot J within 14 days of the date of these orders whether that party wishes to be heard on costs. If either party exercises this leave, order 4 be vacated and the following directions take effect:
(a)any party exercising the leave file and serve written submissions on costs within 7 days from the expiry of the 14 day period;
(b)the other parties file and serve any written submissions on which they wish to rely within 7 days after service of the written submissions in accordance with (a); and
(c)the first-mentioned party file and serve any written submissions in reply within 7 days after service of the written submissions in accordance with (b).
6.The Registrar of the Court refer the reasons for judgment to the Australian Securities and Investment Commission for it to take such action, if any, as it may see fit.
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 Federal Law Search on the Court’s website.
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 2132 of 2007
BETWEEN: JACK BRABHAM ENGINES LIMITED
First Applicant/Second Cross-RespondentALAN CASEY
Second Applicant/First Cross-RespondentGAIL CASEY
Third ApplicantSIR JOHN ARTHUR BRABHAM OBE
Fourth ApplicantAND: MALCOLM JOHN BEARE
First Respondent/Cross-ClaimantSTYLIANOS ELEFTHERIADIS
Second RespondentBEARE TECHNOLOGY PTY LIMITED
Third RespondentSIXSTROKE ENGINE DEVELOPMENTS PTY LTD
Fifth RespondentREFERENCE AUDIO VISUAL PTY LTD
Sixth Respondent
JUDGE:
JAGOT J
DATE:
19 AUGUST 2010
PLACE:
SYDNEY
REASONS FOR JUDGMENT
INTRODUCTION
Sir Jack Brabham is a legend of world motor sport and an Australian hero. He was the Formula One World Driver Champion in 1959, 1960 and 1966 and the Formula One World Constructor Champion in 1966 and 1967. He contested 126 Grand Prix races between 1955 and 1970 with fourteen wins and thirteen Formula One pole positions. He was Australian of the year in 1966. He was awarded an Order of the British Empire in 1967. He was knighted for his services to motor sport in 1979.
Much more could be said of Sir Jack Brabham’s life and contribution to motor sport. No more, however, need be said here. Despite the names of the first and fourth applicants (Jack Brabham Engines Limited and Sir John Arthur (Jack) Brabham OBE), Sir Jack Brabham has had little real involvement with the events which have given rise to this case.
This case is not about Sir Jack Brabham. It is a case about the conduct of other people and the corporations through which they chose to conduct themselves. It is a case which principally involves three people – Malcolm Beare and Alan Casey, who were involved from the outset, and Stylianos Eleftheriadis, who became involved some years later.
Mr Beare, the first respondent, is the inventor of a device known as the Beare Head engine. The Beare Head engine is intended to improve the conventional internal combustion engine. The essence of the invention involves the modification of the cylinder head of a conventional four stroke engine (in which there is one piston per cylinder) to accommodate a second piston in an arrangement in which the second piston moves in unison with the main piston at half its frequency. For this reason the Beare Head engine was also called a six stroke engine (referring to the four strokes of the main piston in addition to the two strokes of the secondary piston).
Mr Beare is a motorcycle enthusiast. He first conceived of his version of a six stroke engine in the mid 1970s whilst he was working as a farmer in South Australia where he grew up. Over the years Mr Beare developed various prototypes of his engine using his own funds. By 1988 Mr Beare had started his own business in Bordertown, South Australia, known as General Industries, Beare. In 1989 he established Beare Technology Pty Ltd, the third respondent. Mr Beare is the sole director and shareholder of Beare Technology Pty Ltd. By the mid 1990s Mr Beare had built five prototypes including those known as prototype 4 based on a Yamaha four stroke motorcycle (the Yamaha prototype) and prototype 5 based on a Ducati motorcycle (the Ducati prototype). He also managed to obtain registration of various provisional patents over the years, culminating in the grant to him of Australian Patent No. 685683 on 9 July 1998 for his “dual piston internal combustion engine”, otherwise known as the Beare Head engine.
Alan Casey, the second applicant, is the inventor of a nozzle for delivering liquid and gas mixtures. Mr Casey resides in Queensland with his wife Gail Casey, the third applicant.
Depending on whose version of events is accepted, Mr Casey and Mr Beare first had substantial contact with each other in or about 2000 or 2001, in both cases the contact being after the grant to Mr Beare of the patent for the Beare Head engine. Many of the dealings between Mr Casey and Mr Beare thereafter are subject to dispute. There is no dispute that on 15 July 2004 their dealings culminated in a proprietary company, known as Pulse Fuel Technologies Pty Ltd (registered in February 2004), changing its name to Jack Brabham Engines Limited (JBE) and its constitution to a public company limited by shares. JBE is the first applicant. By various agreements and arrangements, Mr Casey became and remains the managing director and a shareholder of JBE. Mr Beare also became a director and shareholder of JBE. He is no longer a director but remains a shareholder. On Mr Beare’s resignation on 22 November 2005, Mrs Casey became and remains a director of JBE. Sir Jack Brabham, through other agreements and arrangements, became a shareholder in JBE in 2004 and, for a time after Mr Beare’s resignation, was also a director of that company.
Mr Eleftheriadis, the second respondent, had no involvement with Mr Casey or Mr Beare before late 2005 or June 2006 (again, depending on whose version of events is accepted). Mr Eleftheriadis resides in Victoria. He is a businessman and car racing enthusiast. Many of the dealings between Mr Eleftheriadis and Mr Casey are in dispute. Not in dispute is the fact that Mr Eleftheriadis is a director and shareholder of the sixth respondent, Reference Audio Visual Pty Ltd (Reference Audio Visual). Reference Audio Visual is a company through which Mr Eleftheriadis and his son conduct a hi-fi retail business. Reference Audio Visual has a relatively minor role in the proceeding relating to some domain names. The fifth respondent, Sixstroke Engine Developments Pty Ltd (SSED), has a more substantial role. As a result of an agreement between Mr Beare and Mr Eleftheriadis, SSED was registered in September 2006. Mr Eleftheriadis and Mr Beare are 50% co-shareholders in SSED and Mr Eleftheriadis is its director.
Some other opening comments are required.
The applicants commenced the proceeding on 26 October 2007.
On 19 December 2007 Bennett J made interlocutory orders (amended on 15 February 2008) in which, on the basis of the applicants’ undertakings as to damages, and without admissions, the parties gave certain undertakings intended to preserve the status quo pending the final determination of the proceeding.
On 8 December 2008 Bennett J ordered that the parties attend a case management conference before the District Registrar “to consider the most economic and efficient means of bringing the proceedings to trial and of conducting the trial”. The parties, thereafter, attended six case management conferences before the District Registrar for this purpose. Ultimately, on 11 June 2009, the District Registrar listed the proceeding for hearing commencing on 27 October 2009.
Despite the applicants having had ample time and opportunity and the Registrar’s case management (as well as the striking out of the original statement of claim), the respondents’ overall contention that the applicants have never adequately pleaded their claims is correct. The amended statement of claim filed on 17 March 2008 does not adequately identify the nature of the applicants’ claims or the material facts said to give rise to them. The particulars said to support the claims suffer from similar deficiencies. The consequences of these matters are dealt with in the reasons below.
A not dissimilar difficulty is presented by the affidavit evidence. In June 2009 (early in the case management process), directions were made reflecting the common position of the parties that evidence should be by way of affidavits. The affidavits ultimately relied upon ranged widely. Much of this material was the subject of objection. The affidavits were prepared with little apparent regard for the rules of evidence, including the basic rule that only relevant evidence is admissible. Relevant in this context means relevant to a fact in issue, with facts in issue being those facts which arise for determination by reason of the pleadings (insofar, it might be added, as the facts in issue may be gleaned from the statement of claim as amended).
Practical necessity dictated that the time set aside for the hearing not be consumed by dealing with the numerous objections to evidence. Accordingly, and with the consent of the parties, I ruled only on objections said to be critical and deferred ruling on the balance. The remaining objections, however, are numerous.
Some of the more obvious problems in many of the affidavits from non-expert witnesses (amongst whom Mr Casey must be included despite certain attempts to assert to the contrary by the applicants) include: – (i) extensive commentary on and purported characterisation (legal, factual or otherwise) of documents, both where the documents themselves were in evidence and where they were not, (ii) the giving of repeated lay opinions, as well as the expression of conclusions (legal, factual or otherwise), assertions, arguments and submissions in the guise of evidence, (iii) purported reliance on hearsay potentially relevant only for a hearsay purpose, and (iv) assertions about beliefs and states of mind when neither could be relevant to any fact in issue. Given the scope of the objections to the non-expert affidavits, the practical course (which I adopt in these reasons) is to rule on objections only where necessary – that is, where the evidence is relevant to a fact in issue and prima facie entitled to weight. Irrespective of the rules of admissibility of evidence, commentary on and purported characterisation of documents and conclusions, assertions, arguments and submissions are not entitled to weight. Including material of that character in an affidavit does not attract to it weight that it is rationally incapable of bearing.
As to identification of the facts in issue, one of the recurrent aspects of the hearing was the dispute between the parties as to the scope of the applicants’ case as pleaded. The difficulties presented by the inadequacies of the statement of claim were compounded by the applicants’ attempts, without leave and over the general and specific objection of the respondents, to recast, expand and add to their claims throughout the hearing. I should reiterate in these reasons what I attempted to make clear to the applicants whenever this issue arose during the hearing. Pleadings perform important functions. Amongst other things, “they furnish a statement of the case sufficiently clear to allow the other party a fair opportunity to meet it” (Dare v Pulham (1982) 148 CLR 658 at 664). The respondents were entitled to insist that the matter be determined on the basis of the pleadings. The respondents never waived that right. It follows that this is not a case where “the parties [chose] to disregard the pleadings and to fight the case on issues chosen at the trial”, which is the only proper basis for any grant of relief not founded on the pleadings (Dare v Pulham at 664). Fairness in this case thus demands that any relief be based on the pleadings and not otherwise.
The problems did not cease with the applicants’ pleadings, the evidence, or the way in which the applicants sought to recast, expand and add to their claims during the hearing. The applicants’ written submissions, as the respondents said, “do not make any reference to the pleadings… do not identify the evidence relevant to the pleaded causes of action and do not adequately identify the claims against each respondent or at all”. The applicants’ submissions, moreover, were not confined to the evidence received and made serious allegations of misconduct in the proceeding against the respondents unsupportable on a rational and objective view of the events said to support the allegations.
I should also confirm at the outset my rejection of a general submission made for the applicants and which was said necessarily to lead to a verdict in their favour. I do not accept that the consequence of the respondents having tendered copies of the applicants’ chronology and statement of factual findings (that is, findings the applicants said should be made) is that the respondents are taken to have admitted the truth of all matters asserted in those documents. These documents are themselves submissions. They are not evidence of the asserted facts which they contain. The respondents’ tender of the documents did not convert their status from a mere submission about what findings of fact should be made on the evidence into evidence of the facts themselves.
With these introductory matters in mind, I turn now to the pleaded claims. I do so in the context of the deficiencies in pleadings, evidence and submissions identified above.
The claims (as best as they can be understood and meaningfully articulated) and cross-claims may be summarised as follows:
Claims against Mr Beare
(1)Mr Beare and Mr Casey, along with Stewart Smith, entered into an oral agreement with each other in or about March 2004. Pursuant to that oral agreement they agreed to pool their “internal combustion engine related” technology collectively known as the Pulse Fuel Technologies into one business to be known as JBE in consideration for the issue of shares in JBE. This oral agreement contained certain express and implied terms (the March 2004 oral agreement claim).
(2)Mr Beare breached the terms of the March 2004 oral agreement by:
(a)failing to pool: - (i) “the technology known as the Beare Head patents (Dual Piston Combustion Engine PCT/AU95/00691)”, “together with the prototypes and intellectual property”, and (ii) “any developments thereof” in the assets and business of JBE but instead “has sought to exploit the said technology for his own personal benefit and covertly take the benefit of the said technology for himself”;
(b)failing to act in the best interests of JBE and Sir Jack Brabham and instead having sought to obtain and obtained the benefit of JBE’s “intellectual property and confidential information for the benefit of himself”;
(c)not using the name Jack Brabham in an ethical or appropriate manner but instead made adverse public statements about Sir Jack Brabham and sought to disrupt the business relationship between JBE and Sir Jack Brabham;
(d)failing to co-operate with JBE in promoting and maintaining the business of JBE;
(e)claiming that he owns the intellectual property in respect of the Beare Technology Engine and Beare Head Technology and those names; and
(f)not doing all things necessary to give effect to the March 2004 oral agreement but instead having “deliberately undermined” the Pulse Fuel Technologies and refused to “co-operate or give effect to the assignment of [the intellectual property in respect of the Beare Technology Engine and Beare Head Technology] to [JBE]”.
(the breaches of the March 2004 oral agreement claim).
(3)Further or in the alternative to the March 2004 oral agreement Mr Beare agreed to “sell to [Mr Casey] and jointly to commercialise inter alia, the Beare engine technology including all current patented material and ideas, and all future ideas whether patented or not of the said technology, and the intellectual property associated with the said technology including the names: ‘six-stroke’, ‘Beare head engine technology’, ‘Sixstroke engine’, ‘Beare Head Engine’, ‘Beare sixstroke engine’ and logos together with a CD and website The benefit of this contract “was assigned to [JBE] as part of the pooling agreement referred to in [the March 2004 oral agreement]” (the alternative pre March 2004 agreement claim). Mr Beare has breached the terms of the alternative agreement by:
(a)claiming that he owns the intellectual property and the names referred to in the alternative agreement; and
(b)not doing all things necessary to give effect to the agreement and instead “deliberately undermined the commercialisation of the [Pulse Fuel] Technologies and has refused to cooperate or give effect to the assignment of the said intellectual property” to JBE.
(the breaches of the pre March 2004 alternative agreement claim).
(4)By reason of certain alleged acts, Mr Beare, in his capacity as a director of JBE until 22 November 2005, breached his duty as a director under s 180 of the Corporations Act 2001 (Cth) (the duty of a director to exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they were a director of a corporation in the corporation's circumstances and occupied the office held by, and had the same responsibilities within the corporation as, the director) (the failing to exercise reasonable care as a director claim).
(5)By reason of the same alleged acts, Mr Beare breached his duty as a director under s 181 of the Corporations Act (the duty of a director to exercise their powers and discharge their duties in good faith in the best interests of the corporation) (the failing to act in good faith as a director claim).
(6)By reason of the same alleged acts, Mr Beare breached his duty as a director under s 182 of the Corporations Act (the duty of a director not to improperly use their position to gain an advantage for themselves or someone else) (the improper use of position as a director claim).
(7)By reason of the same alleged acts, Mr Beare breached his duty as a director under s 183 of the Corporations Act (the duty of a person who is or has been a director not to improperly use information obtained because they have been a director to gain an advantage for themselves or someone else) (the improper use of information obtained as a director claim).
(8)Mr Beare “disclosed or used the confidential information” of JBE in breach of cl 10.2 of the ratification of pre-registration contracts and share subscription agreement dated September 2004 by which he was bound (the breach of cl 10.2 of the September 2004 agreement claim).
(9)The March 2004 oral agreement was a joint venture in respect of which the parties had fiduciary obligations including “a duty of confidence with respect to the information of” JBE and the Pulse Fuel Technologies (the fiduciary obligations by reason of the March 2004 oral agreement claim).
(10)“In breach of fiduciary duty and unconscientiously” and without the authority of the parties to the March 2004 oral agreement, Mr Beare appropriated to himself and for his own advantage at the expense of others and JBE “the intellectual property, logos, prototypes and trade marks of the joint venture” and the March 2004 oral agreement (the breach of the fiduciary obligations claim).
(11)In consequence, Mr Beare holds in trust for JBE the “intellectual and property of or pertaining to the joint venture and/or the profits or revenues accruing or arising therefrom” (the trust claim).
(12)Mr Beare, in trade or commerce, engaged in conduct that is misleading and deceptive or likely to mislead or deceive in contravention of s 9 of the Fair Trading Act 1999 (Vic) and/or s 38 of the Fair Trading Act 1989 (Qld) by: – (i) representing to the public that he is the true owner of the “technology listed in Schedule 1” (to the application), (ii) representing to the public that he is the true owner of confidential information described as bank statements of JBE, contracts and shareholder lists of JBE, “customer and client lists and commercial contacts”, (iii) representing to the public that he is the true owner of the Ducati and Yamaha prototypes, (iv) representing to accredited domain name service providers that he or companies controlled by him “own the intellectual property and technology in Schedules 1 and 3” (to the application), and (v) representing that the testing, research and development results of JBE’s “three prototypes are that of his own” (the misleading and deceptive conduct by Mr Beare claim).
(13)Mr Beare, in trade or commerce, in connection with the supply or possible supply of goods or services to a person engaged in unconscionable conduct in contravention of ss 7 and/or 8A of the Victorian Fair Trading Act and s 39 of the Queensland Fair Trading Act by representing to third persons in the motor vehicle industry and other industries that “he is the owner of the technology confidential information and prototypes” and by certain other conduct said to be particularised in paragraphs 15 and 16 of the statement of claim (the unconscionable conduct claim).
(14)Mr Beare made and published injurious falsehoods about each of the applicants in their profession or trade in the motor vehicle industry and other industries (the injurious falsehoods by Mr Beare claim).
(15)By reason of Mr Beare having “continually interfered with links to [JBE]’s website from the Wikipedia site” for Sir Jack Brabham to “divert traffic and posted material which caused harm, detriment and embarrassment to” Sir Jack Brabham, special damage has been suffered (the special damage claim).
(16)Since the making of the March 2004 oral agreement JBE has become the registered proprietor of Australian Patent No. 685683 (which is valid and subsisting) and has “widely advertised and promoted the Beare Technology Engine” and, by reason thereof, JBE has “acquired a valuable goodwill in the name Beare Technology Engines and Beare Head Technology when used for vehicular engines and the name denotes to the trade and the public the vehicular engine of [JBE] and none other”. However, Mr Beare, with Mr Eleftheriadis and SSED, used and exploited the names Beare Technology Engine and Beare Head Technology “not connected with [JBE] and without the consent of [JBE]”. Alternatively, the same matters involve a breach of s 9 of the Victorian Fair Trading Act and s 38 of the Queensland Fair Trading Act (the passing off and related misrepresentations claim).
Claims by Mr Beare
(17)In mid 2001 Mr Casey represented to Mr Beare that he had funds of approximately $2 million immediately available to assist Mr Beare in the development of the Beare Head technology and that if Mr Beare entered into an agreement with Mr Casey: – (i) Mr Casey would pay all the fees in relation to all then existing Beare Head patents and patent applications and ensure that all such patents would be prosecuted and maintained at Mr Casey’s expense, (ii) Mr Casey would fund the research and development of the invention the subject of the Beare Head patents until the invention was commercialised, (iii) Mr Casey would ensure the invention was rapidly developed and commercialised for their mutual benefit, and (iv) Mr Beare would make a large profit through, among other things, the receipt of patent licence fees worldwide in relation to the invention (the 2001 representations claim).
(18)During 2003 and 2004 Mr Casey represented to Mr Beare that: – (i) it was in Mr Beare’s interests and would assist in the marketing and exploitation of the Beare Head invention for Mr Beare and Mr Casey to join with Mr Smith and to market and exploit the Beare Head invention in combination with an invention developed by Mr Smith and an invention developed by Mr Casey, (ii) it was in Mr Beare’s interests and would assist in the marketing and exploitation of the Beare Head invention for a public company to be created, endorsed by and named after Sir Jack Brabham for this purpose, and (iii) under the new arrangement Mr Casey would ensure that all patents in relation to the Beare Head invention and the inventions of Mr Smith and Mr Casey were maintained and paid for (the 2003 and 2004 representations claim).
(19)The 2001 and the 2003 and 2004 representations were made by Mr Casey in trade and commerce and were misleading and deceptive and/or likely to mislead and deceive and, insofar as they relate to future matters, Mr Casey did not have reasonable grounds for making the representations. As such the 2001 oral representations and the 2003 and 2004 oral representations contravened s 9 of the Victorian Fair Trading Act, s 38 of the Queensland Fair Trading Act and s 56 of the Fair Trading Act 1987 (SA) entitling Mr Beare to claim damages from Mr Casey and an order that the 2001 agreement and the 2004 agreements are void and consequential orders for transfer to Mr Beare of all the Beare Head patents (the misleading and deceptive conduct by Mr Casey claim).
(20)In reliance on the 2001 representations Mr Beare entered into an agreement with Mr Casey in October 2001 (the 2001 agreement) by which Mr Beare agreed to assign 50% of his rights in and to the Beare Head patents to Mr Casey (the 2001 agreement reliance claim).
(21)In reliance on the 2001 and the 2003 and 2004 representations Mr Beare entered into “whatever written agreements” Mr Casey told Mr Beare were required to implement the new arrangement including a written agreement with Mr Casey, Mr Smith and Sir Jack Brabham in March 2004, a written partnership agreement with Mr Casey and Mr Smith in May 2004 and a written agreement with Mr Casey, Mr Smith and JBE in May 2004 titled “agreement for sale of patents in exchange for shares” (together, the 2004 agreements) (the 2004 agreements reliance claim).
(22)Mr Casey and JBE detained from Mr Beare certain goods and chattels as identified (the goods and chattels claim).
Claims against Mr Eleftheriadis
(23)In or after May 2006 Mr Eleftheriadis contacted JBE and met with Mr and Mrs Casey and Sir Jack Brabham “posing as a potential investor but with the secret intention of stealing [JBE’s] technology, confidential information and prototypes” (the false pretences claim).
(24)In and from July 2006, and after rejection of his advances by JBE and Sir Jack Brabham, Mr Eleftheriadis intimidated the applicants of and concerning JBE’s business and future prospects (the intimidation claim).
(25)From about the middle of 2006 Mr Eleftheriadis engaged in conduct that is misleading and deceptive or likely to mislead or deceive in contravention of s 9 of the Fair Trading Act 1999 (Vic) and/or s 38 of the Fair Trading Act 1989 (Qld) by: – (i) representing to the public that Mr Beare is the joint owner of the technology known as the Beare Head patents, (ii) representing to the public that Mr Beare is the joint owner of confidential information described as bank statements of JBE, contracts and shareholder lists of JBE, “customer and client lists and commercial contacts”, (iii) representing to the public that Mr Beare is the joint owner of the Ducati and Yamaha prototypes, and (iv) representing on the sixstroke.com website that Mr Beare is the owner of the technology (the misleading and deceptive conduct by Mr Eleftheriadis claim).
(26)Mr Eleftheriadis made and published injurious falsehoods about each of the applicants in their trade and profession in the motor vehicle industry and business community (the injurious falsehoods by Mr Eleftheriadis claim).
(27)Mr Eleftheriadis knowingly involved himself in the “breaches of trust [by Mr Beare] and unconscientiously advantaged himself” with the consequence that he holds the technology and prototypes, “including improvements, modifications or further patents deriving therefrom or any profits and revenues” on trust for JBE (the breach of trust claim).
Claims against Beare Technology Pty Ltd
(28)The name Beare Technology Pty Ltd is associated with and is an asset of JBE’s business and, until the conduct of the respondents about which complaint is made, was representative of JBE’s asset, name, business and trade reputation (the Beare Technology Pty Ltd name claim).
(29)From about the middle of September 2006 Beare Technology Pty Ltd, in trade or commerce, engaged in conduct that was misleading and deceptive or likely to mislead and deceive in contravention of s 52 of the Trade Practices Act 1974 (Cth) by representing to the public that Mr Beare is the true owner of technology and intellectual property identified, including by reference to the sixstroke.com website and by advertising across the internet (the misleading and deceptive conduct by Beare Technology Pty Ltd claim).
(30)Beare Technology Pty Ltd knowingly involved itself in the “breaches of trust [by Mr Beare] and unconscientiously advantaged itself” with the consequence that it holds profits and revenues arising therefrom on trust for JBE (the breach of trust claim).
Claims against SSED
(31)SSED’s name is associated with and is an asset of JBE’s business and, until the conduct of the respondents about which complaint is made, was representative of JBE’s asset, name, business and trade reputation (the SSED name claim).
(32)From September 2006 SSED engaged in conduct that was misleading and deceptive or likely to mislead and deceive in contravention of s 42 (I infer, s 52) of the Trade Practices Act by: – (i) representing that Mr Beare is the true owner on the intellectual property and technology as identified on the website SSED purports to own, (ii) representing to the public that Mr Beare is the true owner of the confidential information described as bank statements of JBE, contracts and shareholder lists of JBE, “customer and client lists and commercial contacts”, as identified on the website SSED purports to own, (iii) representing to the public that Mr Beare is the true owner of the Ducati and Yamaha prototypes as identified on the website SSED purports to own, (iv) asserting by a “deed of confirmation” ownership of the intellectual property owned by JBE, (v) registering domain names using the terms as identified in Schedule 1 of the Application to describe the Beare Head Engine technology “with the purpose or effect of diverting internet traffic away from JBE’s website to its own”, (vi) entering into a shareholder agreement with Mr Beare by which Mr Beare brings JBE’s technology to SSED for SSED’s benefit, and (vii) its intention to commercialise the technology of JBE (the misleading and deceptive conduct by SSED claim).
(33)SSED published injurious falsehoods about each of the applicants in their trade in the motor vehicle industry and other industries (the injurious falsehoods by SSED claim).
(34)SSED knowingly involved itself in the “breaches of trust [by Mr Beare] and unconscientiously advantaged itself” with the consequence that it holds the assets “detailed in the “Deed of Confirmation” between [SSED] and [Mr Beare] and any profits and revenues arising therefrom” on trust for JBE (the breach of trust claim).
Claims against Reference Audio Visual
(35)Reference Audio Visual, in trade or commerce, engaged in conduct that was misleading or deceptive or likely to mislead or deceive in contravention of s 52 of the Trade Practices Act by: – (i) aiding Mr Beare and Mr Eleftheriadis to acquire domain names which relate to the business and assets of JBE and thereby representing that business and assets are not owned by JBE, (ii) purchasing in October 2006 domain name licences which relate to the business and assets of JBE with the intention of diverting internet traffic away from JBE, (iii) securing and holding passwords, keys and administrative details on domain names which relate to the business and assets of JBE and thereby representing that business and assets are not owned by JBE, and (iv) wilfully ignoring advice dated June 2006 of an accredited domain name registrar on the “known redirection of sixstroke.com” to JBE’s website (the misleading and deceptive conduct by Reference Audio Visual claim).
(36)Reference Audio Visual knowingly involved itself in the “breaches of trust [by Mr Beare] and unconscientiously advantaged itself” with the consequence that it holds assets “including domain names and any intellectual property or any profits and revenues arising therefrom” in trust for JBE (the breach of trust claim).
All respondents
(37)The applicants claim that each of Mr Beare, Mr Eleftheriadis, Beare Technology Pty Ltd, SSED and Reference Audio Visual, unless restrained by order, will continue with the alleged conduct thereby causing the applicants further loss and damage (the continuing threat claim).
Insofar as practicable, I will deal with the claims in chronological order and in groups that appear related. Before doing so, paragraph 40 of the statement of claim should be mentioned. This paragraph states “The First Respondent, contrary to Orders of the Court, paragraph 4, made contact with the First Applicant and its directors by entering the AGM on 3 March 2008”. If this claim is meant to raise a breach of orders of the court, it cannot be done in this way. The claim is vague; presumably it is referring to paragraph 4 of the orders made by Bennett J on 19 December 2007 (as amended on 15 February 2008) which states “The Applicants on the one hand and the First to Sixth Respondents and the Eighth Respondent on the other hand respectively agree not to contact each other except through their respective lawyers”. Order 40 of the Federal Court Rules provides the procedure for resolving alleged contempts. The procedure requires the statement of charge to specify the contempt alleged so as to allow the accused person to know the case he or she has to meet and defend. It has long been accepted that a person should not be punished for contempt unless the specific charge against him or her be distinctly stated and an opportunity of answering it given to that person (Australian Competition and Consumer Commission v INFO4PC.com Pty Ltd [2002] FCA 949 at [9] citing Coward v Stapleton (1953) 90 CLR 573 at 579-580). Paragraph 40 is insufficient to establish any breach of the orders of the court; further, no particulars were provided and no submissions made in support of paragraph 40. For these reasons, paragraph 40 of the statement of claim does not need to be dealt with further.
THE 2001 REPRESENTATIONS
Did Mr Casey make the 2001 representations (issue 17)?
Before Mr Beare had any involvement with the applicants, he had invented the Beare Head engine. He had also obtained patents in various countries in respect of this invention including Australian Patent No. 685683 granted on 9 July 1998. He had constructed prototypes including the Yamaha prototype and the Ducati prototype. He used the prototypes in demonstrations. His invention was the subject of favourable publicity. He arranged for his invention to be showcased on a website that was established on his behalf in 1999 by Russell White, a web designer. The address of this website was
By about 1997, it became apparent to Mr Beare that he did not have the money to undertake the further development of his invention essential to the realisation of any prospect of its commercialisation.
According to Mr Casey, Mr Beare contacted him during 2000 and raised the possibility of them developing a prototype involving both the Beare Head engine and Mr Casey’s fuel injection and nozzle invention about which Mr Beare had become aware. On Mr Casey’s version of events Mr Casey then travelled from his home in Queensland to Mr Beare’s home in South Australia with Austin Meredith. Thereafter, Mr Casey and Mr Beare had a number of telephone conversations. Mr Casey said that these communications resulted in them agreeing in mid 2001 to “pool resources” and “work together” including, according to Mr Casey, Mr Beare agreeing to “pool” his prototypes so they could work on them together. Their dealings culminated in Mr Beare and Mr Casey entering into the 2001 agreement whereby Mr Beare agreed to assign 50% of his rights in and to the Beare Head patents to Mr Casey.
Mr Beare’s version of the events leading up to the 2001 agreement is different. According to Mr Beare Mr Casey first contacted him in 1998 and they kept in contact on an irregular basis thereafter. By 2001 Mr Beare had made a 3D acrylic model of his invention. In June 2001 he took this model to Stuttgart, Germany where he presented his invention to people involved in motor racing. He returned to Australia buoyed by the reception his invention received including favourable coverage in the press. Money, however, was still tight and patent fees were overdue. After he returned to Australia Mr Casey called him. Mr Casey had Mr Meredith with him who also spoke to Mr Beare. Mr Beare’s evidence is to the effect that during this conversation Mr Casey made the 2001 representations to him – that is, Mr Casey represented to Mr Beare that he had funds of approximately $2 million immediately available to assist Mr Beare in the development of the Beare Head technology and that if Mr Beare entered into an agreement with Mr Casey: – (i) Mr Casey would pay all the fees in relation to all then existing Beare Head patents and patent applications and ensure that all such patents would be prosecuted and maintained at Mr Casey’s expense, (ii) Mr Casey would fund the research and development of the invention the subject of the Beare Head patents until the invention was commercialised, (iii) Mr Casey would ensure the invention was rapidly developed and commercialised for their mutual benefit, and (iv) Mr Beare would make a large profit through, among other things, the receipt of patent licence fees worldwide in relation to the invention.
Mr Beare says he relied on those representations to enter into the 2001 agreement. Mr Casey and Mr Meredith, said Mr Beare, first visited him in South Australia in 2002, after execution of the 2001 agreement.
The applicants objected to those parts of Mr Beare’s affidavits relating to the 2001 representations. While objection could have been taken to the form of those paragraphs (the conversations are not in direct speech), that was not the basis of the applicants’ objections. Had a form objection been taken I would have acceded to a request to lead evidence-in-chief in respect of the conversations in question. The applicants could not have been prejudiced by Mr Beare being able to say in proper form that which he had already said in the affidavits albeit not in direct speech. The applicants, however, objected on the grounds of hearsay (to the relevant parts of the affidavit of 17 December 2007) and relevance (to the relevant parts of the affidavit of 30 September 2008). Neither objection can be sustained. The evidence of the conversations is not hearsay because it is relevant for the fact of the statements having been made. The evidence is also relevant to a fact in issue. Moreover, in response to a question in cross-examination Mr Beare asserted that the 2001 representations were made. There is thus a proper evidentiary foundation for Mr Beare’s claim about the making of the 2001 representations.
Certain other matters also must be taken into account.
First, in the defence to the cross-claim Mr Casey admitted that in mid 2001 he told Mr Beare that he, Mr Casey, would fund the “research and development of the invention the subject of the Beare Head patents” until the invention was commercialised. In cross-examination Mr Casey said that he told Mr Beare that he would try to commercialise Mr Beare’s invention over a three year period and promised to pay all Mr Beare’s patent fees for that three year period. However, Mr Casey denied telling Mr Beare that he (Mr Casey) had $2 million immediately available to assist Mr Beare in the development of the invention. According to Mr Casey, he told Mr Beare that “if I was to take his invention under my wing and that I would fund it personally for certain periods but I never promised any quantities of moneys [to] him”. These admissions are generally consistent with the thrust of Mr Beare’s evidence about what Mr Casey told him. They convey both willingness and financial capacity to fund development of Mr Beare’s invention.
Second, while Mr Beare was short of money, he had the benefit of patents protecting his invention, the prototypes which he had developed, favourable publicity and an unshakeable belief in his invention. In these circumstances it would make little sense for Mr Beare to give up any of his rights unless he had a real basis for believing that Mr Casey could give something valuable in return – namely, as Mr Beare identified, financial capacity to fund the development of Mr Beare’s invention in the form of the $2 million which, according to Mr Beare, Mr Casey said he had immediately available for that purpose.
Third, both versions of events involved Mr Meredith. According to Mr Casey he entered into a contract with Mr Meredith on 3 April 2001. The contract provided for Mr Meredith to purchase equity of $2 million progressively over two years for a percentage of the rights to Mr Casey’s fuel injection nozzle invention. The figure of $2 million is the same as that referred to in Mr Beare’s allegations that Mr Casey made the 2001 representations. In context this is difficult to characterise as a mere coincidence.
Fourth, there is the fact of the 2001 agreement. The agreement is dated 25 October 2001. Recital B records that Mr Casey, as purchaser, “desires to become involved in the development of the Beare engine technology”. The agreement provides for the sale of 50% of the rights to that technology by Mr Beare, as vendor, to Mr Casey, as purchaser. Recital F records that all “fuel injection and nozzle technology” remains Mr Casey’s property. In other words, by the 2001 agreement Mr Beare was transferring rights to Mr Casey, but Mr Casey was not transferring any rights to Mr Beare in respect of the fuel injection and nozzle technology. The transfer was subject to Mr Casey paying all due and payable patent fees within 30 days (which Mr Beare warranted to be approximately $6,000) and paying to Mr Beare $4,000 within 15 days to be used to procure the creation of a one piece crank for the technology. Otherwise, the consideration for the transfer of rights from Mr Beare to Mr Casey was in the form of Mr Casey agreeing as follows:
·to pay all patent fees in relation to the Beare engine technology for a minimum period of three years;
·to fund further research and development of the Beare engine technology for the next three years or until commercialisation (whichever is the shorter);
·to use his best endeavours to market and commercialise the patented technology through all existing and future business associates and contacts for a minimum period of three years.
The terms of the 2001 agreement are generally consistent with the essence of Mr Beare’s evidence about the representations Mr Casey made to him in 2001. The differences (for example, the three year period in the agreement) do not undermine the weight of evidence supporting the inference that Mr Casey made the 2001 representations.
These matters support Mr Beare’s version of events. They support the inference that Mr Casey made the 2001 representations to Mr Beare. The applicants’ submissions to the contrary are not persuasive. Mr Beare’s version of events is cogent and internally consistent. The applicants’ submission that there is no evidence of communications in mid 2001 is incorrect. Mr Beare was not a supplicant to Mr Casey. He was certainly keen to progress the development of his invention. But he believed his invention had prospects and wanted to know what he would be getting in return for giving Mr Casey “50% equity”. The terms of the 2001 agreement are not inconsistent with Mr Casey having made the 2001 representations.
Nor do I accept the applicants’ general submission that Mr Beare’s evidence, if not corroborated, should be rejected on the grounds of lack of credit. Nothing in the substance of Mr Beare’s evidence or the manner in which he gave it supports a finding that Mr Beare was an unreliable witness. I reject the attempts in the applicants’ submissions to paint Mr Beare as someone posing as a “naïve inventor” but in truth intent only on achieving his own ends at the expense of others. I also did not find Mr Beare an evasive witness. I reject the submission that he was prepared to lie in giving evidence. I also reject the submission that he tampered with evidence. The latter submission did not have a sound evidentiary foundation. The fact that Mr Beare copied over information from one DVD to another and, in consequence, the opening image on the DVD was incompletely or incorrectly reproduced does not show that Mr Beare tampered with evidence. A note in the properties of the DVD that there was a modification when the DVD was copied also does not prove that allegation. There was no evidence to indicate that the same note would not have appeared even if nothing more had been done than create a copy. Mr Beare denied making any change to the DVD. I accept his evidence.
In contrast to Mr Beare, when matters potentially unfavourable to Mr Casey’s interests were in issue, Mr Casey’s evidence was vague, self-serving or unpersuasive. A number of examples from the course of the hearing are discussed later in these reasons, namely: – (i) his evasive answers to questions about his financial position during 2001 before entry into the 2001 agreement, (ii) his unsatisfactory explanation of the use of his personal bank account for investments paid by third parties in 2003 and 2004, (iii) his unconvincing evidence to the effect that he believed that the Beare Head engine had achieved commercialisation through the arrangement with Mr Sun about the Yingyang prototype, and (iv) his attempt to characterise his relationship with Mr Eleftheriadis as one which had always been sour rather than concede (what was obvious from objective material) that the relationship changed from one of cordiality to hostility after a telephone call Mr Casey made to Mr Eleftheriadis on 6 June 2006. Undisputed aspects of Mr Casey’s conduct also do not withstand close scrutiny. In particular, he banked into his personal bank account moneys from third party investors in 2003-2004 before JBE’s incorporation (a total of some $1.3 million on the evidence of which at least some $493,000 went into Mr Casey’s own bank account). It is clear that, after the dates on which investors’ funds were banked, Mr Casey continued to use the account for his everyday personal expenses. Mr Casey, moreover, appeared not to consider these circumstances of any concern. While this was described by the applicants as a matter of mere convenience, the unsatisfactory consequence is that it is not possible to separate Mr Casey’s personal expenditure from any expenditure made in accordance with the purpose of the investments.
I am satisfied that Mr Casey, in trade and commerce, made the 2001 representations to Mr Beare. Other than Mr Casey’s denials of certain aspects of those representations (specifically, that he had approximately $2 million available immediately to further develop the engine), all of the evidence supports this inference. The inference is consistent with Mr Casey’s admissions. The inference is consistent with the circumstances prevailing at the time. The inference is consistent with, and a compelling rational explanation for, Mr Beare’s subsequent conduct in entering into the 2001 agreement and the terms of that document. I further deal with the representation claims below under the headings “Were Mr Casey’s Representations misleading and deceptive?” and “Remedies – Mr Beare”.
THE RIGHTS TRANSFERRED BY THE 2001 AGREEMENT
The operative clause of the 2001 agreement is cl 3. Under cl 3(a) Mr Beare transferred to Mr Casey 50% of the “intellectual property known as the Beare Engine Technology (refer Schedule A)” (also referred to as “the intellectual property” (cl 3(b)) and “50% of the intellectual property rights in the Beare Engine Technology as per the attached Schedule A” (cl 3(c)).
Clause 1.1 of the 2001 agreement defines “intellectual property” as referring to “the intellectual property associated with the Beare engine technology – refer annexure A which is to be known as the ‘Beare Engine Technology’”. It also defines “intellectual property rights” as meaning “all inventions, improvements, patents, copyright and related rights, trade marks (whether registered or not) design rights, circuit layout rights, trade secrets, confidential information and know-how”.
Schedule A to the 2001 agreement is a list of patents for Mr Beare’s invention.
Mr Beare did not transfer an interest in the prototypes to Mr Casey by the 2001 agreement. This is clear from the provisions identified. It is also clear from cl 3(k)(ii) which requires Mr Beare to make the prototypes available to Mr Casey for demonstration purposes. Mr Beare did not agree to transfer anything else to Mr Casey. The definition of “intellectual property rights” is only relevant to the use of that term in any other substantive provision of the agreement. The definition involves “all rights” as identified insofar as another substantive provision requires the transfer of those rights. The term is used in cl 3(c) to define the time by which the transfer required by cl 3(a) is to occur. The transfer required by cl 3(a) is of the intellectual property associated with the Beare Engine Technology being that listed in Schedule A (that is, the patents). I thus accept the respondents’ case that by these provisions Mr Beare transferred to Mr Casey 50% of Mr Beare’s rights in each of the listed patents. Hence, insofar as the applicants’ submissions depended on the 2001 agreement involving Mr Beare transferring to Mr Casey anything other than 50% of his rights in the patents listed in Schedule A to the 2001 agreement, the submissions must be rejected.
It is also the fact that the statement of claim does not plead any such transfer by the 2001 agreement. The statement of claim refers to the 2001 agreement as a particular to the alleged March 2004 oral agreement. The particular describes the 2001 agreement as an agreement by Mr Beare to “contribute inter alia his existing marketing materials, compact disc, website, engineering and test results relevant to commercialisation”. There is no such obligation of “contribution” in the 2001 agreement. Clause 3(k)(iv) is inconsistent with the particular if, by “contribute”, some form of transfer of rights is intended. Clause 3(k)(iv) requires Mr Beare to “make available” to Mr Casey all “existing marketing materials… which may be reasonably useful and/or necessary to commercialise the technology”. In other words, except for the specified transfer of 50% of the rights in the patents, Mr Beare’s obligations with respect to all other matters (the prototypes and marketing materials) were to make them “available”. The obligation to make something available cannot be equated to the yielding up of any right, title or interest in the thing to be made available.
It follows that, pursuant to the 2001 agreement, Mr Beare transferred nothing to Mr Casey but 50% of the rights in the patents listed in Schedule A to the agreement. Mr Beare retained full right, title, and interest in and associated with his prototypes, his website and his marketing materials.
The alternative pre March 2004 agreement claim (Issue 3)
Insofar as the applicants’ case depended on the alternative pre March 2004 alternative agreement, set out in paragraphs 32 to 38 of the statement of claim, the following observations must be made. The claim alleges that “further, or in the alternative,” to the March 2004 oral agreement Mr Beare agreed to “sell to [Mr Casey] and jointly to commercialise inter alia, the Beare engine technology including all current patented material and ideas, and all future ideas whether patented or not of the said technology, and the intellectual property associated with the said technology including the names: ‘six-stroke’, ‘Beare head engine technology’, ‘Sixstroke engine’, ‘Beare Head Engine’, ‘Beare sixstroke engine’ and logos together with a CD and website The claim is unclear and provides no particulars of when or how the alleged pre March 2004 alternative agreement was made. There is no evidentiary foundation to support any such pre March 2004 alternative agreement having been made and the applicants’ submissions provide no assistance in this regard. As far as this claim is intended to refer to the 2001 agreement, as explained above, under the 2001 agreement Mr Beare sold 50% of the rights in the patents only. It follows that all of the applicants’ claims based on the existence of the pre March 2004 alternative agreement must fail. Insofar as the applicants’ case might depend on contrary propositions, never articulated in the pleadings, it must be rejected.
THE PARTNERSHIP ISSUE - 2001
At this point it is convenient to deal with another issue that arose during the hearing. Throughout the hearing the applicants referred to the existence of a partnership between Mr Casey and Mr Beare arising in 2001 and subsequently joined by Mr Smith. The applicants referred to this partnership as founding various aspects of the claimed relief. The respondents made the point that no such partnership had been pleaded. The applicants contended that the partnership was pleaded, and even if it was not pleaded, the existence of the partnership (or partnerships) was a circumstance relevant to the claims that were pleaded.
There are difficulties with the applicants’ approach. If the alleged partnership was a material fact then it had to be pleaded. The statement of claim does not plead the existence of a partnership. It is not open to a party to attempt to shift the ground of their pleaded case by referring to a matter which has not been pleaded over repeated objection by the other party; no partnership was pleaded and thus no relief can be founded on it. These observations suffice to dispose of the partnership issue, but more can be said.
As the respondents submitted, and irrespective of Mr Beare’s later description of the arrangements (on which the applicants relied), cl 17 of the 2001 agreement provides that nothing in that document “creates or is taken to create any partnership between the parties”. While that statement is not conclusive it is relevant to the parties’ intention. It is also consistent with other facts pointed out by the respondents: – (i) the 2001 agreement did not involve Mr Casey transferring any of his interest in his nozzle invention to Mr Beare, (ii) the evidence establishes that Mr Casey controlled all funds and paid Mr Beare, and (iii) no partnership accounts were tendered.
For these reasons I need say nothing more in answer to, and rejection of, the applicants’ submission that the dealings between Mr Casey and Mr Beare in 2001, including the 2001 agreement, gave rise to a partnership between them.
SOME EVENTS FROM 2002-2004
2002
I accept Mr Beare’s evidence that in early 2002 Mr Casey visited Mr Beare’s home in South Australia and that Mr Meredith accompanied Mr Casey. Mr Beare gave a demonstration of the Yamaha and Ducati prototypes. After this Mr Casey arranged for Mr Beare to ship the prototypes overseas. Mr Beare and Mr and Mrs Casey travelled to Europe. Mr Beare demonstrated the prototypes. The Ducati broke down and had to be repaired. The trio then went to the United States. The Ducati prototype was left with a testing company, SRI International, for tests. Mr Casey asked Mr Beare to give SRI International 4% equity in Mr Beare’s invention in exchange for research and development which, in a two line letter of 9 February 2002, Mr Beare agreed to do.
Mr Beare returned to South Australia and Mr and Mrs Casey to Queensland sometime in May 2002 According to Mr Casey, Mr Meredith came into financial difficulty and could not fulfil his side of the agreement relating to Mr Casey’s fuel injection and nozzle invention. Mr Casey also had a falling out with SRI International and the proposed arrangement with that company proceeded no further.
Mr Casey said he was very disappointed with Mr Beare and the performance of the prototype. Mr Casey thought that Mr Beare had breached cl 3(c)(ii) of the 2001 agreement which provided for Mr Beare to procure a one piece crank for the Beare Head engine. Mr Beare, however, had made the crank as required. More relevantly, the applicants did not plead any claim about the performance of the prototypes or anything Mr Beare said in this regard.
At or around this time Mr Casey asked Mr Beare to ship to Queensland the Yamaha prototype, Mr Beare’s bike dynamometer and some equipment. Mr Beare did so and, in consequence, could not work on the prototypes (as the Yamaha was in Queensland and the Ducati with SRI International in the United States at that time).
Larry Sun – the Yingyang prototype
Mr Casey also decided to contact Larry Sun, a businessman in Taiwan. This contact resulted in a tripartite “joint development agreement” between Mr Casey, Mr Beare and Mr Sun of 30 December 2002. By this agreement (a term necessary to use loosely as the document styles itself as being intended to “identify the principle [sic] elements as the basis of documentation (is subject to agreement)”), Mr Sun agreed to pay $154,000 in three instalments into a bank account in Mr Casey’s sole name, in exchange for the design of a prototype motorcycle engine head using Mr Beare’s Beare Head engine invention and Mr Casey’s nozzle invention. The finished prototype was to be owned by Mr Sun. Mr Beare agreed “to be responsible for fitting and tuning of the prototype” at Mr Sun’s Taiwanese premises or in Australia at a cost to be determined. The prototype which came into existence as contemplated by this agreement became known as the Yingyang prototype.
Mr Beare started work on the design of the Yingyang prototype for Mr Sun. I accept Mr Beare’s evidence that, despite the fact that the agreement of 30 December 2002 referred to the three technologies (of Mr Beare, Mr Casey and Mr Smith), the work was done by Mr Beare and the Yingyang prototype that he designed incorporated only the Beare Head engine.
As noted, Mr Beare had shipped his tools and equipment to Mr Casey in Queensland at Mr Casey’s request. I accept Mr Beare’s evidence that Mr Casey insisted that Mr Beare complete work on the Yingyang prototype in Queensland. Mr Beare had a family and a job in South Australia. It must also be recalled that he had established Beare Technology Pty Ltd in 1989 and built five prototypes of his invention using his own resources and from his own workshop. I am satisfied that, but for Mr Casey’s requirements and possession of Mr Beare’s equipment, Mr Beare would have preferred to carry out the work from his own home. Nevertheless, Mr Beare left his family and job in South Australia to spend many months in Queensland in 2003 working on the Yingyang prototype. His family considered moving to Queensland to be with him but they decided against it. When he had completed the design Mr Beare returned to his home in South Australia.
According to Mr Casey the agreement with and the payment by Mr Sun represented “commercialisation” of the Beare Head engine as referred to in cl 3(e) of the 2001 agreement. Under that clause Mr Casey had agreed to fund further research and development of the Beare Head engine “for the next three years or until commercialisation (whichever is the shorter)”. Mr Casey’s evidence about this issue was unsatisfactory. Mr Casey said “commercialisation” meant any sale of an item or the design of an item. The agreement with Mr Sun involved a sale and thus, according to Mr Casey, commercialisation of the Beare Head engine was achieved when Mr Sun paid for the Yingyang prototype.
I do not accept that the payment by Mr Sun for the work Mr Beare did on the Yingyang prototype satisfied Mr Casey’s obligations under cl 3(e) of the 2001 agreement. In the context of the 2001 agreement as a whole, the word “commercialise” means making the Beare Head engine fit for commercial trade. Fixing the Beare Head engine to one Yingyang motorcycle for a third party did not involve any development of the invention so as to make it fit for commercial trade. The Yingyang prototype was no different in substance from the other prototypes Mr Beare had developed for himself. I also note that Mr Casey appeared to hold a different view about commercialisation at other times when acknowledging that commercialisation had not occurred. For example the 2002 tripartite, itself, provided that the parties would work “towards commercialisation of the technologies” – a clear indication that commercialisation had not occurred under this agreement. The draft offer information statement from 2005 described the stage of development as remaining at that of “working prototypes” with money required to develop “pre-production prototypes”. The same document described negotiations with Mr Sun and Primero Enserve (India) Pvt Ltd (Primero Enserve) about commercialisation of JBE’s products as “proceeding” with no formal agreement as yet. The document also described certain risks to the technologies being developed to “fruition”. Further, in an email to Nidamangala Srinivasa Balamukundan (a director of Primero Enserve) of 7 June 2006 Mr Casey said that it “was not that we don’t want to commercialise the head but you have given few details of what is involved ie ‘kick start’… I have not said that we will commercialise all three technologies together or none”. In JBE’s 2006 business plan (which identifies Mr Casey as the relevant contact person) the company’s activities were described as including “pursuing commercialisation contracts”.
Mr Casey said the Yingyang prototype failed and had to be shipped back to Australia and rebuilt, implying some fault on Mr Beare’s part. It is apparent, however, that Mr Beare’s design specifications were not followed in Taiwan. Be that as it may, the performance of the Yingyang prototype is not material to any pleaded cause of action and thus I say no more about Mr Casey’s evidence of the various difficulties and costs associated with them.
The oral agreement said to create a partnership in November 2002
The applicants’ submitted that another agreement came into existence on 13 November 2002 between Mr Casey, Mr Beare and Mr Smith. According to Mr Casey they orally agreed to carry on a business in partnership of developing and commercially exploiting Mr Beare’s Beare Head engine, Mr Casey’s nozzle invention and Mr Smith’s hydrogen and oxygen generator.
This submission confronts the same problems as the applicants’ submissions about a partnership arising in 2001.
First, the applicants did not plead the existence of a partnership by reason of an oral agreement on 13 November 2002 between Mr Casey, Mr Beare and Mr Smith. In paragraph 3 of the statement of claim, which pleads the existence of the March 2004 oral agreement, there is a reference to “the benefit of technology and marketing agreements collectively known as the Pulse Fuel (PF) Technologies”. The particulars to this paragraph contain a reference to “prior agreements… relating to the technologies”. These obscure references cannot be said to plead the existence of an oral agreement to form a partnership dated 13 November 2002. Mr Casey’s affidavit of 6 July 2009 contains information about this alleged oral agreement. This affidavit purported to comply with orders for further and better particulars of the statement of claim made on 27 March 2009. However, the orders required the particulars to be provided within 28 days. Further, the orders required particulars of the contention in paragraph 3 of the statement of claim that Mr Beare had agreed to “pool” his prototypes by the terms of the alleged March 2004 oral agreement. Mr Casey’s affidavit, in referring to another alleged oral agreement of 13 November 2002, cannot be said to provide particulars to paragraph 3 of the statement of claim. If the applicants wished to assert a cause of action founded on an alleged oral agreement of 13 November 2002 then they had to plead the material facts on which they relied to prove the existence of that agreement and its terms. The applicants have not done so.
Second, the evidence said to found the oral agreement is unsatisfactory both in terms of form and substance. The evidence rarely rises above mere assertion or submission and fails to prove an agreement to establish a partnership. The conversation to which Mr Casey deposes in paragraph 13 of his affidavit of 6 July 2009 is an inadequate foundation for any inference that a partnership was formed on and from 13 November 2002. The claim is not assisted by Mr Smith’s evidence or the later documents to which Mr Casey refers in that affidavit (including the partnership agreement which did come into existence on 20 May 2004). Nor is it assisted by Mr Beare’s later references to a partnership with Mr Casey in an email to JBE shareholders.
Third, and in any event, nothing in the evidence of the conversation said to give rise to the partnership on 13 November 2002 provides support for an inference that the terms of the agreement bear any resemblance to those which Mr Casey asserts in paragraphs 15 and 16 of his affidavit of 6 July 2009. Those paragraphs are mere assertion and provide no rational evidentiary foundation for any inference that Mr Beare put into the venture his Yamaha engine, the website test results or anything else.
THE MAKING OF THE 2003 AND 2004 ORAL REPRESENTATIONS (ISSUE 18)
Mr Beare contended that Mr Casey made the 2003 and 2004 representations in those years thereby inducing Mr Beare to enter into a series of agreements with Mr Casey.
In the defence to the cross-claim Mr Casey admitted the first representation – that he represented to Mr Beare at this time that it was in Mr Beare’s interests and would assist in the marketing and exploitation of the Beare Head invention for Mr Beare and Mr Casey to join with Mr Smith and to market and exploit the Beare Head invention in combination with an invention developed by Mr Smith and an invention developed by Mr Casey. This admission is qualified only insofar as Mr Casey contends that he made this representation on the basis that Mr Beare was aware at the this time that the Beare engine would not be viable without other applied technologies and further refinements and development of the Beare technology due to inherent combustion and pollution problems with the Beare engine.
Two observations may be made about the basis of the admission. First, the state of Mr Beare’s alleged awareness does not alter the fact that Mr Casey admits making the first of the 2003 and 2004 representations to Mr Beare. Second, the basis of the admission, particularly the reference to the Beare engine not being “commercially viable” at the time, is difficult to reconcile with Mr Casey’s view that the Beare Head engine achieved “commercialisation” by reason of the payment made by Mr Sun for the Yingyang prototype.
Mr Casey also admitted the second representation, that, at this time, he represented to Mr Beare that it was in Mr Beare’s interests and would assist in the marketing and exploitation of the Beare Head invention, in combination with an invention developed by Mr Smith and an invention developed by Mr Casey, for a public company to be created, endorsed by and named after Sir Jack Brabham.
Mr Casey denied, however, the third representation – that he represented to Mr Beare that under the new arrangement Mr Casey would ensure that all patents in relation to the Beare Head invention and the inventions of Mr Smith and Mr Casey were maintained and paid for.
In his affidavit of 6 July 2009, Mr Casey said that at about the time the Yingyang prototype was returned to Australia for rebuilding in early 2003, the investor in his nozzle technology suffered financial difficulties with the consequence that Mr Casey’s projects in the United States for his technology had to be “put on hold indefinitely”.
On 8 April 2003 Mr Casey, as the principal of Pulse Fuel Technologies, released a document styled “Explanatory Memorandum and Seed Capital Offer”. This document refers to Mr Casey’s nozzle technology, the Beare Head engine and Mr Smith’s hydrogen/oxygen generator. The document described itself as a “proposal for seed capital”. The document stated that:
Currently we are nearing finalisation of a self-funded project with a Taiwanese organisation; this project will culminate with the return, in around a month, of a fully engineered prototype Beare Head made to our design.
The document referred to the Yamaha and Ducati prototypes. It said that “it is intended that further patents will be applied for (as many as 3 more can be applied for immediately)”; and further, that:
Concurrently we have been working with one of the largest automobile manufacturers in America over a two-year period to develop my nozzle technology… this is now at the stage of full prototype within a car; testing and evaluation is still progressing under a confidentiality agreement…
My initial backer is in financial difficulty and this makes it necessary to approach other investors to top up working capital…
I am looking for a minimum of $300,000 and maximum of $500,000 to pay ongoing patents and provisional patent applications and ongoing overhead costs together with the establishment of a company structure and preparation of a prospectus to raise further capital to take the technologies to full market commercialisation…
A deed of agreement will be made between the investor and the three patent holders for the agreed percentage of the technologies involved; this deed will remain in place until a company structure (or structures) is formed where shares will be issued in a public float to raise an agreed amount for future development.
The document referred to a business plan which was said to provide “detailed financial revenue and expense costings”. The business plan is a document entitled “Business Plan (2003) Pulse Fuel Technologies Group” identified on the cover page as involving “Pulse Fuel Injector and Nozzle”, “Beare Technology” and “Smith’s Hydrogen/Oxygen Generator”. Mr Casey drafted this document. According to the business plan “Pulse Fuel Technologies is seeking to further develop and commercialise the technologies” for which further “working capital is required”. This is described as being “significant funding” required for research and development and independent analysis. The business plan also referred to the agreement between Mr Casey, Mr Beare and Mr Sun described above. The business plan represented this agreement as a “south-east Asian partnership… pertaining to the commercialization of the Beare Head and Nozzle Technologies for use in motorcycles throughout the Asian region”.
The business plan contained valuations based on projected income streams from the inventions. The author of the projections is not identified but I infer it to be Mr Casey. The assumptions underlying the projections are not supported in any meaningful way. Many appear self-evidently unsupportable. For example, market penetration for the nozzle is assumed to commence in 2004 and to rise to 6% of some 52 million cars by 2012. Royalties are then calculated by reference to these assumptions leading to an overall valuation. The page before the projections describes the royalties on which the so-called valuations are based as a “fair and reasonable ‘guestimate’”. The “Explanatory Memorandum and Seed Capital Offer”, however, described the business plan as containing “detailed financial revenue and expense costings”. It did not disclose that those costings and revenues were a “guestimate”. The “Explanatory Memorandum and Seed Capital Offer”, however, contained a disclaimer that the information related to “investments of a speculative nature” and that no representations were made as to the accuracy and reliability of the information contained in the document.
One thing apparent from the business plan which Mr Casey used as the basis to call for public investment is that the guesses about revenues (and thus values) resulted in Mr Casey’s invention being allocated 57.5% of the total value (said to be US $1,447,896,734), Mr Beare’s invention 37.5% and Mr Smith’s 5%.
I make the following further observations about “Explanatory Memorandum and Seed Capital Offer”. The document shows that there were ongoing arrangements between Mr Casey and Mr Beare (as well as Mr Smith). Mr Beare signed a copy of the document indicating his knowledge of, and agreement to, its issue. Acknowledgment of this fact is not inconsistent with my rejection of the applicants’ (not pleaded) claim of a partnership between these three made by oral agreement on 13 November 2002. The document confirms Mr Casey’s evidence that he did not have $2 million or anything like that amount to fund research and development of the Beare Head engine. The document gives prominence to the need to obtain funds to pay for ongoing and new patents. The document also refers to funds being required “to take the technologies to full market commercialisation” (which further undermines Mr Casey’s evidence about the deal with Mr Sun representing commercialisation of the invention).
The document is thus consistent with Mr Beare’s evidence that Mr Casey, at this time, represented to him that under the new arrangement Mr Casey would ensure that all patents in relation to the Beare Head invention and the inventions of Mr Smith and Mr Casey were maintained and paid for. I am satisfied that Mr Casey made this representation to Mr Beare. It is consistent not only with the terms of the April 2003 document, but also the 2001 agreement. Under that agreement, Mr Casey was bound to pay all patent fees for the Beare Head engine patents for three years (which did not expire until 25 October 2004 at the earliest) and to fund and research development of the Beare Head engine for the same three years or until commercialisation. Mr Casey agreed to do these things in exchange for 50% of the rights to the patents listed in Schedule A to the 2001 agreement. However, by the document dated 8 April 2003, Mr Casey was calling for funds to do the same things he had already agreed to do for Mr Beare but at the price of other investors also obtaining a share in the rights to Mr Beare’s invention. In these circumstances Mr Beare’s evidence about the making of all of the 2003 and 2004 oral representations should be accepted.
A number of investors responded to Mr Casey’s proposal of 8 April 2003. Mr Sun entered into an agreement with Mr Casey, Mr Beare and Mr Smith on 19 May 2003. Mr Sun invested $100,000 in exchange for 0.6% equity in any future entity or entities to be established “for the holding, research and development and commercialisation of the intellectual property known as the PFT technologies”. The PFT technologies were the three inventions of Mr Beare, Mr Casey and Mr Smith. The $100,000 was to be paid under the agreement directly into a bank account in Mr Casey’s sole name. Over the next six or so months similar agreements were entered into with other investors. Pursuant to these initial investor agreements some $438,528 was banked into the account in Mr Casey’s name. According to other evidence, by the time that the proposal with respect to JBE had been finalised (May 2004) up to $1.3 million of investment had been received.
One investor was Speed of Light Pty Ltd, a company controlled by Russell White, the person who had designed the website for Mr Beare in 1999. Under an agreement dated 22 October 2003 between Mr Casey, Mr Beare, Mr Smith and Speed of Light, the latter agreed to pay $100,000 for 0.6% equity in the future entity or entities to be established “for the holding, research and development and commercialisation of the intellectual property known as the PFT technologies”. Speed of Light Pty Ltd obtained a further 0.6% equity on the basis of “$10,000 previously paid to Malcolm Beare, Work in kind done in past years, value for work to be completed for next 2 years in developing and maintaining a web site for promotion of the technologies; as per schedule C”. According to the applicants, there was, by this agreement, a sale of the website to JBE. I do not accept this submission. The agreement does not provide for a sale of the website to JBE; further, JBE had not been created at the time Speed of Light entered into the agreement dated 22 October 2003.
For the reasons set out above I am satisfied that Mr Casey made the 2003 and 2004 representations to Mr Beare. I deal with the consequences of this finding below under the headings “Were Mr Casey’s representations misleading and deceptive” and “Remedies – Mr Beare”.
THE MARCH 2004 ORAL AGREEMENT (ISSUES 1, 2, 3, 9, 10 AND 11)
A number of the applicants’ claims are founded on the existence of an oral agreement alleged to have been entered into by Mr Casey, Mr Beare and Mr Smith in March 2004. Mr Beare denied the existence of this agreement.
Mr Casey’s affidavit of 15 October 2007 says that this oral agreement came into existence as follows:
In early 2004 I said to Beare and Smith “I propose that we pool all our engine related technologies into a company that will have the endorsement as well as the involvement of Sir Jack Brabham”. Beare and Smith each said to me “I agree with your proposal”.
Mr Casey’s affidavit of 13 June 2008 expanded on this evidence. Mr Casey said that in the first week of March 2004, Mr Beare came to Queensland where he was met by Mr Casey and Mr Smith. Mr Casey referred to Sir Jack Brabham backing the technologies. After a technical discussion Mr Casey said “the solicitors in Sydney are in the process of setting up a company right now which will mean interstate travel to Sydney to sign the paperwork. As you know we have each sold part of our individual technologies, prototypes and patents to all foundation investors. Do you both agree to put all our intellectual property of the technologies, patents and prototypes together in the one company to be named Jack Brabham Engines Limited?”. Mr Casey said “they both agreed” and Mr Beare also said that “this can only go ahead on the proviso that I am a director – I wish to be the Technical Director”. According to Mr Casey, he and Mr Smith agreed. Mr Beare then said “When we get more funds in then I can get stuck into it with the software and hardware needed for improvements and refinements over time”.
Mr Casey’s affidavits contain many other references to the “pooling agreement” (and the like) to describe this alleged agreement. However, those other references are conclusions or opinions and cannot found the existence of the agreement.
In his affidavit of 27 March 2008, Mr Smith said that in March 2004 when Mr Beare was in Queensland “we” (that is, Mr Smith, Mr Beare and Mr Casey) “agreed to pool our various patents, prototypes and technologies and form a company…”. Further, that Mr Smith, Mr Beare and Mr Casey signed an agreement with Sir Jack Brabham “that we would be formally pooling or grouping together the patents and technologies in a company to be called ‘Jack Brabham Engines Limited’”.
Mr Beare said in his affidavit of 30 September 2008 that he did not make any agreement with Mr Smith and Mr Casey (in March 2004 or otherwise) to “pool our technologies”. Rather, Mr Beare agreed to the setting up of a company and to transfer “whatever patents we held in our own names into that company”. Further, that they agreed on their percentage respective shareholdings in that proposed company. Mr Beare, in the same affidavit, denied that a conversation occurred as claimed by Mr Casey. Mr Beare said he never agreed to sell his prototypes but had agreed to make them available as required which he had done. Mr Beare was cross-examined about the alleged March 2004 agreement. Throughout cross-examination Mr Beare maintained that he had agreed that a company would be formed but no other conversation or agreement as alleged by Mr Casey had occurred or been made.
Mr Casey was not cross-examined about the alleged March 2004 oral agreement. The applicants submitted that they must succeed on these claims in consequence. This submission, I infer, is based on the rule in Browne v Dunn (1894) 6 R 67. Hunt J explained this rule as follows in Allied Pastoral Holdings Pty Ltd v Commissioner of Taxation [1983] 1 NSWLR 1 at 16
… unless notice has already clearly been given of the cross-examiner's intention to rely upon such matters, it is necessary to put to an opponent's witness in cross-examination the nature of the case upon which it is proposed to rely in contradiction of his evidence, particularly where that case relies upon inferences to be drawn from other evidence in the proceedings. Such a rule of practice is necessary both to give the witness the opportunity to deal with that other evidence, or the inferences to be drawn from it, and to allow the other party the opportunity to call evidence either to corroborate that explanation or to contradict the inference sought to be drawn. That rule of practice follows from what I have always believed to be rules of conduct which are essential to fair play at the trial and which are generally regarded as being established by the decision of the House of Lords in Browne v Dunn (1894) 6 R 67.
The rule is thus based on principles of fairness. According to Cross on Evidence (LexisNexis Butterworths, subscription service) at [17445] (excluding footnotes):
The rule does not apply where the witness is on notice that the witness's version is in contest. The notice may come from the pleadings, or a pre-trial document indicating issues, or the other side's evidence, or the other side's opening; it may come from the general manner in which the case is conducted; it may come from the way an earlier trial between the parties on the same issues was conducted. In general, however, this exception to the rule should only operate where the issue is a fairly clear and obvious one. Even where there has been an exchange of affidavits or statements, a cross-examiner must put to the witness any non-obvious implications which the cross-examiner proposes to submit can be drawn from the evidence.
Further, if the rule applies and has been breached, a court is not thereby bound to accept the evidence which has not been subjected to cross-examination. A decision of the Supreme Court of Victoria, Bulstrode v Trimble [1970] VR 840 at 848, is cited by Cross at [17460] as follows:
[I]f a witness's evidence upon a particular matter appeared in his evidence-in-chief to be incredible or unconvincing, or if it was contradicted by other evidence which appeared worthy of credence, the fact that the witness had not been cross-examined would, or might, be of little importance in deciding whether to accept his evidence.
In their defence filed on 21 July 2008, the respondents contended that paragraph 3 of the statement of claim (asserting the existence of the March 2004 oral agreement) should be struck out as embarrassing on various grounds and, subject to the identified objections to the applicants’ pleading, denied each and every allegation the applicants made in that paragraph. As noted, in his affidavit of 30 September 2008 Mr Beare also denied the conversations by which the March 2004 oral agreement is said to have been made and the existence of any agreement to the effect claimed by Mr Casey. In written opening submissions the respondents contended that:
The Court ought find that there is no oral agreement of the nature contended for by the Applicants at paras 3 and following of the Amended Claim but rather that the following written contracts were prepared by Casey and/or his solicitors and executed…
In exchanges about the admissibility of certain additional evidence early in the hearing the respondents’ counsel referred to the March 2004 oral agreement as “the oral agreement that the respondents deny”.
These matters disclose that the applicants could not have been in any doubt that Mr Beare denied the evidentiary foundation for and the existence of the March 2004 oral agreement. The respondents’ defence and written submissions put the applicants on notice that the respondents’ case was that the conversations referred to by Mr Casey did not take place and that there was no oral agreement as claimed. In these circumstances I am satisfied that the rule in Browne v Dunn does not apply. Even if applicable, the consequence of a failure to cross-examine Mr Casey, in the circumstances described, would not be that the applicants necessarily succeed on this part of their case. Mr Beare’s evidence contradicted that of Mr Casey. The strength of Mr Beare’s evidence on these matters was not weakened in cross-examination. For example, the fact that Mr Beare may well have been in Queensland at the relevant time and met Mr Casey (which I accept occurred in or about March 2004) does not make it more or less likely that the content of any conversations were as claimed by Mr Casey or Mr Beare. Mr Beare had every reason to be in Queensland and meet Mr Casey and Mr Smith at this time. JBE was in the process of being established. Mr Beare accepted that he had discussions with Mr Casey and Mr Smith about JBE before its constitution. What he did not accept was the conversations about pooling all technologies, prototypes and patents or his entry into an oral agreement to that effect.
For these reasons Mr Casey’s evidence must be weighed along with all other admissible and relevant evidence in order to resolve the issue in dispute about the March 2004 oral agreement.
First, Mr Smith’s evidence. The respondents objected to many parts of Mr Smith’s evidence including paragraph 11 of his affidavit of 27 March 2008 in which Mr Smith said that “we agreed to pool our various patents, prototypes and technologies and form a company…”. Paragraph 11, insofar as it refers to the agreement, is inadmissible. It is a conclusion presumably based on an unidentified evidentiary foundation. Mr Smith does not identify the terms of any conversation by which the conclusion of “we agreed…” is said to be founded. Mr Smith’s evidence, accordingly, is incapable of providing any assistance to the applicants in respect of the alleged March 2004 oral agreement.
Second, the context. As discussed, pursuant to the 2001 agreement, Mr Beare transferred to Mr Casey 50% of the rights in the patents listed in Schedule A to the agreement. Mr Beare, however, retained full right, title, and interest in and associated with his prototypes, his website and his marketing materials. In 2003 a number of investors gave money to Mr Casey in exchange for equity in a company to be established “for the holding, research and development and commercialisation of the intellectual property known as the PFT technologies”. Many steps were taken thereafter directed to the establishment of the required corporate entity including the drafting of various documents by solicitors that were subsequently executed.
Pulse Fuel Technologies Pty Ltd was incorporated on 24 February 2004 as a proprietary company limited by shares.
On 29 March 2004 Sir Jack Brabham entered into a deed with Mr Casey, Mr Smith and Mr Beare. By this deed Sir Jack Brabham obtained 3.5% equity in the prospective entity to be named Jack Brabham Engines Limited in exchange, in effect, for the use of his name and marketing rights in association with the prospective entity (of memorabilia and the like).
Not long after the date of the alleged March 2004 oral agreement, on 20 May 2004, Mr Casey, Mr Beare and Mr Smith attended a meeting of Pulse Fuel Technologies Pty Ltd in Sydney. Mr Casey was appointed chairman of the meeting. It was resolved that the company be changed to a public company limited by shares. A new constitution was adopted. The name of the company was changed to Jack Brabham Engines Limited.
On the same day (20 May 2004), Mr Casey, Mr Smith and Mr Beare executed a document called a partnership agreement. This document provides in cl 2.1 that:
The Partners agree that as from 13 November 2002 they have carried on and will continue to carry on the Business in partnership on the terms set out in this Deed until 30 June 2050.
The Partners are Mr Casey, Mr Smith and Mr Beare. The Business is the business of developing and commercially exploiting the Patents. The Patents means all the right, title and interest in the inventions described in Schedule 1 to the deed including the registered patents and applications for registration of patents described in Schedule 2. Schedule 1 lists the inventions of Mr Casey, Mr Smith and Mr Beare and Schedule 2 lists various patents.
It is convenient to make the following observations about this deed:
(1)The deed is not pleaded as a material fact in the applicants’ statement of claim.
(2)The partnership referred to as having been carried on since 13 November 2002 is not pleaded as a material fact in the in the applicants’ statement of claim (see the discussion above about this matter).
(3)The deed does not identify or refer to the existence of an oral agreement in March 2004 by which Mr Casey, Mr Smith and Mr Beare agreed to pool “all our engine related technologies” or otherwise.
(4)When asked about this deed Mr Beare said that he had been advised by the solicitors responsible for its preparation that it was to exist for one day only pending the constitution of JBE as a public company. A letter dated 6 April 2004 to Mr Casey from the solicitors preparing the documents records that Mr Casey had sought advice on the capital gains tax issues associated with the transfer of certain assets from “individuals” to Pulse Fuel Technologies Pty Ltd. The individuals are Mr Casey, Mr Beare and Mr Smith and the assets are the patents. The letter advised that the simplest and most effective form of rollover relief obtainable involved the formation of a partnership between Mr Casey, Mr Beare and Mr Smith in which each party retained their assets. The partnership would then transfer the assets to Pulse Fuel Technologies Pty Ltd and obtain rollover relief. This letter supports Mr Beare’s characterisation of the purpose of the deed, as well as his denial of the existence of any partnership being entered into at any earlier time (a matter which, as noted, the applicants did not plead in any event).
On the same day (20 May 2004), Mr Beare and others executed many more documents prepared by the solicitors. One such document was an “Agreement for Sale of Patents in Exchange for Shares” (or patent sale agreement) executed between Mr Beare, Mr Casey, Mr Smith and Pulse Fuel Technologies Pty Ltd. This agreement refers to the “Business” as “the business of developing and commercially exploiting the Patents carried on by [Mr Casey, Mr Beare and Mr Smith] in partnership pursuant to a partnership agreement dated 20 May 2004”. According to this agreement Mr Casey, Mr Beare and Mr Smith, as vendors, agreed to sell to Pulse Fuel Technologies Pty Ltd all their right, title and interest in the Patents in exchange for the issue and allotment of shares in certain proportions to the vendors. The Patents are defined in the same terms as in the partnership deed.
At this point it is convenient to make certain further observations about the proportions in which the shares were allotted to Mr Casey, Mr Beare and Mr Smith. The patent sale agreement refers to consideration to the vendors in the form of a share issue. Of the total of 4,999,999 shares to be issued, 3,212,499 were to be allocated to Mr Casey (64%), 1,612,500 to Mr Beare (32%) and 175,000 to Mr Smith (3.5%). This allocation must reflect some valuation process but none is disclosed on the face of the patent sale agreement (or, indeed, the other agreements into which Mr Beare entered in May 2004). There is expert evidence in this case relating to certain valuation issues (from Mr Anthony Bennett on behalf of the applicants and Ms Piera Murone on behalf of the respondents). For present purposes it is sufficient to note that the patent sale agreement resulted in Mr Casey obtaining 64% of the initial allocation of shares in the company to which the Patents were transferred with the shares representing a total value of $4,999,999 (a directors’ valuation unsupported by any independent assessment).
The same parties, on the same date, executed a short form confirmation of assignment deed. By this deed they confirmed that for value received under the patent sale agreement the vendors, Mr Casey, Mr Beare and Mr Smith, had transferred all their right, title and interest in the Patents.
In common with Mr Casey and Mr Smith, Mr Beare signed an application for shares on 20 May 2004. He sought an allotment of 1,612,500 shares in the company in consideration for the sale of the Patents as defined in the patent sale agreement. Mr Casey obtained 3,212,499 shares and Mr Smith 175,000 shares. Mr Beare also signed a consent to act as a director of Pulse Fuel Technologies Pty Ltd.
On 15 July 2004 the Australian Securities and Investment Commission (ASIC) issued a certificate of change of company name from Pulse Fuel Technologies Pty Ltd to Jack Brabham Engines Limited and the conversion of JBE to a public company.
What then is the countervailing evidence that the benefit Mr Beare lost was something of real and not merely speculative value?
The fact that Mr Beare believes strongly in the value of the Beare Head engine, spent substantial time and money in developing it, and managed to obtain the protection of patents does not mean that any opportunity he lost involved other than a speculative benefit. Mr Beare’s opinions on this matter are subjective and (understandably given the amount of time and events that have transpired) coloured by emotions.
The fact that Mr Casey was willing to become involved and issued many documents asserting the value of the Beare Head engine is not of material weight. Despite his evidence to the contrary, I am not satisfied that Mr Casey put any of his own money towards the development of the engine or in any way at risk in its development. Moreover, Mr Casey attracted substantial investment based on misinformation about the true state of development, commercial potential and value of the invention much of which went into his own bank account (in circumstances, it might be added, where his personal expenditure and expenditure on the purpose of the investments cannot be distinguished on the available evidence). Mr Casey thus had an interest in asserting the value of the engine and continues to have an interest in this case in asserting its value at least to the extent that it is relevant to the applicants’ causes of action. Given these matters and the overall impression I formed of Mr Casey’s evidence his opinions also should not be given weight in assessing the value of what Mr Beare lost by entering into the 2001 agreement.
Mr Sun was willing in 2002 to pay for the development of the Yingyang prototype. However, later evidence discloses that Mr Sun believes the state of development and value of the technology was misrepresented to him. Mr Sun used strong language to convey his views, saying in correspondence of 11 July 2007 to Mr Hall (a newly appointed director of JBE) that he believed Mr Casey had used him (that is, Mr Sun) to “lure” Mr Hall into investing in the Beare Head engine. Further that he thought Mr Casey had “taken advantage” of him and was “deeply offended” by Mr Casey’s behaviour, describing Mr Casey as having “presented factitious engine related investment proposals as a means to con me out of my hard earned money”, as well as “scamming from innocent investors”. Although Mr Sun also said in the same letter that the “only viable technology of any value” was the Beare Head engine, it is clear that Mr Sun considered that he had invested based on information that was “factitious”. What he would have been willing to invest, if anything, if he had been a fully informed investor remains a matter of speculation. The same conclusion applies to Mr Balamukundan and Primero Enserve. In a letter of 10 May 2007 their lawyers said that Mr Casey had represented the Beare Head engine as having enormous investment prospects and the like. Further, that their clients were lured and induced into investing on the basis of Mr Casey’s representations described as involving intentional and premeditated misrepresentations. The correspondence shows that these investors do not consider themselves fully informed with the consequence that their investments are not a reliable indicator of value. The correspondence also undermines the applicants’ case that anything the respondents did caused the falling out with Mr Sun, Mr Balamukundan and Primero Enserve. According to Mr Sun, Mr Balamukundan and Primero Enserve, responsibility for that lay with Mr Casey.
Sir Jack Brabham described the Beare Head engine as a technology which in 2003 “looked very promising both in theory and in its practical application”. This may be true but it makes no allowance for the factors Ms Murone and Dr Honnery identified as relevant.
A number of investors in 2003 were willing to pay for shares in the proposed company in order to obtain rights through their shareholdings in the development of the three inventions including the Beare Head engine. However, and as noted, the explanatory memorandum and seed capital offer prepared by Mr Casey and to which these investors responded contained numerous unfounded assertions as to the state of development, commercial potential and value of the inventions which, on the evidence in this case (particularly that of Dr Honnery), must be characterised as involving speculation, exaggeration, puffery and misrepresentation. There was no product that could have been described as ready for the Chinese market in six weeks or at any other time. The deal with Mr Sun was incapable of yielding any product ready for any market without substantial time, money and risk (none of which is mentioned in the explanatory memorandum and seed capital offer). Mr Casey’s invention had apparently run into difficulties overseas and there is no basis apparent in the evidence for the statement that it had been developed to a “full prototype”. None of the technologies had been proven (as explained by Dr Honnery’s evidence). The claimed values said to be based on “detailed financial revenue and expense costings” were based on unfounded assumption, speculation and exaggeration. For these reasons the directors’ values adopted at the time of the 2004 agreements and the subsequent shareholders’ ratification of those values cannot be accepted to be reliable. As Ms Murone said, directors’ valuations are not uncommon if supported, but the valuations in this case were unsupported and, in my view on the evidence, unsupportable.
For these reasons investors in JBE cannot be described as fully informed buyers. In fact, the nature and extent of the misinformation in the explanatory memorandum and seed capital offer (which is repeated thereafter in many of the documents produced by JBE seeking further investment) makes it impossible to accept that any person, properly informed as to the true state of development and risks associated with the technology (as made apparent by the evidence of Dr Honnery and Ms Murone), would have been willing to invest. In fact, the only person willing to invest in the Beare Head engine with an apparent appreciation that the information provided by Mr Casey was unreliable was Mr Eleftheriadis. However, Mr Eleftheriadis’ initial willingness (after reading about the invention in an old motorcycling magazine) was based on the same information, provided to him by Mr Casey, that induced the investments in 2003 and 2004. Once Mr Eleftheriadis became aware of the figures relating to investments and expenditure, he decided he was only willing to invest if he controlled his investment. The arrangements between Mr Eleftheriadis and Mr Beare after June 2006 cannot be separated from the present dispute and thus also are not a reliable indicator of the commercial potential and value of the Beare Head engine patents.
My acceptance of the evidence of Dr Honnery and Ms Murone, together with the fact that Mr Beare had not attracted any commercial development opportunities or investment before Mr Casey’s involvement, indicates that the Beare Head engine patents, at best, represented a mere speculative benefit. The evidence as a whole leads to the conclusion that Mr Beare, by reason of the 2001 agreement into which he was induced to enter by Mr Casey’s misleading and deceptive conduct, lost an opportunity which, at best, offered a merely speculative benefit. As such, no loss and damage by Mr Casey’s misleading and deceptive conduct has been proved. This conclusion, of course, applies with equal force to the applicants’ case insofar as they claimed damages based on the alleged value of the patents for the Beare Head engine.
No other order in Mr Beare’s favour is appropriate. Mr Casey cannot be ordered to return the rights in the patents as he sold his 50% interest to JBE in May 2004. A declaration as to misleading and deceptive conduct, in these circumstances, has no utility. JBE cannot appropriately be ordered to re-transfer the patents to Mr Beare. JBE is separate from Mr Casey. JBE did not induce Mr Beare to do anything either in 2001 or thereafter. Further, JBE is a public company in which third parties hold shares. Mr Beare retains the shares he was issued in JBE in exchange for transfer of his 50% rights in the patents. Insofar as Mr Beare may object to Mr Casey’s management of JBE that is a matter outside the scope of this proceeding.
DAMAGES – THE APPLICANTS
I have dismissed all of the applicants’ claims against the respondents. Nevertheless, insofar as practicable, I should deal with the applicants’ claims for damages. As noted, the hearing was conducted on the basis that all particulars of the applicants’ claims for loss and damage were set out on pages 436.218-219 of the court book. These particulars appear as follows:
Damages and Losses:
The actions of all respondents by their injurious falsehoods:
Lost opportunity of Offer Information Statement $5,000,000
Planned for early 2006 - The Second Respondent
provided a copy of JBE Business Plan as part of
his Affidavit to the Court. The OIS was to include
Letters of Intent from China via Larry Sun and the
MOU on the Hydrogen Unit from Primero in India.
The money we were to receive from both Primero Enserve
and Larry Sun was to be used to fund and promote the OIS
and to continue development of all technologies____________________________________________________________________
The actions of the First, Second, Third, Fifth and Eighth Respondents:
a) interference with Larry Sun promised money $350,000
b) interference with Bala, Primero Enserve
Promised extra shares to value of $250,000
____________________________________________________________________
The actions of all Respondents:
By deliberate and intentional misleading conduct; diverting potential customers and joint development partners by advertising wrong ownership of the technologyLoss of income from joint development agreements
and lost opportunities for licensing agreements $6,000,000
____________________________________________________________________
By actions of the Seventh Respondent (Speed of Light P/L)
…Due to the lack of fund raising via the OIS, the applicants have suffered losses:
First Applicant Loss:
1 R & D Tax Offset x 2 years (refund of specified
expenditures for technology innovation companies $200,0002 Commercial Ready Grants on technology development
available through Ausindustry to assist in research
and development costs, project based $1,000,000
$1,200,0003 Share price and company valuation changes:
from the Audited Accounts:
20 cents per share in June 20096 [sic] valuing theCompany at $12,000,000 to 1 cent per shares in
January 2008 resulting in a loss of value of
$11,000,000 based on share sales Loss $11,000,000
$12,200,000Second Applicant Loss:
1 non payment of director fees for three years $60,000
2 MD salary sacrifice $60,000
3 Director time spent on the actions of all respondents
cost of time@ $120/hr 10 hrs/week/3 years= $187,200
$307,200
Third Applicant Loss:1 non payment of director fees $50,000
2 Unpaid administration 5 years $80,000
3 Director time spent on the actions of all respondents
since early 2006 until present
Cost of time@$50/5hr/wk/3 years= $39,000
$169,000Fourth Applicant Loss:
1 by agreement signed by Beare promised
$200,000 when 2 million raised by OIS $200,0002 Royalty stream from memorabilia loss due
To interference with traffic from Wiki $65,0003 Time spent on the actions of all respondents
Cost of time@$500/1hr/wk/3years = $78,000
$343,000These particulars present numerous problems. For example, by the time of the hearing, the proceeding had been discontinued or dismissed as against the fourth, seventh, eighth, ninth and tenth respondents (Beare Head Pty Ltd, Speed of Light Pty Ltd, Mrs Beare, Primero Enserve and Mr Sun). The particulars, however, involve rolled-up assertions of loss against “all respondents”, and nominated respondents as a group including those who are no longer respondents. As the respondents submitted, the particulars do not link any alleged injurious falsehood to any particular or identified damage said to have been suffered.
The loss of $5,000,000 said to be from the “actions of all respondents by their injurious falsehoods” refers to a lost opportunity of an offer information statement planned for early 2006. This statement is said to have been intended to include letters of intent from Mr Sun and Primero Enserve (who were respondents to the proceeding). However, the particulars of injurious falsehoods relate to statements made over the internet and, principally, on the website by the publication of the so-called “chapter of truth”. That website was not re-established by Mr White until late 2006. The “chapter of truth” was not posted on the website until after the JBE annual general meeting on 11 December 2006. In other words, the principal injurious falsehoods said to have caused the loss and damage claimed (abandoning an offer information statement said to have been planned for early 2006) occurred after the alleged abandonment of the offer information statement. Further, and as the respondents pointed out, by August 2006 Mr Casey advised Mr Balamukundan that JBE was “seriously considering selling off the Beare technology as we are concentrating on other items”. In December 2006 Mr Casey proposed that the shareholders approve the sale of all of JBE’s technologies. This was one of the items on the agenda for the JBE meeting of 11 December 2006. Moreover, there is no rational evidentiary basis for this claimed loss. Finally, the offer information statement was to call for funds to further develop the Beare Head engine. If potential investors were fully informed about the true state of development of that technology, and its true commercial potential (in accordance with Dr Honnery’s evidence and that of Ms Murone), it is not apparent that any investment, let alone substantial investment, could have been attracted.
There are no particulars of damage of the alleged intimidation.
As the alleged losses by reason of what is described as “interferences” with Mr Sun, Primero Enserve and Mr Balamukundan, it is not apparent what cause of action is intended to be identified. In this regard, it must not be overlooked that the applicants sued Mr Sun and Primero Enserve as part of this proceeding for the same amounts. The applicants discontinued their proceedings against Mr Sun and Primero Enserve yet then included the same amounts in the claim against the remaining respondents. In any event, and as mentioned above, the evidence indicates that Mr Sun, Primero Enserve and Mr Balamukundan became discontented with Mr Casey and made their own decisions not to make further investments. As to Mr Sun, so much is clear from a letter he wrote to Mr Hall (one of the directors of JBE), on 11 July 2007, the terms of which make plain Mr Sun’s strongly adverse view of Mr Casey’s dealings with him. As to Mr Balamukundan and Primero Enserve, the correspondence from their lawyers to JBE and its directors of 10 and 14 May 2007 also discloses their strongly adverse view of Mr Casey’s dealings with them. These letters, consistent with the conclusions in these reasons for decision, refer to misinformation in the calls for investment into JBE both when proposed and when existing. Against this evidence, the idea that anything the remaining respondents did caused Mr Sun and Mr Balamukundan and Primero Enserve not to continue investing in JBE is unsustainable.
The claim for $6,000,000 for “misleading conduct” and “loss of income from joint development agreements and lost opportunities for licensing agreements” fails to identify which action of which respondent is connected to which element of loss. In any event, there is no rational basis in the evidence for the claim either as a class of potential loss or as to the amount claimed. If the lost opportunities relate to Mr Sun or Mr Balamukundan, as indicated, they had their own reasons for wishing to deal no further with Mr Casey. If the applicants had other lost opportunities in mind neither they nor their value are apparent from the evidence.
The other classes of loss claimed also cannot be related to any particular cause of action. Insofar as they might be said to be related to the alleged injurious falsehoods, they suffer from the deficiencies already identified. If so, it is not apparent how the itemised matters could be said to be a direct and natural consequence of the statements said to found the cause of action.
In summary the applicants’ claims for loss and damage are deficient to such an extent that they cannot be meaningfully related to the causes of action insofar as those causes of action themselves can be identified from the statement of claim. The evidence said to support the claimed loss either does not rise above mere assertion and speculation (in the case of the non-expert affidavits) or is unpersuasive (in the case of Mr Bennett’s opinions). One example of the former is the series of statements in paragraph 20 of Mr Casey’s affidavit of 13 June 2008. The statements are mere unsupported assertions and (if admissible) incapable of proving any loss or damage. Similarly, those parts of paragraph 23 of that affidavit asserting reasons for the offer information statement not proceeding are self-serving conclusions. Paragraphs 24 and 25 are also mere conclusions, arguments and opinions. Leaving aside the fact that it is clear that Mr Sun and Mr Balamukundan had their own reasons for no longer wishing to deal with Mr Casey, paragraphs 26 (except the second sentence), 27 and 28 are nothing more than conclusion, argument and opinion. Other evidence to the same effect suffers from the same deficiencies and thus (if admissible) cannot be given weight. For example, Mr Smith’s affidavit of 16 June 2008 in paragraphs 7 to 9 says something about loss and damage but the statements do not rise above mere conclusions. Sir Jack Brabham’s affidavits of 4 August 2007 (particularly paragraphs 18 to 27) and 13 October 2009 contain much said to go to damage which, in truth, is no more than conclusion and argument.
On this basis, and having regard to my conclusions about the evidence of Mr Bennett, Ms Murone and Dr Honnery and the lack of proof that an opportunity to exploit the patents for the Beare Head engine constituted other than a merely speculative benefit, if any cause of action had been sustained by the applicants, I would have concluded that the applicants (like Mr Beare) had failed to prove any loss or damage.
ORDERS
For the reasons set out above, the application (as amended) and statement of claim (as amended) should be dismissed. The cross-claim should be dismissed but for an order requiring Mr Casey and JBE to return certain items to Mr Beare.
As to costs, the respondents have succeeded in whole on the application and in part on the cross-claim. Although the part on which Mr Beare succeeded on the cross-claim was small, the cross-claim arose from the same facts as the application and took up little additional time. In these circumstances, the usual order would be that the applicants pay the respondents’ costs of the proceeding as a whole. I propose to so order but on the basis that the order will be vacated if either party wishes to be heard on the issue of costs.
Finally, I propose to direct that the Registrar of the Court refer the reasons for judgment to ASIC for it to take such action, if any, as it may see fit.
I certify that the preceding three hundred and seventy-five (375) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jagot.
Associate:
Dated: 19 August 2010
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