Poche Engineering Australia Pty Ltd v Hitachi Construction Machinery (Australia) Pty Ltd & Anor (No.4) - [2010] FMCA 667

FEDERAL MAGISTRATES COURT OF AUSTRALIA

POCHE ENGINEERING AUSTRALIA PTY LTD v HITACHI CONSTRUCTION MACHINERY (AUSTRALIA) PTY LTD & ANOR (No.4)

[2010] FMCA 667

COPYRIGHT – Hitachi hired applicant to manufacture spare parts in Australia – applicant provided with some drawings but otherwise told to reverse engineer designs from products manufactured by Hitachi in Japan – where contract ceased and applicant was warned against using any of the drawings on the basis that it would be a breach of contract and/or confidentiality.

PRACTICE AND PROCEDURE – Summary dismissal – whether Hitachi had threatened action for copyright infringement or engaged in misleading and deceptive conduct by suggesting that applicant did not own copyright in the drawings it created or would be breaching obligations of confidentiality by using them – where correspondence relied on by the applicant did not contain threats concerning copyright infringement – where claim brought by assignee of the business – whether assignment took place – whether reasonable prospects of success.

Federal Magistrates Court Rules 2001 (Cth), r.13.10
Federal Magistrates Act 1999 (Cth), s.17A(2)
Copyright Act 1968 (Cth), ss.31, 202
Trade Practices Act 1974 (Cth), ss.46, 51AC, 52

White Industries Australia Ltd v Commissioner for Taxation [2007] FCA 511
Boston Commercial Services Pty Ltd v GE Capital Finances Australasia Pty Ltd [2006] FCA 1352

Applicant:

POCHE ENGINEERING AUSTRALIA PTY LTD (ACN 131 089 784)

First Respondent:

HITACHI CONSTRUCTION MACHINERY (AUSTRALIA) PTY LTD (ACN 000 080 179)

Second Respondent:

HITACHI CONSTRUCTION MACHINERY CO LTD

File Number:

SYG 3077 of 2009

Judgment of:

Raphael FM

Hearing date:

24 August 2010

Date of Last Submission:

24 August 2010

Delivered at:

Sydney

Delivered on:

24 August 2010

REPRESENTATION

Counsel for the Applicant:

Mr J de Meyrick

Solicitors for the Applicant:

Patrick Lim & Associates

Counsel for the Respondents:

Mr J Hennessy

Solicitors for the Respondents:

DibbsBarker Lawyers

ORDERS

Substantive application dismissed.
Substantive Applicant pay the Respondents’ costs to be taxed if not agreed in accordance with the Federal Court Act and Rules and allowed at 80% of the amount so taxed.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA
AT SYDNEY

SYG 3077 of 2009

POCHE ENGINEERING AUSTRALIA PTY LTD
(ACN 131 089 784)

Applicant

And

HITACHI CONSTRUCTION MACHINERY (AUSTRALIA) PTY LTD (ACN 000 080 179)

First Respondent

HITACHI CONSTRUCTION MACHINERY CO LTD

Second Respondent

REASONS FOR JUDGMENT

There comes before me this afternoon an application for summary dismissal of proceedings commenced by Poche Engineering Australia Pty Ltd (“Poche”) against Hitachi Construction Machinery Australia Pty Ltd (“HCMA”) and Hitachi Construction Machinery Co Ltd (“HCM”). The application is brought pursuant to r.13.10 of the Federal Magistrates Court Rules 2001 (the “Rules”) and/or section 17A(2) of the Federal Magistrates Act 1999. The application is in the form of an amended application dated 24 August 2010 necessitated only by the fact that in its original form the application was brought on the part of only one of the Hitachi companies, the other not having yet been served.
The application was originally brought on 23 April 2010. There are two alternative orders sought which are to dismiss parts of the statement of claim filed on 31 March 2010 pursuant to the same rules. In the circumstances it will not be necessary to deal with these two alternative sections of the application.
Some years ago a company known as Poche Engineering Services Pty Ltd commenced an association and business dealings with Hitachi. It was asked by Hitachi to manufacture in Australia certain spare parts for Hitachi equipment. For reasons best known to the parties, Hitachi did not supply Poche Engineering Services with the drawings for the production of these parts. Rather, it asked Poche to reverse engineer existing parts that had been manufactured in Japan by Hitachi. Poche did this. It produced drawings from the parts that it had reverse engineered. It was necessary to undertake the reverse engineering and produce drawings so that the specifications of the parts could be accurately set out for the forthcoming manufacturing process. There were some parts, however, which Poche did not reverse engineer, but, rather, it was provided with drawings by Hitachi and it used those drawings to manufacture them. There were about 25 of those drawings altogether.
In 2008 or thereabouts a decision was made by Hitachi not to continue manufacturing spare parts in Australia. Hitachi considered that it had ample manufacturing capacity in Japan to allow the direct importation of its parts. It told Poche Engineering Services Pty Ltd of its intention. Needless to say, Poche Engineering Services was upset at this news. It remonstrated with Hitachi and a considerable volume of correspondence ensued. At about the time that this was happening some reorganisation of the Poche business book place. A new company known as Poche Engineering Australia Pty Ltd was formed. This company has a sole director, Mr Adam Poche. He is also the sole shareholder. According to a document which will become of some importance in relation to this decision, that company is part of a general partnership. The other partner, of whom I have been told, but I have no evidence, is Mr Adam Poche.
The correspondence between the parties continued until it was eventually taken up by solicitors. DibbsBarker act for Hitachi and Mr Patrick Lim acts for Poche. On November 4 2009 Hitachi wrote from Japan to Poche Engineering Services Pty Ltd (“Services”) setting out its complaints against Services which in previous correspondence had suggested that it might decide to manufacture replacement Hitachi parts from the drawings which it had created itself and possibly from the drawings that Hitachi had given it. The letter demanded the return of the copyright drawings which Hitachi had given to Services and exhibited a draft application which Hitachi said it was prepared to issue out of the Federal Court of Australia against Services for what it described as Services’ threatened breaches of confidential information. Hitachi expressed the view that for Services to commence manufacturing parts on its own account would be effectively the use of the confidential information obtained from the provision by Hitachi to it of parts to reverse engineer and of the 25 copyright drawings.
The application and the statement of claim, whilst referring to what I have described as the copyright drawings, does not make a claim for breach of copyright. It makes a claim for the use of the drawings and what it describes as the “derivative drawings” in breach of confidence and, alternatively, breach of contract. There is no reference to the Copyright Act.
When Services received the letter and the documents it took legal advice. On 17 December 2009 Poche Engineering Australia (“PEA”) commenced the proceedings which are before me today. These proceedings, which are now the subject of an amended application and statement of claim, allege that Hitachi have made threats concerning infringement of copyright within the meaning of s.202 of the Copyright Act 1968 (the “Act”) in respect of not only the drawings which were provided by Hitachi to Services but also in respect of the production drawings which Services had itself created.
The application also alleged that by virtue of certain demands, which are particularised in paragraph 24 of the statement of claim, namely that the production drawings were derivative drawings of drawings created by Hitachi and supplied to Services, Hitachi made representations in trade or commerce which are misleading and deceptive or are likely to mislead or deceive within the meaning of s.52 in the Trade Practices Act 1974 (“TPA”),. Specifically, that PEA is not entitled to the benefit of the rights under s.31 of the Act in respect of the production drawings. There are then other claims under ss.46 and 51AC of the TPA which have been withdrawn.
The application which has been brought today has a number of bases. The first is that PEA is simply not the right party to bring any action of this nature. As I have explained PEA was only created in mid-2008 and all the actions of the Poche business that are referred to in the statement of claim as constituting the relationship between Hitachi and Poche took place prior to that time. In fact, paragraph 13 of the statement claim says:
“Between the period in or about 1995, and on or about 24 September 2007, Poche Services, through its employees, created 455 production drawings.”
PEA argues that its right to bring these proceedings arises out of an assignment it says took place on 1 August 2008 whereby Services assigned all its right, title, and interest in the business conducted by it to PEA including the copyright in the production drawings. A copy of the asset purchase agreement, which is alleged to constitute the assignment, is found in a bundle of tendered documents commencing substantively at page 8. The vendor is Poche Engineering Services Pty Ltd, the purchaser is Poche Engineering Australia Pty Ltd as general partner for Poche Engineering Australia LP.
It is said in that document that the offerer offers to sell to the offeree the assets specified in item 1 on the terms specified in the offer. Item 1 is found in the schedule and consists of:
“All the assets of the offerer are disclosed in its balance sheet, dated 31 March 2008, including the goodwill of the business, cash at bank, the trade debtors, the right to complete work in progress, the stock on hand, the leasehold improvements, and plant and equipment at its written-down value.”
On 25 June 2010 DibbsBarker served a notice to produce upon PEA seeking a copy of the balance sheet dated 31 March 2008 referred to in the sale agreement. That was not produced. I was told this morning by Mr de Meyrick, who appears on behalf of PEA, that no such document exists. I was, however, in connection with an application for security for costs, shown balance sheets of PEA. Those balance sheets revealed that it had no assets and I can only conclude from this that no transfer took place. If no transfer took place then PEA has no right to bring any proceedings based upon ownership of the assets transferred to it pursuant to the agreement.
The second argument put by Hitachi is that no groundless threats were ever made against Poche, whether PEA or Services. The statement of claim refers to letters sent by Hitachi to Services on 19 June 2009, a further letter sent by Hitachi to Services on 4 August 2009, a letter sent by Hitachi to Services on 26 August 2009 and a letter dated 4 November 2009 also sent to Services which contained the draft application and statement of claim and also named Services as the proposed respondent.
It is clear, even from the statement of claim, that no threats could have been made to PEA by these letters addressed to its predecessor company. But a study of those letters, all of which have been produced to the Court through the affidavit of Mr Sloan dated 23 April 2010 or the tender bundle, reveal that there is no threat in any of them of breach of copyright. The letters refer only to Hitachi’s sensitive information, Services’ obligations of confidence, Hitachi’s confidential information and, in the draft statement of claim, a breach of confidence. Interestingly, it seems that the Poche directors understood this because in a letter that they wrote on 16 September 2009 to Hitachi signed by Mr Adam Poche he says:
“I took your advice and sought the advice of a intellectual property specialist lawyer, who considered the correspondences which have been flowing between our companies on this issue of the drawings. He was quite surprised that in all the correspondence there was no mention of copyright in the plans.”
An action for threats is an action created by statute. It exists in the areas of intellectual property law in respect of patents, designs and copyright. It is not an action found in the common law. Unless the threats which are claimed in the statement of claim to have been made are made in connection with an alleged breach of copyright they are not susceptible to an action. These threats, if they were threats, were not made in respect of a breach of copyright. They were clearly made in respect of an alleged breach of confidentiality and utilisation of confidential material.
To the extent that it could possibly be argued that some inference might be drawn from the whole of the correspondence that there was reference to some copyright drawings the only copyright drawings which I can accept were referred to were those of Hitachi that had been given to Poche to utilise and which Poche accepts were at all times the copyright of Hitachi. Therefore any threats in respect of them were entirely justified.
PEA has also claimed in its statement of claim breaches of the TPA s.52. It states at paragraph 33 of the statement of claim that:
“The HCM copyright threats and the confidentiality threats comprised conduct (the conduct) which was engaged in by either of both HCM and HCMA, was misleading or deceptive, or which was likely to mislead or deceive, contrary to the provisions of s 52 of the Trade Practices Act.”

Particulars

The conduct was misleading and deceptive because:
The HCM Copyright Threats
(a)The manufacture of spare parts for Hitachi machinery did not involve infringement of any proprietary rights HCM has or had, in the HCM drawings.
(b)The HCM drawings were no the basis for the making of the Production Documents or used to create the Production Drawings.
(c)That the Production Drawings were not a substantial reproduction of the HCM drawings and the information contained in them.
(d)Use of the Production Drawings would not entitle HCM to an injunction, damages or an account of profits by reason of the fact that the Production Drawings were the copyright of Poche Services.
(e)Neither HCM nor HCMA were entitled to demand Poche Services the destruction or return of all of the Production Drawings.

The confidentiality threats
(f)The spare parts from which the Production Drawings were created, including details of the material, measurements, dimensions, hardening requirements and part numbers of some or all of the parts given by HCMA to Poche Services, were matters which were in the public domain by reason of the:
(a) Availability of HCM and HCMA parts in Australia; and
(b) The reserve engineering and suppliers of compatible spare parts made for Hitachi machinery.”

As I have already found that there were no copyright threats, there cannot be misleading or deceptive conduct in relation to them. In regards of the confidentiality threats I have already said that these do not constitute an action known to the law and if they do not constitute an action known to the law I have considerable difficulty in understanding how they can constitute a breach of s.52 of the TPA. In any event there is no pleading which indicates what the applicant did to rely on those so called threats, and how, by virtue of that reliance, it lost money or suffered damage. True it is that PEA has so far not availed itself of the opportunity it believes it has to utilise the drawings that were created to produce Hitachi style parts, but it has not been explained to me with sufficient clarity that this came about as a direct result of the allegations made by Hitachi.
There is also a claim for unjust enrichment. It is said that HCM and HCMA have, from about a date in 1995, requested that Services and PEA perform work and then states that Services performed work until 1 August 2008 and PEA thereafter until 18 March 2009. The statement of claim says that HCM and HCMA received a benefit because Services have performed work. The work in question is the reverse engineering process, which was not carried out by PEA, and which could only ever have obtained the benefit of that work by virtue of the assignment which I have already decided did not take place.
There is found, at paragraph 40 of the statement of claim, that HCM and HCMA have:
“Actually or constructively accepted the benefit of Poche Services in circumstances where it will be unjust for that person to do so without making restitution to Poche Australia, as an assignee of Poche Services.”
But I have been unable to find that PEA is such an assignee.
The ability of a party to come to this Court and seek that an application be struck out summarily is governed by s.17A(2) of the Federal Magistrates Act 1999. That section is a mirror image of s.31A of the Federal Court Act 1976 and now provides as follows:
“(2) The Federal Magistrates Court may give judgment for one party against another in relation to the whole or any part of a proceeding if:
(a) the first party is defending the proceeding or that part of the proceeding; and
(b) the Court is satisfied that the other party has no reasonable prospect of successfully prosecuting the proceeding or that part of the proceeding.”
In White Industries Australia Ltd v Commissioner for Taxation [2007] FCA 511 Lindgren J discussed the breadth and extent of s.31A, with reference also to s.17A of the Federal Magistrates Act 1999. His Honour made reference at [38] to a number of cases in which the section had been considered. Before saying, at [59]:
“I do not propose to add greatly to the discussion of the meaning and effect of s 31A. In the United Kingdom it has been held in the context of the similar rule 24.2 of the CPRs noted at [53] above, that the expressions “no real prospect of succeeding” and “no real prospect of successfully defending” require attention to be given to real, as opposed to “fanciful” or “merely arguable” prospects.” [authorities omitted]. The Queensland Court of Appeal has similarly held, following Swain v Hillman [2001] 1 All ER and the Three Rivers District Council v The Governor and Company of the Bank of England, but “no reasonable prospects of success” test requires the court to determine whether they are real “as supposed to fanciful prospects of success”: Deputy Commissioner of Taxation v Salcedo [2005] QCA 227.”
In Boston Commercial Services Pty Ltd v GE Capital Finances Australasia Pty Ltd [2006] FCA 1352 (“Boston”) Rares J believed that:
“I am of opinion that properly construed, s 31A(2)(b) requires a person moving a motion for summary disposal (‘the moving party’) to satisfy the Court that there is no reasonable prospect of the party claiming relief (‘the plaintiff’) successfully prosecuting the proceeding or the part of the proceeding in question. Experience shows that there are cases which appear to be almost bound to fail yet they succeed.” [42]
But he went on to say that at [44]:
“In a case to which s 31A applies, where there is a real issue of fact to be decided in the sense identified in the above principle, and, possibly, where there is a real issue of law of a similar kind, it is obviously appropriate that the matter goes to trial. And, one must be mindful that in Hocking v Bell (1945) 71 CLR at 487, Dixon J said that in effect, every judge who had heard the matter (through four trials, two Full Court appeals and, to that point, the appeal to the High Court) would have formed the view that the plaintiff should have failed had they been able to decide the facts, yet the Privy Council restored the second jury verdict in her favour and so concluded the litigation. This raises a very real question, as to what reasonable prospects are for present purposes.”
It will be seen that Rares J took a conservative view of the breadth of s.31A but he did accept that the assessment must be made depending upon the evidence and the pleading which is the subject of the application; Boston (supra) at [104]. That is what I have attempted to do in this case. In my view the evidence just does not establish or go any way towards establishing the facts alleged in the pleading. There were no threats of breach of copyright. There is a very considerable doubt as to whether PEA has the right to bring any proceedings at all against Hitachi. There is no tort of threats in respect of confidential information, as alleged, and the case around unjust enrichment also depends upon PEA having some rights in assets created by its predecessor company that I have found, on the current evidence, it does not have.

Mr de Meyrick, who appeared on behalf of the Poche interests, candidly informed me that he had not had time to consider the detailed submissions made by Mr Hennessy on behalf of the Hitachi parties. He requested an adjournment which I refused on the basis that the matters argued today had clearly been in issue since at least April and that even if he had personally only recently been briefed in the matter the fault lay, if not with him, then with those who were instructing him. It was not appropriate, I believed, in all the circumstances, to delay this matter further so that he could attempt to make an argument where I saw none.
This does not mean, of course, that one could not see a way in which the statement of claim could be so redrafted as to create a possible action on the part of the plaintiffs. But this statement of claim is not it. I am satisfied that on the evidence that is available to me now and in regard to the statement of claim that is before me now there is no reasonable prospect of success as understood by the Federal Court authorities to which I have referred, and which themselves refer to others. I must, therefore, dismiss the substantive application and order that the applicant pays the respondent’s costs to be taxed if not agreed in accordance with the Federal Court Rules at 80% of the Federal Court assessment.
This morning I heard an application for security for costs. I granted that application in the sum of $35,000.00 and ordered that the substantive applicant pay the respondents’ costs which I had assessed in the sum of $7,500.00 payable within 28 days. That order for costs should remain but the order in respect of security will be vacated. When the costs of the proceedings are taxed the costs of the application for security should be omitted from such taxation as should any costs of the respondents in relation to their resistance to the application for service outside the jurisdiction or, to be more accurate, service upon Hitachi Construction Machinery Company Ltd.

I certify that the preceding twenty-seven (27) paragraphs are a true copy of the reasons for judgment of Raphael FM

Date: 1 September 2010