Polyaire Pty Ltd v K-Aire Pty Ltd

POLYAIRE PTY LTD v K-AIRE PTY LTD & ORS
[2003] SASC 41
Civil

BESANKO J This is an action by Polyaire Pty Limited (“Polyaire”) against K-Aire Pty Limited (“K-Aire”) and eight other parties claiming an injunction, damages or, at the option of the plaintiff, an account of profits, and other forms of relief.
Before I outline the nature of the plaintiff’s claim, it is convenient to describe each of the parties to the action.
Parties
Polyaire is a company which carries on business as a manufacturer and seller of airconditioning components from premises at 11 Kenworth Road, Gepps Cross in the State of South Australia. Polyaire was formerly known as A.C. Components Pty Limited. The name of the plaintiff was changed on 7 February 1995.
One of the components manufactured and sold by Polyaire was an airconditioning air outlet director or grille. In these reasons I will use the words “outlet director” and “grille” interchangably.
The plaintiff was the owner of a registered design under the Designs Act1906 (Cth) with respect to an outlet director. The number of the registered design was 84267. The plaintiff manufactured and sold an outlet director which was designed in accordance with this registered design. I will refer to Registered Design Number 84267 as “RD1”. The representations attached to the Certificate of Registration for RD1 are attached to these reasons and marked Appendix A. They show the outer frame, the neck section and the cruciform or cross-section. They show the four blade packs which were also referred to in the evidence as cores or “biscuits”. In these reasons I will refer to these items as “blade packs” or “cores”. The blade packs rest on the cruciform section and may be rotated in four different directions. The outlet director as assembled is inserted in the ceiling of domestic, commercial or industrial premises, and it regulates and controls the direction of the air pumped into the room by the airconditioning system.
The plaintiff is also the owner of a second registered design with respect to an outlet director part. The number of this registered design is 110628. The plaintiff manufactured and sold an outlet director part that was designed in accordance with this registered design. I will refer to Registered Design Number 110628 as “RD2”. The representations attached to the Certificate of Registration for RD2 are attached to these reasons and marked Appendix B. It will be apparent that RD2 relates only to a blade pack.
The first defendant, K-Aire, is a company incorporated in South Australia on 12 July 1996. K-Aire was formerly known as Air Direct Products Pty Ltd. The name of the first defendant was changed on 25 October 1996. The registered office of K-Aire is care of accountants, Harris and Orchard, at 172 Fullarton Road, Dulwich. The principal business that K-Aire was incorporated to carry on was the manufacture and sale of airconditioning ducts. Since the incorporation of K‑Aire, the sole director of the company has been Mr Richard Colebatch who is the third defendant in this action.
The second defendant, Kemalex Pty Ltd (“Kemalex”) is a company incorporated in South Australia on 29 March 1956. From the date of its incorporation to January 1998, Kemalex carried on a business involving the manufacturing of plastic moulded products from 7 Paul Street, St Marys. Mr Colebatch is the managing director of Kemalex and he has held that position since 1983. The ultimate holding company of Kemalex is Redgum Pty Ltd. Mr Colebatch, or interests associated with him, own and control Redgum Pty Ltd.
Mr Colebatch is the third defendant. I have already referred to his involvement in K-Aire and Kemalex.
The fourth defendant is Mr Bruce Benfield. Mr Benfield was a director of a company called Jadon Investments Pty Ltd (“Jadon Investments”) from 1989 to 8 September 1992 and of a company called Heatshield Pty Ltd (“Heatshield”) from 15 November 1985 to 24 May 1994.
The fifth defendant, K-Aire Sales Pty Ltd (“K-Aire Sales”) is a company incorporated in South Australia on 3 December 1997. The registered office of K‑Aire Sales is also care of the accountants, Harris and Orchard, at 172 Fullarton Road, Dulwich. Mr Colebatch and Mr Benfield have been directors of K-Aire Sales since 3 December 1997.
It is common ground that K-Aire Sales was incorporated for the purpose of selling outlet directors including what has been referred to as the second K-Aire outlet. K-Aire Sales asserts that it was incorporated to sell outlet directors to companies and businesses which sell airconditioning systems and componentry by retail.
The sixth defendant, K-Aire Wholesale Pty Ltd, (“K-Aire Wholesale”) is a company incorporated in South Australia. Like K-Aire Sales, it was incorporated on 3 December 1997. The registered office of K-Aire Wholesale is also care of accountants, Harris and Orchard at 172 Fullarton Road, Dulwich. Mr Colebatch and Mr Benfield have been directors of K-Aire Wholesale since 3 December 1997.
It is common ground that K-Aire Wholesale was incorporated for the purpose of selling outlet directors including the second K-Aire outlet. K-Aire Wholesale asserts that it was incorporated to sell outlet directors to companies and businesses which sell airconditioning systems and componentry by wholesale.
The seventh defendant, Connect Aire Pty Ltd (“Connect Aire”) is a company incorporated in South Australia on 20 August 1997. The registered office of the company is also care of accountants Harris and Orchard, at 172 Fullarton Road, Dulwich. Mr Benfield has been a director, secretary and shareholder of Connect Aire since 20 August 1997.
It is common ground that Connect Aire was incorporated for the purpose of selling flexible airconditioning ducting. The plaintiff asserts that such ducting was to be used in connection with the first K-Aire outlet and the second K-Aire outlet. Connect Aire asserts that such ducting was to be used in the installation of commercial and domestic airconditioning systems.
The eighth defendant, T & S Manufacturing Pty Ltd (“T & S”) is a company incorporated in South Australia on 20 August 1997. The registered office of the company is also care of accountants, Harris and Orchard, at 172 Fullarton Road, Dulwich. Mr Benfield has been a director of T & S since 12 April 2000.
It is common ground that T & S was incorporated for the purpose of manufacturing and selling flexible airconditioning ducting. The plaintiff asserts that such ducting was to be used in connection with the first K-Aire outlet and the second K-Aire outlet. T & S asserts that such ducting was to be used in the installation of commercial and domestic airconditioning systems.
The ninth defendant, Kemalex Plastics Pty Ltd (“Kemalex Plastics”) is a company incorporated in South Australia on 13 June 1997. Mr Colebatch has been the sole director and the sole secretary of Kemalex Plastics since the date of its incorporation. Since July 1998, the company has carried on business as a manufacturer of plastic moulded products. In effect, Kemalex Plastics took over the manufacturing activities of Kemalex.
K-Aire, Kemalex, Mr Colebatch, K-Aire Sales, K-Aire Wholesale and Kemalex Plastics were represented by solicitors, Thomson Playford, and counsel, Mr D Catterns QC, and Mr K Nicholson. Mr Benfield, Connect Aire and T & S were represented by solicitors, Strachan Carr, and counsel, Mr R Whitington QC. From time to time in these reasons it will be convenient to refer to these two groups as the “Colebatch defendants” and the “Benfield defendants” respectively.
An Outline of the Plaintiff’s Case
Brian Lane Engineering Pty Ltd became the registered owner of RD1 for a period of five years from 27 May 1981. The period of registration was extended for five years from 27 May 1986. On 8 December 1986, Brian Lane Engineering Pty Ltd assigned its right, title and interest in RD1 to the plaintiff.
The plaintiff commenced selling an outlet director designed in accordance with RD1. An outlet director manufactured in accordance with RD1 was tendered in evidence (Exhibit P8).
The short narrative which follows is taken from those parts of an affidavit of Mr Benfield sworn on the 11 September 1989 and tendered by the plaintiff in the course of its case.
Mr Benfield was a director of Heatshield. In 1989, Heatshield was involved in the sale by wholesale and retail of airconditioning components including grilles for ducted airconditioning systems. From the context I think it is clear that when referring to a grille Mr Benfield is referring to an outlet director. The majority of outlet directors were sold as part of a package or kit which included all of the components necessary to install a ducted airconditioning system.
Heatshield was selling aluminium outlet directors with variable louvres or blades, but these were expensive. Heatshield sold the plaintiff’s plastic outlet directors which Mr Benfield recognised as a cheaper alternative to metal outlet directors. Mr Benfield decided that costs could be reduced if Heatshield manufactured and marketed plastic outlet directors. They were cheaper to produce and would provide a competitive advantage over aluminium products. However, Mr Benfield did not want to manufacture an outlet director which infringed the plaintiff’s rights. In the second half of 1988 he sought advice from patent attorneys, Messrs Howard Schulze and Allan Thomas from Collison and Co and Mr Richard Catt from R K Maddern and Co in respect of a suitable design for the proposed product.
Mr Benfield first consulted Messrs Schulze and Thomas. Mr Thomas told Mr Benfield that his proposed design would not infringe RD1. Mr Schulze disagreed. As a result of this disagreement, Mr Benfield sought advice from Mr Catt. After discussions with Mr Catt, a design was prepared in December 1988 and steps were taken to produce plastic outlet directors on a commercial basis. Mr Benfield asserts that a Mr Patrick Weatherell was largely responsible for the design of the outlet director.
A joint venture was established involving the principals of Heatshield, Richmond Plastics Pty Ltd and Avair Pty Ltd (Mr Weatherell). As part of this joint venture, Jadon Investments Pty Ltd (“Jadon Investments”) was incorporated. In December 1988 the joint venturers decided to manufacture their own plastic outlet director.
The proposal to manufacture and sell a plastic outlet director involved a major capital expenditure. Mr Benfield became a director of Jadon Investments and he provided funds to Jadon Investments. He borrowed the funds and lent them to Jadon Investments. He was required to give a mortgage over his family home in order to secure his borrowings.
The plastic outlet director was manufactured by Richmond Plastics on behalf of Jadon Investments which then onsold the outlet directors to Heatshield or Avair Pty Limited. Heatshield supplied the plastic outlet directors to wholesalers of airconditioning equipment and to purchasers of such equipment in South Australia. Avair Pty Limited distributed the outlet director in other States and territories of Australia and overseas.
With this background (which is undisputed) in mind I turn now to the allegations made by the plaintiff in this action.
The plaintiff claimed that Jadon Investments, Heatshield and Richmond Plastics Pty Ltd, without the authority or licence of the plaintiff, infringed the plaintiff’s monopoly in RD1 by applying the said registered design or an obvious or fraudulent imitation of it to outlet directors and/or sold and/or offered or kept for sale such outlet directors to which RD1 or an obvious or fraudulent imitation of it had been applied.
The plaintiff claimed that Jadon Investments made outlet directors to the same design as RD1 and then sold such outlet directors to Heatshield. Jadon Investments had, since 7 August 1989, offered for sale such outlet directors by way of two brochures.
The plaintiff claimed that since 7 August 1989, Heatshield had offered for sale outlet directors to the same design as RD1 in its price catalogue. The plaintiff claimed that Heatshield sold such articles to W A and K D Poyner Pty Limited on or about 10 August 1989 and to Mannix Electrical and Airconditioning between about 7 August 1989 and 21 August 1989.
It became clear in the course of the evidence that the particular outlet director made by Jadon Investments and sold by Heatshield was known as the “Silentaire grille”. It seems that Jadon Investments traded under the name “Silentaire Products” or applied that description to the products it sold. The Silentaire grille was sold in considerable quantities in 1989 generally as part of a ducting kit or package.
The plaintiff claimed that there were similarities between the Silentaire grille and RD1. A summary of the plaintiff’s allegations is as follows:
“1.The plaintiff relies upon the overall close similarity of the appearance of the said articles when compared with RD1.
2.In particular, the said articles have a moulded plastic air diffuser body in one piece with four cruciform rectangular openings in each of which a blade box is fitted with blade assemblies to act as the diffusing agent.
3.In so far as there are differences between the design of the said articles and RD1 constituted by the protrusion of the blade assemblies and/or a bevel around the edge of the blade surrounds of the said articles, the plaintiff says that such differentia do not render the said articles to be other than an imitation of RD1. Further, the plaintiff says that such differentia were employed to disguise the copying of the said registered design.”
In 1989 the plaintiff issued proceedings in this Court (Action Number 1810 of 1989) against Jadon Investments, Heatshield and Richmond Plastics Pty Ltd claiming damages and other relief for the infringement of its monopoly in RD1. Richmond Plastics did not defend the proceedings and may be put to one side.
The action came on for a hearing of the determination of liability only before Zelling AJ in 1992. On 2 June 1992, Zelling AJ entered judgment for the plaintiff in the action. He held that the outlet directors manufactured and sold by Jadon Investments and Heatshield (ie., the Silentaire grille) infringed the plaintiff’s monopoly in RD1. His Honour’s reasons for judgment are reported in AC Components Pty Ltd v Jadon Investments & Ors (1990) 59 SASR 265. His Honour held that the defendants’ articles were a fraudulent imitation of RD1.
After judgment had been entered, negotiations took place between the plaintiff and Jadon Investments and Heatshield. Other parties were also involved in the negotiations. Although they had not been made defendants to the action, the plaintiff alleged that they were jointly liable for the infringement of the plaintiff’s monopoly in RD1. One of these other parties was Mr Benfield. The plaintiff alleged that Mr Benfield was jointly liable for the tortious acts of Jadon Investments and Heatshield in infringing its monopoly in RD1. It is unnecessary to go into the details of the negotiations. The plaintiff had quantified its claim for damages at a very substantial figure. On the other hand, Jadon Investments and Heatshield said that they were going to appeal from the decision of Zelling AJ.
A settlement was reached between the plaintiff and Jadon Investments and Heatshield and other parties, including Mr Benfield. Various Deeds and Agreements were executed. It is the settlement between the plaintiff and Mr Benfield which is of importance in this case. The plaintiff and Mr Benfield entered into a Deed dated 8 September 1992. Mr Benfield is described in the Deed as the Covenantor. Clause 9 of the Deed provides:
“9(a)The Covenantor covenants with the Plaintiff that the Covenantor shall not for a period of four years hereafter undertake or carry on alone or in partnership or be employed or interested or involved in any way whatsoever directly or indirectly in any capacity or manner in any business of (or which includes) the sale and/or offer for sale and/or manufacturing of any plastic neck adaptor or any air diffusion outlet (except only those referred to in the Schedule) being a business which operates anywhere in Australia (“the territory”).
(b)Reference to a business operating in sub-clause (a) includes without limiting the generality the business, by itself or its servants or agents -
-        establishing a place of such business (or operating such business from) any place within the territory (whether such place be a temporary or permanent place of business, a residence, or any other form of location of a business whatsoever, and whether the principal place of such business or not)
-       conducting any promotion activities for such business whatsoever within the territory
-        carrying out actions within the territory with a view to soliciting for such business or
-        dealing with persons, firms or entities located within the territory.
(c)The above restrictions shall not apply to the re-sale by the Covenantor of articles purchased by the Covenantor from the Plaintiff or Jadon.”
The Schedule relevantly provides:
“(2)Articles referred to in Part C which may be sold/offered for sale/manufactured:
1.Any air diffusion outlet available for sale at the date of this Deed except for any such air diffusion outlet which infringes, or which the plaintiff claims infringes, the registered design
or
2.any new air diffusion outlet which may be first marketed during the period of 4 years referred to in Clause 9 and which the Plaintiff consents in writing to the Covenantor selling, offering for sale or manufacturing.”
As part of the overall settlement, the plaintiff acquired Jadon Investments, and Heatshield entered into an agreement to purchase outlet directors from the plaintiff.
The plaintiff alleges in this action that between 8 September 1992 and 8 September 1996 Mr Benfield acted in breach of clause 9. The conduct which it identifies as being in breach of clause 9 may be summarised in the following way. First, Mr Benfield had discussions with Mr Colebatch in or about March 1996 with a view to establishing the business of K‑Aire and the terms of a partnership were formally recorded on 12 July 1996. In or about March 1996 Mr Benfield commenced the development of the tooling necessary to produce an outlet director to be sold by the business. In short, K‑Aire was undertaking or carrying on a business of the proscribed kind before 8 September 1996, and Mr Benfield was directly involved in that business.
Secondly, before September 1996, Mr Benfield was beneficially interested in a provisional patent application No. PL5049 which ultimately became Australian Registered Patent No. 48652/93. Thirdly, before 8 September 1996, Mr Benfield engaged the services of an industrial designer, Mr Andrew Rogers, in relation to the design and development of an airconditioning outlet. In particular, in 1994, Mr Benfield engaged the services of Mr Rogers to modify and develop a tool for the production of airconditioning outlet directors.
The plaintiff alleges that Mr Benfield’s breach of clause 9 gives it the right to claim relief from Mr Benfield based on one of the following two causes of action or remedies:
1.Damages resulting from the breach of clause 9 which presumably will reflect the advantage Mr Benfield obtained by reason of the fact that he was able to start up his activities earlier than would have been the case if he had complied with clause 9. The parties in this action referred to these damages as “head start” damages and that is a convenient description for present purposes.
2.Damages and/or an account of profits for the infringement of the plaintiff’s monopoly in RD1. The effect of the Deed is that a breach of clause 9 removes the shield Mr Benfield had in relation to his alleged involvement in the infringement of RD1. The plaintiff alleges that Mr Benfield is jointly liable with Jadon Investments and Heatshield for the infringement of RD1.

The plaintiff alleges that until judgment it has the right to elect between these two causes of action or remedies.
This is the first claim the plaintiff makes against Mr Benfield. If successful, it will result in an order against Mr Benfield for an assessment of damages in relation to the breach of clause 9, or an order for damages and/or an account of profits for the infringement of the plaintiff’s monopoly in RD1.
The events in 1996 involving Mr Benfield are also relevant to the first claim against K-Aire, Kemalex and Mr Colebatch. The plaintiff alleges that these three parties procured or induced Mr Benfield to breach clause 9 of the Deed. The steps in this argument are first, that Mr Colebatch knew of the terms of clause 9. Secondly, as the sole director of K-Aire and a director and secretary of Kemalex, his knowledge of the terms of clause 9 should be attributed to those companies. Thirdly, Mr Colebatch, on behalf of K-Aire and Kemalex, engaged or involved Mr Benfield in an enterprise which included the manufacture of the K-Aire outlets by Kemalex and the sale of such outlets by K‑Aire.
The second claim against Mr Benfield, K-Aire, Kemalex and Mr Colebatch and the claim against the other defendants is that in one way or another they were involved in the manufacture and/or sale of one or both of what were called in evidence the first K-Aire outlet (“KA1”) and the second K-Aire outlet (“KA2”), and that KA1 and KA2 infringe the plaintiff’s monopoly in RD2. The Colebatch defendants tendered drawings of KA1 and KA2. Although it is clear that I must compare the accused articles with the registered design, it will assist the reader’s understanding of the issues if I attach to these reasons some drawings of KA1 and KA2. The former are marked “C” and the latter are marked “D”.
RD2 was registered in the name of the plaintiff for a period of one year commencing 21 March 1991. The application for registration was made on 30 July 1990 and that date is the priority date. The period of registration was extended for 11 years from 30 July 1990.
The plaintiff alleges that K-Aire and Kemalex, since the date of registration but before the date of issuing the summons in this action, and Kemalex Plastics, K-Aire Sales and K-Aire Wholesale, have since the date of registration, and after the issuing of the summons in this action, in Australia and without the authority or licence of the plaintiff, applied the design or an obvious or fraudulent imitation of it to outlet directors and/or sold and/or offered or kept for sale such outlet directors to which the design or an obvious or fraudulent imitation of it has been applied. In particular, the plaintiff alleges that Kemalex has manufactured and K-Aire has sold or offered for sale KA1 and KA2. Kemalex has manufactured and K-Aire Sales and K-Aire Wholesale have sold or offered for sale KA2. The plaintiff alleges that Mr Colebatch and Mr Benfield are liable because of their involvement in the activities of these companies. Connect Aire and T & S are liable because they aided and abetted the infringement, or were parties to a common design.
A summary of the plaintiff’s allegations as to the similarities between RD2 on the one hand, and KA1 and KA2 on the other, is as follows:
(1)    Overall close similarity of appearance.
(2)    No material differences in design features.
(3)    “In particular, in relation to both K-Aire outlets the plaintiff relies upon:
(i)     The overall appearance of the blades;
(ii)    The position of the blades relative to the frame;
(iii)   The appearance of the ends of the blades including the spigots extending therefrom;
(iv)    The external appearance of the external frame;
(v)     The appearance of the external sides of the perimeter frame that receive the spigots of the blades;
(vi)   The appearance of portions of the external frame in the vicinity of each of the spigot receiving portion;
(vii) The internal appearance of the internal configuration of the director part;
(viii) The internal appearance of the director part when viewing the manner in which the ends of the blades are coupled to the coupling bar and the external frame;
(xi)   The appearance of the coupling bar.”
(Paragraph 26 of the Fourth Amended Statement of Claim.)
(4)Insofar as there are differences, they do not render KA1 and KA2 anything other than imitations of RD2. Such differences were employed to disguise the copying.
The relief the plaintiff claims in relation to the infringement of its monopoly in RD2 is an injunction, an order for delivery up of the accused articles and damages and/or an account of profits.
An Outline of the Defendants’ Cases
It is convenient to start with Mr Benfield. Mr Benfield denies that he has acted in breach of clause 9 of the Deed. On the assumption (which he denies) that he has acted in breach of clause 9, he raises a number of defences. First, he alleges RD1 was not a new or original design and that it should not have been registered. Secondly, he alleges that the Silentaire outlet director manufactured and sold by Jadon Investments and Heatshield did not infringe the plaintiff’s monopoly in RD1. Thirdly, he alleges that legal proceedings for the infringement of RD1 are barred by the Limitation of Actions Act1936. Fourthly, Mr Benfield alleges that in relation to the breach of clause 9, the plaintiff had elected to pursue remedies for the infringement of RD1 and therefore can no longer pursue head start damages.
Mr Benfield raised various other defences which were abandoned during closing addresses. For completeness, I note that the following defences are not pursued:
(1)The defence that the restraint in clause 9 is unreasonably wide and contrary to public policy and is therefore void.
(2)The defence that any failure to comply with the restraint was trivial, insignificant and de minimis and the plaintiff is not entitled to any relief in relation to such failure.
(3)The defence that there has been substantial performance of the restraint and the plaintiff is not entitled to rescind the Deed in those circumstances.
(4)The defence that the remedy of rescission of the Deed for a breach of clause 9 constitutes a penalty and is therefore not open to the plaintiff.
Mr Benfield submits that there has been satisfaction by Heatshield of the liability which the plaintiff also claims against him, or at least that credit must be given for the benefit received by the plaintiff, but says that this argument will only be relevant if it becomes necessary to assess damages against him. Although not explored in argument before me, I assume this submission is based on principles discussed by the High Court in Baxter v Obacelo Pty Ltd (2001) 205 CLR 635.
K-Aire, Kemalex and Mr Colebatch deny that they procured or induced any breach of the restraint in clause 9 by Mr Benfield.
As to the claim that there has been an infringement of RD2, all defendants plead that RD2 was not a new or original design and therefore it should not have been registered. In addition, all defendants plead that neither KA1 nor KA2 infringe the plaintiff’s monopoly in RD2.
The Course of the Trial
On 10 May 1999, a Judge of this Court made an order that this action proceed first on a determination of liability only. The order made was as follows:
“That this matter proceed on a determination of all issues arising as to the liability (if any) of the defendants including the issues of breach of the Deed and infringement of registered designs numbered 84267 and 110628 (including the validity thereof) separately from and before all issues in the proceedings as to the liability (if any) of the defendants for damages and/or an account of profits and the quantum thereof.”
During the course of the trial, I was required to make a number of rulings. When I did so, I said that I would publish my reasons later. The reasons for my ruling on the admissibility of Mr Benfield’s written statement, the defendants’ submissions of no case to answer and the plaintiff’s application to amend the Statement of Claim are attached to these reasons and marked Appendix E.
It is convenient at this point to deal with the plaintiff’s submission as to the significance which I should attach to the fact that neither Mr Colebatch, Mr Benfield or Mr Catt gave evidence in the trial.
I am prepared to find that Mr Catt is a person one would expect the defendants to call rather than the plaintiff. It was one or more of the defendants who engaged his services. I also find that the defendants provided no explanation for the failure to call Mr Colebatch, Mr Benfield or Mr Catt as witnesses. In those circumstances, I am entitled, but not obliged, to infer that the evidence of those witnesses would not have assisted the respective cases of the defendants.
I am entitled to take the failure to call evidence from those persons into account in deciding whether to accept any particular evidence which relates to a matter upon which they could have spoken, and to more readily draw any inference fairly to be drawn from the other evidence by reason of the fact that the defendants could have proved the contrary, had they chosen to call those witnesses or, as the case may be, give evidence themselves. However, it is not permissible for me to infer that the untendered evidence would have been damaging to the party not tendering it. Nor can I use the principle to fill gaps in the evidence, or to convert conjecture and suspicion into inference (Jones v Dunkel (1959) 101 CLR 298 per Kitto J at 308, Menzies J at 302 and Windeyer J at 320-321).
The Claim Against Mr Benfield for Breach of Clause 9 of the Deed and for the Infringement of RD1
The Proper Construction of Clause 9 of the Deed.
It is convenient to consider first the proper construction of clause 9.
The Deed between the plaintiff and Mr Benfield was prepared by the plaintiff’s solicitors, Lynch Meyer. Mr Stephen Palyga, a legal practitioner in South Australia, prepared the Deed as well as the other Deeds and Agreements.
Mr Palyga was called as a witness by the plaintiff. He was an honest witness and I accept his evidence. Mr Palyga said that during the negotiations leading up to the execution of the various agreements including the Deed, Mr Benfield was represented by a solicitor and that no request was ever made by Mr Benfield or his solicitor to alter or vary the terms of clause 9 of the Deed. While I accept that evidence, it does not advance the matter in terms of the proper construction of clause 9. The Deed falls to be construed according to its terms. In fairness to the plaintiff, it should be said that at the time the evidence was called, the validity of the covenant was still in issue, and the plaintiff contended that Mr Palyga’s evidence was admissible on that issue. The latter proposition may be arguable, but it no longer matters because Mr Benfield has abandoned his argument that the covenant is an unreasonable restraint of trade. Mr Palyga’s evidence does not assist me in determining the meaning of clause 9.
Clause 9(a) contains the following elements:
·     Mr Benfield is not, for a period of four years from 8 September 1992, to undertake or carry on alone or in partnership or be employed or interested or involved in any way whatsoever directly or indirectly in any capacity or manner,
·     in any business,
·     of (or which includes) the sale and/or offer for sale and/or manufacturing of any plastic neck adaptor or any air diffusion outlet (except only those referred to in the Schedule),
·     being a business which operates anywhere in Australia (“the territory”).
There is an issue as to how clause 9(b) affects the operation of clause 9(a). Do the examples referred to in clause 9(b) extend the meaning of “business” or “business which operates” to include the acts identified when they might not otherwise fall within the scope of the words, or do they extend the meaning of “business which operates anywhere in Australia” so that a business operating outside Australia will be taken to be operating in Australia if any one of the four matters referred to in clause 9(b) is established? The plaintiff submitted that the former interpretation was correct, whereas Mr Benfield submitted that the latter interpretation was correct.
In resolving this issue it is helpful to look at the authorities which throw light on the meaning of the words in clause 9(a).
In Hope v Bathurst City Council (1980) 144 CLR 1, Mason J (as he then was) said (at 8 – 9):
“In truth it is the popular meaning of the word as used in the expression ‘carrying on a business’ rather than the popular meaning of the word itself that is enshrined in the statutory definition. It is the words ‘carrying on’ which imply the repetition of acts (Smith v Anderson) and activities which possess something of a permanent character …
I accept, then, that ‘business’ in the sub-section has the ordinary and popular meaning which it would be given in the expression ‘carrying on the business of grazing’. It denotes grazing activities undertaken as a commercial enterprise in the nature of a going concern, that is, activities engaged in for the purpose of profit on a continuous and repetitive basis.”
In Pioneer Concrete Services Ltd & Anor v Galli & Anor [1985] VR 675, the Full Court of the Supreme Court of Victoria considered the proper construction of a restraint of trade covenant. Due to its length, I will not set out the covenant. It is enough to say that two parties were prohibited from directly or indirectly, carrying on, conducting, being engaged in, being concerned in, or being interested in the business of winning, crushing or supplying stone, gravel or quarry products. In that case, the covenantors had engaged in the following conduct during the period of the restraint:
(1)They had acquired two options to lease land which was believed to contain substantial deposits of basalt suitable for use in concrete and asphalt and as road material.
(2)They had caused the land to be marked out for the purpose of applications for licences to quarry and crush rock. Applications had been lodged.
(3) Meetings had been held with Victorian Railways and at these meetings the availability of a site for a depot to which quarry products could be delivered by rail had been discussed.
(4)They had caused holes to be sunk on the land for the purpose of obtaining samples for testing. Some percussion drilling on a grid pattern had been performed.
(5)Some tracks had been constructed on the land in order to enable the above work to be carried out.
On the other hand, it was clear by the time of trial that a number of things were unlikely to occur before the expiration of the period of the restraint including the following:
1.     The completion of preliminary tests.
2.     The obtaining of licences to extract materials, and town planning licences.
3.     The exercise of the options.
4.The establishment of a business entity to quarry the land which was the subject of the options.
The Full Court first considered the meaning of the word “business” and they referred to reasons for judgment of Mason J in Hope v Bathurst City Council and in particular the passage I have set out above. The Full Court said (at 705 – 706):
“But the difficulty in the present case is only partly answered by this definition. There is little doubt that if the respondents obtain the leases and start quarrying for sand and stone, as they indeed hope and intend to do, they will be carrying on one or more of the prescribed businesses. It is the question of whether one of these businesses is yet to come into existence which requires answering in the present case. The elements of continuity and repetition are not, in our opinion, satisfied. There is no commercial enterprise yet underway. There are no customers and there is no activity which will produce stone, gravel or other quarry products…
The present case is quite clear. The work carried out up to the trial was entirely exploratory and did not even amount to the direct preparation of any quarries. Although they had elements of repetition and continuity, there were no activities which formed part of profit making or other commercial transactions. That does not lead to the conclusion that, if similar activities were carried on during the operation of the business, those activities would not form part of or be incidental to that business. But before the business gets underway, those preparatory acts cannot be characterised as constituting or forming part of the business; nor can the participants be described at that stage as carrying on or conducting a business.
None of the activities alleged against the respondents had gone beyond the preliminary stages and could not be characterised as the preparatory stages of setting an identifiable business.”
The Full Court next considered whether the phrases “engaged in”, “concerned in” or “interested in” expanded the meaning of “business” when used in conjunction with that word. The Full Court answered that question in the negative. The Court said (at 707):
“To be ‘engaged in’, ‘concerned in’ or ‘interested in’ a business each involves a concept wider than carrying on or conducting the business but in our opinion they do not expand the meaning of ‘business’ when used in conjunction with that word, at least not so as to lead to the conclusion that, if one is shown to have engaged in or been concerned or interested in a business, the covenant is broken at an earlier point in time than if it were confined to carrying on or conducting a business.”
The extent to which the carrying out of preparatory acts constitutes engaging in a business was considered by Hedigan J on an application for an interlocutory injunction in Bristol-Myers Squibb Pharmaceuticals Pty Ltd v Collins (1995) 31 IPR 488. He said (at 496):
“Guided by these statements, I have reached the conclusion that the preparatory acts here referred to do not amount to engaging in business within the meaning of the covenant, nor carrying on or conducting the business proposed.
It should not be ignored that what the plaintiff was seeking to protect itself against for a period of twelve months was competition by sale in the marketplace in which its products were being sold. The restraint was on engaging in a business. There was no restraint on performing acts preparatory to the business being conducted. It would be self evidently absurd to suggest that no active preparation in anticipation of starting up the business, might be embarked upon during the twelve month period, and indeed Mr Finkelstein did not adopt such a position. If it were so, then the benefit of the covenant would run for a period much greater than twelve months, since there may be a long period required to appropriately put in place all the arrangements relating to acquisition and marketing of products on an Australia-wide basis, that would be necessary.”
Three propositions emerge from these cases. First, the word “business” ordinarily means a commercial enterprise in the nature of a going concern, that is, activities engaged in for the purpose of profit on a continuous and repetitive basis. Secondly, a distinction must be drawn between acts preparatory to conducting a business and conducting a business. Thirdly, the use of the phrases, “interested in” or “involved in” do not relevantly extend the meaning of the word “business”. In other words, their use in conjunction with the word “business” does not bring within the meaning of the word any preparatory acts which would not fall within the meaning of that word if the only accompanying phrases were “carrying on” or “conducting” the business.
Looking only at clause 9(a) for the moment, it seems to me that the authorities to which I have referred suggest that there would be no breach before the point in time when there were activities engaged in for the purpose of profit on a continuous and repetitive basis and those activities involved one or more of the acts of sale, offering for sale or manufacturing the prohibited product.

I return to the question of the proper interpretation of clause 9(b). If the plaintiff’s interpretation is correct, a person who proposes to establish a business after a restraint period has expired and does in fact do so would be in breach of clause 9 if before the expiration of the restraint he spoke to potential customers and told them he was proposing to establish a business and he spoke to them about the proposed attractions of his business (ie., he solicited for business or conducted promotional activities). That interpretation would give a very wide operation to the clause. Furthermore in some cases at least, a Court would need to look at events after the restraint had expired (ie., was there in fact a sale, offer for sale or act of manufacturing) in order to determine if earlier events fell within the restraint. I also note that it is difficult to give any sensible meaning to the fourth circumstance identified in clause 9(b) – dealing with persons, forms or entities located within the territory – unless it is applied only when there is an existing business in operation.
I think the wording of clause 9(a) and 9(b) is against the contention advanced by the plaintiff. The word “operates” is used only once in clause 9(a) and that is in connection with a reference to the territory (ie., Australia). I also note the reference to “such business” in three of the four circumstances identified in clause 9(b). To my mind, the use of those words suggests an existing business, not a proposed business. I also bear in mind that the direct damage from which the plaintiff was seeking protection occurs when there are actual acts of sale, offering for sale or manufacturing. Finally, I think I can take into account the fact that the clause was drafted by the plaintiff’s solicitors and is to be construed contra proferentum.
Although the matter is not free from difficulty, I think Mr Benfield’s interpretation is the correct one. I read clause 9(b) as providing examples of when a business established and operating outside Australia is to be taken as operating in Australia, rather than as expanding what would otherwise be considered the meaning of “business” or “business which operates”. Therefore, the fourth element would read:
“4.being a business which operates anywhere in Australia (“the territory”) and this includes establishing a place of business in Australia, conducting any promotion activities for such business in Australia, carrying out actions within Australia with a view to soliciting for such business or dealing with persons firms or entities located within Australia.”
One argument put by counsel for Mr Benfield was that as this is a restraint of trade clause, if more than one construction is open the court should prefer a construction which results in the lesser restraint. I think the true principle was stated by Dixon CJ in Butt v Long (1953) 88 CLR 476 in the following terms (at 487):
“But the agreement should be interpreted for the purpose of ascertaining its real meaning independently of the rules prescribing the tests of reasonableness for the purpose of ascertaining its validity. If an evident ambiguity appears from its text it may be proper to take into account the law relating to the validity of covenants in restraint of trade in resolving the ambiguity but a restrictive interpretation of general words is not to be adopted simply to save a covenant or agreement from invalidity.”
In this case, Mr Benfield made no submissions on the law relating to the validity of covenants in restraint of trade and in those circumstances I place no reliance on the principle stated by Dixon CJ.
There is a further issue concerning the proper interpretation of clause 9 which must be resolved, and that is, leaving aside the particular acts identified in clause 9(b), what acts which ultimately lead to a prohibited act (ie., sale, offer for sale or manufacture) are within the scope of the restraint. The authorities to which I have referred provide some guidance, but of course cases in this area tend to turn on their own particular facts.
I agree with counsel for Mr Benfield that there is much to be said for an interpretation which draws a clear line between compliance and non compliance with the clause. If I construe the covenant so that there is a business of the relevant character only when that business manufactures, offers for sale or sells a prohibited article then there is a clear line.
On the other hand, if the covenant reaches back to include acts before those acts, then there may well be uncertainty as to what preparatory acts fall within the terms of the covenant.
I should also take into account the fact that what in the ordinary course would cause direct damage to the plaintiff’s business are not preparatory acts, but rather the acts of sale or offering for sale. I think the same may be said of the act of manufacturing because it is implicit in the notion of manufacturing that there will be large scale production of the prohibited product which will presumably be sold by somebody else. To my mind, the act of manufacturing does not include every act preparatory to manufacturing such as producing a drawing of the product, or producing a tool that could be used to manufacture the product.
I note that the Deed provides that the restraint does not apply to:
“any new air diffusion outlet which may be first marketed during the period of 4 years referred to in clause 9 and which the plaintiff consents in writing to the covenantor selling, offering for sale or manufacturing.”
The consent which the plaintiff gives under this clause is a consent to the acts of selling, offering for sale or manufacturing. It would be odd if the plaintiff’s consent was required for the carrying out of preparatory acts within the four year period in circumstances where it was clear that Mr Benfield would not be in a position to sell, offer for sale or manufacture until after the four year period had expired. Furthermore, the plaintiff’s consent is to be given to a particular outlet director. One would have thought that some work beyond a mere idea must be carried out by Mr Benfield before consent would be sought, and that this would include the preparation of design drawings and perhaps the production of a sample. Mr Benfield may wish to protect his idea by a patent application before disclosing it to the plaintiff who is a competitor. On the plaintiff’s side, it may not be able to consider in any meaningful way whether it should give its consent without design drawings, and perhaps a sample.
In my opinion, a business takes on the relevant character only when it sells, offers for sale or manufactures a prohibited outlet director.
The Evidence and Findings of Fact
I turn now to consider the evidence of Mr Benfield’s conduct between 8 September 1992 and 8 September 1996. As I have said, Mr Benfield did not give evidence. The plaintiff called a number of witnesses who gave evidence about Mr Benfield’s activities during this period. It also tendered a number of documents which throw light on that subject. The Colebatch defendants called Mr Andrew Rogers who is an industrial designer who trades under the business name, “Andrew Rogers Industrial Design” (“ARID”). It was Mr Rogers, of all the witnesses called, who was able to give the most complete picture of Mr Benfield’s activities during the relevant period. Although I do not accept all of the evidence he gave, he assumes a prominent role in the statement of facts which follows, although at times I will need to refer to the details of the evidence given by other witnesses.
Except where I indicate otherwise, I make findings of fact in accordance with the statement set out below. As it happens, I think only a handful of the facts set out below are of crucial significance. Nevertheless, it is important that I make all relevant findings of fact.
1. The China Outlet and the Heatshield Patent
Mr Rogers first met Mr Benfield in the late 1980s. He was engaged by Mr Benfield and Mr Weatherell, the general manager of Silentaire Products (ie., Jadon Investments) to do some design work in relation to airconditioning clips and other accessories.
Some time in late 1991 or early 1992 and during the course of carrying out design work for Silentaire Products, Mr Rogers came up with the idea of developing an airconditioning outlet which combined the register and the grille as a single unit.
In 1992, Mr Benfield instructed Mr Rogers to further develop the idea of an airconditioning outlet incorporating a one-piece register. It is unclear whether Mr Benfield was giving the instructions on behalf of Heatshield or on his own behalf. Mr Rogers believed that he was receiving instructions from Heatshield. Mr Rogers referred to the idea of a one-piece register as the “China outlet”. For convenience only, I will use that description.
Mr Benfield thought an aspect of the China outlet might be capable of being the subject of a patent and he instructed Mr Rogers to prepare the necessary drawings. Mr Rogers prepared those drawings in July 1992 and a patent specific illustration was provided to R K Maddern and Co (Patent and Trademark Attorneys) on 17 August 1992.
In September 1992, Mr Rogers signed an Application for the Registration of a Patent entitled “Improvements in and relating to Air Diffusers”. Mr Rogers was listed as the inventor of what he calls “The Heatshield Patent”. In his evidence, Mr Rogers described the Heatshield Patent in the following terms:
“The Heatshield Patent relates to that aspect of the China Outlet which comprised a system of interlocking blade assemblies that could be connected on the ground to form a single unit and inserted into the register from below the ceiling.
In previous designs, in which four separate blade packs were housed in a multi-directional airconditioning ceiling outlet, the blade packs were supported by a cross piece in the face of the outlet.”
The provisional patent application is numbered PL 5049 and it was filed on 28 September 1992. The applicant is Mr Steven Bruce Benfield who is Mr Benfield’s son.
The complete patent application is numbered 48652/93 and it was filed on 28 September 1993. In due course it was accepted and advertised and it became Registered Patent No 48652/93.
Mr Rogers was cross-examined about his involvement in the patent application. I am satisfied that all the action he took in relation to the application (eg., preparing drawings, signing documents, etc.) was taken at the direction of Mr Benfield. Mr Rogers signed a Deed of Assignment dated 15 April 1994 wherein it is said that he had an agreement with Mr Steven Benfield and that he was engaged under a contract of employment to develop improvements in air diffusers. In fact, Mr Rogers had little contact with Mr Steven Benfield and he certainly never entered into an agreement with him. Nor was Mr Rogers in anyone’s employment at the time he conceived the relevant idea. I am satisfied that at the direction of Mr Benfield, Mr Rogers was prepared to sign documents which were not wholly accurate.
In October 1992, Mr Rogers completed technical design drawings for the China outlet of various sizes (i.e. 200mm, 250mm, 300mm, 350mm, 400mm and 450mm). Some time not long after this, by using plastic pieces Mr Rogers was able to construct by hand a model of the unit.
Mr Rogers carried out various tasks for Mr Benfield probably in late 1992 in relation to what he referred to as the “China Project” with a view to the promotion and sale of the various airconditioning products in China including investigating tooling and sales opportunities for China and the preparation of promotional material targeted at companies operating in China.
The plaintiff tendered a letter dated 5 January 1993 from Heatshield under the hand of Mr Benfield to a Mr Z Xingen who is described as a senior engineer of a business in China. In the letter, Mr Benfield raises the possibility of a joint venture or investment arrangement in relation to (among other things) airconditioning “grilles”. The plaintiff sought to place considerable weight on this letter. It argued that the letter showed that Mr Benfield was negotiating about engaging in activities which would infringe clause 9. Mr Rogers might refer to the China outlet and the China Project, but in reality Mr Benfield was looking to engage in activities which would constitute a breach of clause 9. I do not think it is necessary for me to consider what Mr Benfield’s intention was at any particular point in time. For the purposes of determining if there has been a breach of the clause, it is Mr Benfield’s conduct not his state of mind which must be considered.
In late 1993 or early 1994, Mr Benfield told Mr Rogers that he was considering a transaction which involved the transfer of the Heatshield Patent to Rib Loc Group Limited. Mr Benfield instructed Mr Rogers to arrange for the production of prototype tools for one size of the China outlet. In January 1994, Mr Rogers requested quotes from various toolmakers for the prototype tools for a 350mm size China outlet.
Mr Barry Denney provided a quote for the production of tools for the China outlet which was considerably less than the other quotes received by Mr Rogers. The quote was accepted by Mr Rogers and Mr Denney was given the job of producing a set of tools for the 350mm size China outlet. Heatshield paid Mr Rogers the sum of $20,000 on 18 January 1994 so that he could make an initial payment to Mr Denney. The technical drawings for a 350mm size China outlet were updated and on about 11 February 1994 they were provided to Mr Denney.
Mr Denney produced tools sufficient to produce prototypes of the 350mm size China outlet by about the middle of 1994. The tools produced were not to production standard in various ways which it is unnecessary for me to detail. Mr Rogers gave to Mr Benfield the moulded parts produced by the tools.
2. The Sale in 1994 of the Shares in Heatshield to Rib Loc Group Limited
Mr Benfield and his brother, Mr Peter Benfield, were the directors of Heatshield from 15 November 1985 to 24 May 1994. They were also the sole shareholders in the company.
On 6 May 1994 they sold their shares in Heatshield to Rib Loc Group Limited. The Sale Agreement was subject to a number of conditions precedent including a condition that each vendor enter into a consultancy agreement with Rib Loc Australia Pty Limited, and a condition that Mr Benfield’s son, Mr Steven Bruce Benfield execute in favour of Heatshield Pty Limited a Deed of Assignment of Patent in relation to Patent No. 48652/93 upon certain terms and conditions. As part of the same transaction, Mr Benfield and Mr Peter Benfield entered into a Put Option Agreement with Heatshield dated 24 May 1994. Under the terms of the put option, Heatshield was given the option to sell to Mr Benfield and Mr Peter Benfield the Patent No. 48652/93 (in fact, a complete patent application) and ancillary property which was defined as follows:
“… any dies owned by the vendor [Heatshield] on the date of exercise of the option for manufacture of goods the subject of the patent”
The option period commenced six months after 24 May 1994 and expired on 24 May 1996. The purchase price of the assets was said to be $450,000.
There is another document to which I should refer. It is dated 18 March 1994 and it is signed by Mr Roy Senini (on behalf of Rib Loc Group Ltd) and Mr Benfield recording an agreement by Rib Loc Group Ltd to purchase tooling for a price of $64,000 maximum.
By Deed of Assignment dated 15 April 1994 Mr Steven Bruce Benfield assigned to Heatshield all his right, title and interest in and to the Patent Application No 48652/93. I have already referred to this Deed of Assignment when discussing Mr Rogers’ role in its execution.
Mr Benfield and Mr Peter Benfield each entered into a consultancy agreement as required by the Sale Agreement. The consultancy agreements were in similar terms. They were each dated 24 May 1994 and were between the consultant and Rib Loc Group Ltd. Each consultant was required to serve the company for a period of one year. There was a specific provision in each agreement providing that the consultant was not obliged or authorised to do anything contrary to the covenants in the Deed with the plaintiff.
The put option was exercised by Heatshield (which had by then changed its name to Heatshield Premium Products Pty Ltd) by letter dated 2 December 1994 and by Deed of Assignment dated 9 December 1994 the invention the subject of Patent Application Number 48652/93 and any Letters Patent granted thereon was assigned by Heatshield to Willochra Investments Pty Limited. The latter company is a company owned and controlled by Mr Benfield and Mr Peter Benfield. By letter dated 9 December 1994 Rib Loc Group Ltd acknowledged that Mr Benfield and Mr Peter Benfield were free to manufacture and supply goods the subject of the patent application.
On 23 May 1995, Rib Loc Group Ltd wrote to Mr Benfield and Mr Peter Benfield advising them that it did not wish to extend the consultancy agreements. Accordingly, the consultancy agreements came to an end on 24 May 1995.
In relation to the transaction involving Mr Benfield and Rib Loc Group Ltd, Mr Roy Senini was called as a witness by the plaintiff. Mr Senini was an honest witness and I accept his evidence.
Mr Roy Senini was a director of Rib Loc Group Pty Limited from January 1994 to September 1994. He became the managing director of the company during that period.
Mr Senini gave evidence about the transaction in early 1994 between Rib Loc Group Ltd and Mr Benfield and Peter Benfield. His evidence did not add a great deal to what can be gleaned from the documents and I can deal with it briefly.
Mr Senini said, and I accept, that he had no dealings with Mr Steven Benfield during the course of negotiations. His dealings were with Mr Bruce Benfield. He said that physical possession of the dies the subject of the put option agreement remained with Mr Benfield and Mr Peter Benfield. He said that to the best of his recollection during their time as consultants (at least until September 1994) Mr Benfield and Mr Peter Benfield did no work on the outlet director which was the subject of the Patent Application Number 48652/93. The products of competitors, including the plaintiff’s outlet directors, were from time to time discussed at meetings at which Mr Benfield was present. Mr Senini said the plaintiff’s outlet director (designed in accordance with RD2) was much admired in the market.
3. Events in 1995
After Mr Denney had manufactured the tools for the 350mm size China outlet, Mr Benfield continued to see Mr Rogers from time to time. However, it was not until late 1995 that Mr Benfield asked Mr Rogers to obtain a quote for a full set of tools (ie all sizes) for the China outlet. Mr Rogers asked Mr Denney for a quote and in December 1995, Mr Denney gave to Mr Rogers a quote of $1.2 million. Mr Rogers advised Mr Benfield of the quote which he had received.
Mr Rogers said that thereafter he did not receive any instructions from Mr Benfield for some considerable time although Mr Benfield continued to visit his premises from time to time.
4. Events in 1996 – Kemalex, Mr Colebatch and Mr Benfield
In early March 1996, Mr Colebatch asked Mr Rogers if he would be interested in designing a new airconditioning outlet for Kemalex. Mr Rogers referred to this outlet director as the “Kemalex outlet” and, again for convenience, I will use this description. It is clear that the outlet director discussed at this early stage was the outlet director which ultimately became KA1. Kemalex had previously carried out work on instructions from Mr Rogers in relation to the Silentaire duct adaptor, and in 1994 Kemalex had also been involved in the tooling trials on the models for the China outlet.
In response to the enquiry from Mr Colebatch, Mr Rogers told Mr Colebatch that before accepting instructions he would need to speak to an old client. Mr Rogers said that he did not tell Mr Colebatch that the client he wanted to speak to was Mr Benfield. I found Mr Rogers’ explanation in cross-examination as to why he would not tell Mr Colebatch that the old client was Mr Benfield but he did tell Mr Benfield that the new client was Mr Colebatch (or Kemalex) unconvincing and I reject it. I find that Mr Rogers did reveal Mr Benfield’s identity to Mr Colebatch.

Mr Rogers contacted Mr Benfield. Mr Benfield told Mr Rogers he had no objection to Mr Rogers working for Kemalex on the development of an outlet director. In fact, he said that he had no objection to Mr Rogers providing the tools manufactured by Mr Denney to Kemalex providing the Heatshield Patent was not infringed.
Mr Colebatch and Mr Rogers thereafter met and discussed the design of the proposed outlet director to be produced by Kemalex. Mr Rogers told Mr Colebatch about the design for the China outlet and asked him whether this was the outlet director Kemalex wished to produce. However, Mr Colebatch had certain specific requirements for the design of the proposed outlet director. Those requirements were:
1.The incorporation of a cruciform or cross into the design to support the blade packs.
2. The modification of the blades so that they were of even thickness.
3.A change to the position of the pivot point of the blades in order that the blades protruded below the ceiling. The China outlet design was more flush with the ceiling.
4. The addition of a second link bar to connect the blades.
Mr Rogers advised Mr Colebatch against a requirement that the blades be of even thickness. In his written statement, Mr Colebatch said that he thought this was a good idea because otherwise the plastic at the thicker end tends to sag when cooled during the injection moulding process. Mr Rogers advised Mr Colebatch against a requirement that the blades protrude into the room more than they did in the China outlet. He did not think there was any need for it, but Mr Colebatch was insistent that it be done and that it be done by bringing the main spigot of the blade closer to the leading edge of the blade. Mr Colebatch makes no reference to this in his written statement, but I find that he did make this request of Mr Rogers. Finally, in relation to the two control bars Mr Rogers told Mr Colebatch that that was unnecessary but again Mr Colebatch was insistent. In his written statement, Mr Colebatch said that he thought the market required two control bars. No explanation as to why he thought that was put before me.
By 10 April 1996, a design concept had been agreed and Kemalex gave Mr Rogers a purchase order to commence work on technical drawings.
The tools manufactured for the size 350 mm China outlet were provided to Kemalex without cost in about mid-April 1996.
The technical drawings for the new outlet director were completed by about 15 April 1996.
In preparing the technical drawings, Mr Rogers used the computer drawings which had been produced in relation to the China outlet and adapted them to incorporate the requirements for the proposed outlet. Mr Rogers said that in designing the proposed outlet and in particular the “snap lock” fittings on the frame he referred to a publication by a plastics producer, Bayer Engineering Plastics (“Practical Information: Snap Joints in Plastics” page 3). There was also a need to re-design the link bar. Mr Rogers provided a quotation dated 18 April 1996 for the production of the tools for the outlet to Kemalex.
Some changes to the drawings were required, and final drawings were completed and provided to Kemalex by 29 May 1996. Mr Rogers said that during the time the technical drawings were being prepared Mr Benfield visited his premises and asked him how the proposed outlet was proceeding and how it differed from the China outlet. Mr Rogers showed Mr Benfield a handwritten sketch of the proposed outlet, and then later, in about mid-June 1996 and after obtaining an authority from Kemalex, he showed Mr Benfield an illustration of a type used in a patent or design application. Mr Rogers was unable to explain why Mr Benfield needed such an illustration to see the difference between the Heatshield Patent and the Kemalex outlet when he had previously been given the handwritten sketch for that very purpose.
In mid-August 1996 Mr Colebatch instructed Mr Rogers to produce such drawings of the Kemalex outlet as would enable a patent application to be made. Mr Rogers carried out that task by reference to the illustration Mr Rogers had provided to Mr Benfield in June 1996. Mr Rogers is described as the inventor in the patent application which was subsequently made.
Mr Rogers said that he was contacted by a representative of Kemalex from time to time about modifications to the tools which were being manufactured. In mid-September 1996 he was told that a modification that was to be made had emanated from Mr Benfield. This was, he said, the first time he became aware that Mr Benfield was involved in the development of the Kemalex outlet.
I pause at this point to say something further about the evidence of Mr Rogers. He was not a particularly satisfactory witness. At times in cross-examination he was very guarded, and at other times he was evasive. I have already mentioned some unsatisfactory features of his conduct and evidence. For reasons I will give, I find that by no later than April 1996 there was an arrangement or understanding between Mr Colebatch and Mr Benfield that a business involving the commercial production of an outlet director would be established. It is not possible on the evidence to be more precise as to when the arrangement or understanding was reached and the terms of that arrangement or understanding at the initial stage. I do not accept Mr Rogers’ evidence that it was not until September that he became aware of Mr Benfield’s involvement in the production of the Kemalex outlet. He was challenged on this topic, and he was shown a letter dated 5 June 1996 from himself to Mr Daniels of Kemalex wherein he said:
“I have been requested by the Benfields to produce patent/design registration drawings.”
His explanation in cross-examination that this was a “slip” was unconvincing. He tried to explain the statement as merely a mistake in mentioning Mr Benfield’s name to Kemalex and not an indication that he was aware that Mr Benfield was involved in the project. That is a possible explanation if the statement was the only piece of evidence. However, I find on the whole of the evidence that it is most unlikely that Mr Rogers did not become aware of Mr Benfield’s involvement until September 1996 and I reject his evidence to this effect.
Mr Benfield’s interest in the design of the Kemalex outlet is consistent with an arrangement or understanding at a fairly early stage. It seems to me almost inconceivable that Mr Rogers would not have been aware of Mr Benfield’s involvement in the project, or at least in the early stages (April, May) have strongly suspected it. His account of telling Mr Benfield of the name of the new client but not telling the new client of the name of the old client, of Mr Benfield showing a continuing interest in the Kemalex outlet and he (Mr Rogers) providing two drawings to Mr Benfield, and his responses in cross-examination when confronted with the letter dated 5 June 1996 against the background of my finding that there was by no later than April 1996 an arrangement or understanding between Mr Colebatch and Mr Benfield makes Mr Rogers’ evidence that he was not aware of Mr Benfield’s involvement until September 1996 so improbable that I reject it. I think he was aware from a fairly early stage of Mr Benfield’s involvement, although he may not have known the precise details of the arrangement or understanding.
5. Contact with Potential Customers Before 8 September 1996
Mr Alwyn Healy was called as a witness by the plaintiff. Mr Healy was an honest witness and I accept his evidence.
Mr Healy has been involved in the airconditioning industry for many years. Until February 2002 he operated through a company he controlled, Healy Airconditioning Pty Limited (“Healy Airconditioning”). That company sold by wholesale in Western Australia, airconditioning outlets including flexible ducting, grilles or outlet directors, sheet metal and airconditioning systems. He is familiar with outlet directors particularly multi-directional outlets or MDOs as they were referred to in the course of his evidence. At various times, he had, through his company, distributed multi-directional outlets produced by the plaintiff, Jadon Investments/Heatshield and another company called Westaflex. Mr Healy said that he had known Mr Benfield for approximately twenty years.
In 1996 Healy Airconditioning was a large purchaser of airconditioning grilles and adaptors. In that year, Mr Healy corresponded with and then met with Mr Colebatch and they discussed the possibility of Healy Airconditioning purchasing outlet directors. He did not know Mr Colebatch prior to that time.
The first written exchanges occurred on 26 April 1996 when Mr Colebatch received two letters from Mr Healy and he sent a letter to Mr Healy under the letterhead of Kemalex. The opening paragraph of Mr Colebatch’s letter to Mr Healy reads:
“I understand you are going to visit with us shortly and overview our new airconditioning component.”
Mr Healy could not remember how it was he came to have contact with Mr Colebatch. He said he may have been contacted by Mr Colebatch earlier in April, or perhaps in March. I think that is the most likely explanation and I find accordingly.
The plaintiff asked me to draw two inferences in relation to Mr Colebatch’s letter of 26 April 1996 and Mr Healy’s evidence. First, I was asked to infer that it was Mr Benfield who suggested to Mr Colebatch that he contact Mr Healy. I am prepared to draw that inference because I think it is likely having regard to the fact that Mr Benfield had known Mr Healy for many years and Mr Colebatch did not know him. I note Mr Colebatch’s own admission (as contained in a paragraph in his written statement tendered by the plaintiff) that he met with Mr Benfield in May 1996. I can more confidently draw the inference that in April 1996 it was Mr Benfield who suggested to Mr Colebatch that he contact Mr Healy bearing in mind that neither Mr Benfield nor Mr Colebatch gave evidence. I think that by that time Mr Colebatch and Mr Benfield had reached an arrangement or understanding about the commercial production of an outlet director. Secondly, the plaintiff asked me to infer that a copy of Mr Colebatch’s letter was sent to Mr Benfield on the same day. The plaintiff referred to the fact that the facsimile transmission details indicate that the letter had been sent to someone at 3:36 pm on 26 April 1996, and the fact that the letter was discovered by Mr Benfield and not by the Colebatch defendants. I am not prepared to draw that inference even taking into account the absence from the witness box of Mr Benfield and Mr Colebatch. I do not think the evidence provides a sufficient basis to do so.
On 30 April 1996 a meeting took place between Mr Healy and Mr Colebatch. They discussed various types of multi-directional outlets, and Mr Colebatch showed Mr Healy samples of a frame, an adaptor, a T-piece and the four blade packs which sit in the frame. Mr Healy said that he was impressed by what he was shown. Mr Colebatch showed him through the factory at the premises of Kemalex. Thereafter, there was further correspondence between Mr Colebatch and Mr Healy. I do not think it is necessary to go through the details of this correspondence. It is sufficient to say that Mr Colebatch was attempting to persuade Mr Healy to purchase the outlet directors, and Mr Healy was raising various queries concerning price, and the ability of Mr Colebatch to supply large quantities of the outlet directors. It would seem that in the early stages of his contact with Mr Colebatch, Mr Healy considered that he was dealing with Kemalex.
On 12 September 1996, K-Aire wrote to Mr Healy inviting him to consider the purchase of what is described in the letter as “our new innovative air outlet”. A sample of the air outlet was enclosed. Mr Healy identified a blade pack of KA1 (Exhibit P3) as the same or similar to the sample he was sent. The letter goes on to say that the outlet directors would be available for delivery on 1 October 1996. Mr Benfield is the author of the letter. Mr Healy said that he had not had any correspondence or contact with Mr Benfield about the particular proposition raised by Mr Colebatch in April 1996 prior to that time.
On 8 October 1996 or thereabouts, K-Aire sold some diffuser assemblies to Healy Airconditioning. There were further supplies in the months which followed.
Mr Michael Scolyer was called as a witness by the plaintiff. Mr Scolyer was an honest witness and I accept his evidence. In 1993 Mr Scolyer commenced employment with a company called Rite-Price Heating and Cooling (South) and he stayed with that company until 1997. The business of that company involved the sale and installation of airconditioning units into homes. During his employment by Rite-Price he had a handful of conversations with Mr Benfield. He discussed with Mr Benfield what was happening generally in the airconditioning industry.
During one such conversation with Mr Benfield and Mr Peter Benfield they showed Mr Scolyer what he described as “a grille almost in prototype form”. The grille was made of plastic and it had moveable blade packs which had moveable blades. The neck adaptor was made of plastic. Mr Benfield told Mr Scolyer that the grille was one they were producing for sale in the market place. Mr Benfield said that the grille was to be produced and sold to wholesalers who would then supply it to the industry. In his evidence in chief, Mr Scolyer said that this conversation with Mr Benfield had taken place in “July/August or even possibly September, but I believe July/August 1996”.
In cross-examination, Mr Scolyer was tested about the date upon which this conversation took place. He said that he was certain that it was before the airconditioning season starts and that the season generally starts in September.
I find that a conversation took place in the terms indicated by Mr Scolyer. Mr Benfield was keen to generate business and to this end he showed Mr Scolyer a prototype outlet, namely, one that to Mr Scolyer’s eyes did not look totally finished.
It is difficult to make a finding about the precise date of the conversation. It could have been in either July, or August or September 1996. Even taking into account Mr Benfield’s absence from the witness box, I do not think the evidence is sufficiently precise to enable me to make a finding on the balance of probabilities that the conversation took place before 8 September 1996.
6. The Incorporation of K-Aire and Events Thereafter
K-Aire was incorporated in the State of South Australia on 12 July 1996. It was incorporated under the name of Air Direct Products Pty Ltd, and on 25 October 1996 it changed its name to K-Aire Pty Ltd.
Mr Colebatch was the subscriber to the Memorandum of Association, and, on incorporation, four one dollar shares were allotted to him.
On 12 July 1996, Benfield Investments Pty Limited (as trustee of the Marlene Benfield Family Trust), MDM Investments Pty Ltd (as trustee of the Luciana Benfield Family Trust), Ino Duct Pty Ltd (as trustee of the Reich Family Trust) and Redgum Pty Ltd (as trustee of the Direct Air Discretionary Trust) entered into a partnership to conduct a business of manufacturing certain airconditioning vents for sale. Recital A of the partnership agreement states:
“A The parties (Partners) conduct a business of manufacturing certain airconditioning vents for sale.”
Clause 2 of the agreement provides that the partnership will commence on 12 July 1996. Clause 4 provides that each of the partners will contribute and own a twenty-five per cent interest in the capital of the partnership. The banker of the partnership is to be Bank SA. Clause 13 contains obligations on the partners to diligently devote themselves to the partnership business.
Benfield Investments Pty Ltd is a company owned and controlled by Mr Benfield or members of his family, and Mr Benfield’s brother, Mr Peter Benfield. MDM Investments Pty Ltd is a company controlled by Mr Benfield and Mr Peter Benfield and owned by Mr Peter Benfield or interests associated with him. Ino Duct Pty Ltd is a company owned and controlled by Mr Heinrich Reich or interests associated with him. Redgum Pty Ltd is a company owned and controlled by Mr Colebatch or interests associated with him.
On 12 July 1996 Mr Colebatch executed a Declaration of Trust to the effect that he held one of the shares in K-Aire on trust for Mr Peter Benfield. On 12 July 1996 the partners and K-Aire executed an agreement whereby the partners appointed K-Aire to manage the partnership business.
Mr Colebatch sought finance from Bank SA to purchase various dies and equipment used in the manufacture of plastic airconditioning components. An offer of finance was made by the Bank on 15 May 1996. It is addressed to the directors of Kemalex. The Bank said it required various forms of security including a mortgage from an interested third party and a guarantee and indemnity from Mr Colebatch and the interested third party. A replacement offer was made by the Bank by letter dated 12 July 1996 addressed to “Messrs R Colebatch, H Reich, B Benfield and P J Benfield”. The purpose of the facility was stated by the Bank to be:
“To purchase various dies and equipment used in the manufacture of plastic air-conditioning components via a LIE [Lease in Escrow Agreement] and subsequently converted to a CHP [Commercial Hire Purchase Agreement].”
It is unnecessary to go into the precise details of the financing arrangements. As is to be expected, those arrangements involved the taking of security, including the taking of security from Mr Benfield and interests associated with him. Benfield Investments executed a guarantee and indemnity on 2 September 1996. The partners, including Mr Benfield, signed a guarantee and indemnity on the same date.
In July and August 1996 the manufacture of tools for an outlet director was being carried out by various parties including Kemalex and the invoices for that work were being sent to Bank SA.
On 2 August 1996, Kemalex submitted a written quote for the manufacture of tooling and moulded assemblies to K-Aire care of Kemalex’s premises at 7 Poole Street, St Marys. By no later than 7 August 1996 Kemalex had devoted one of the telephone lines at its premises at St Marys to the activities of K-Aire.
A note which appears to have been generated from within Kemalex and is dated 7 August 1996 reads:
“Leigh/Tania Barrie
Line 5 phone number is now for Air Direct Products Pty Ltd. It’s phone number is 8277 9599.
Richard is the only Director of this company. Should anyone ask no one else is connected to this venture.
Thanks
Leanne
Dist to RD, NS, TJ, WO’C
Note Gentlemen,
Peter and Bruce Benfield and Henry have no connection.
Richard”
I infer that Leanne wrote what she did on instructions from Mr Colebatch, and that “Richard” is Mr Richard Colebatch.
In August 1996, Mr Benfield was involved in providing instructions to patent attorneys, Madderns, to conduct searches for patent and design applications/approvals in the name of the plaintiff. I am prepared to draw this inference having regard to the note, “as instructed by Bruce”, and bearing in mind that Mr Colebatch, Mr Benfield and Mr Catt (of Madderns, previously R K Maddern and Co) were not called to give evidence.
K-Aire ordered business cards for the business and these were received by K-Aire on 6 September 1996. K-Aire had also organised coloured letterhead for its correspondence some time prior to 12 September 1996.
In September and October 1996 Mr Benfield instructed Mr Rogers to produce a design and concept brochure for China for the Kemalex outlet. He was also instructed to prepare promotional material for the Australian market.
7. Events after 8 September 1996
Mr Kevin Burton was called as a witness by the plaintiff. He was an honest witness and I accept his evidence. In 1996 and 1997, Mr Burton was employed by Insulco Pty Ltd. He was employed in the Air Handling Division of that company at the head office of the company in Sydney. Insulco Pty Ltd sold ducting and from time to time needed to purchase multi-directional outlets (outlet directors).

I am satisfied that Mr Colebatch was in a position to control, and did in fact control, the activities K-Aire, Kemalex and Kemalex Plastics.
Mr Colebatch and Mr Benfield were directors of K-Aire Sales and K-Aire Wholesale, and I am satisfied that they were each in a position to control, and did in fact control, the activities of those companies.
Mr Benfield
Mr Benfield is jointly liable with K-Aire Sales and K-Aire Wholesale for such acts of those companies which infringed the plaintiff’s monopoly in RD2. He directed and procured the relevant acts, and I also find that he acted in concert with each company pursuant to a common design to carry out the relevant acts. At all material times he, with Mr Colebatch, was a director of the companies. He was in a position to control, and did in fact control, the activities of the companies.
Mr Benfield is also jointly liable for such acts of K-Aire which infringed the plaintiff’s monopoly in RD2. The evidence establishes that he was engaged in the marketing and sale of KA1 and KA2 and was a person by and through whom K-Aire (and K-Aire Sales and K-Aire Wholesale) infringed RD2 by selling KA1 and KA2. He also acted in concert with K-Aire pursuant to a common design to carry out the relevant acts.
Connect Aire and T & S Manufacturing
Connect Aire was incorporated on 20 August 1997. It is a company jointly owned and operated by three of the individuals who are behind three of the companies which are members of the partnership, namely, Mr Benfield, Mr Peter Benfield and Mr Otto Reich.
Since about August 1997, Connect Aire has sold flexible ducting to various companies and businesses which sell airconditioning plant and componentry by retail. The flexible ducting is used in the installation of commercial and domestic airconditioning systems.
Connect Aire admits that between about 20 August 1997 and 30 June 2000 it sold flexible ducting in a range of standard sizes used in the airconditioning industry in connection with a range of air diffusion outlets including those produced by the plaintiff and KA2. Connect Aire admits that during the period from 20 August 1997 to 30 June 2000 it sold, offered for sale and kept for sale flexible airconditioning ducting in a range of standard sizes used in the airconditioning industry and which could be and was used in conjunction with a range of air diffusion outlets including KA2 and outlets produced by the plaintiff.
T & S Manufacturing was incorporated on 20 August 1997. Mr Benfield has been a director of the company since 12 April 2000. Since its incorporation, the company has manufactured and sold flexible ducting for use in the installation of commercial and domestic airconditioning systems. The ducting manufactured and sold is manufactured in a range of standard sizes and can be, has been and is, used in conjunction with a range of air diffusion outlets including KA2 and the outlets produced by the plaintiff.
Outlet directors are generally sold as part of a kit which includes ducting and other componentry. There are a number of advantages in a purchaser being able to purchase all of his requirements from the one vendor.
Connect Aire assembled KA1 and KA2 and this included placing the blade in the frame and inserting the spigot in the control bar.
T & S Manufacturing sold KA2 as part of a kit which included ducting and other airconditioning components.
These findings of fact are sufficient to render Connect Aire and T & S Manufacturing liable in relation to the infringement of the plaintiff’s monopoly in RD2 either on the basis of aiding and abetting other defendants, or as parties to a common design with other defendants to infringe the plaintiff’s monopoly in RD2, or both.
It will be necessary to determine the extent of each company’s liability at the next stage of the hearing.
Conclusions
I find that Mr Benfield did not act in breach of clause 9 of the Deed. The plaintiff is not entitled to relief in relation to the alleged breach of clause 9 including the alleged infringement of RD1.
I find that RD2 is valid and the defendants are not entitled to relief in relation to the allegation that RD2 is not valid.
I find that a fraudulent imitation of RD2 has been applied to KA1 and KA2 and that each of the defendants is liable for the infringement of the plaintiff’s monopoly in RD2.
I will hear from the parties as to what orders are appropriate in light of these conclusions.
(APPENDICES “A”, “B”, “C” AND “D” SHALL REMAIN ON THE COURT’S FILE.)
APPENDIX E
POLYAIRE PTY LTD v K-AIRE PTY LTD & ORS
Reasons for Ruling
RULING NO 1:   MR BENFIELD’S STATEMENT AND AFFIDAVIT
1During the course of the plaintiff’s case, counsel for the plaintiff applied to tender certain paragraphs in a witness statement of Mr Benfield, and certain paragraphs in an affidavit sworn by Mr Benfield on 11 September 1989.
2The witness statement of Mr Benfield consists of 129 paragraphs and it addresses each of the issues in the action. It was prepared by the solicitors for the Colebatch defendants and filed in Court on 5 December 2001. The statement was filed and served pursuant to an order made by a Judge of this Court. The order relevantly provides:
3.That by the close of business on 28 September 2001 the defendants file and serve:
3.1    a list of the witnesses which the defendants intend to call at trial;
3.2    a signed statement in the form of a proof of evidence to be given as evidence-in-chief by each witness (“witness statement”) and which identifies the documents to which the witness proposes to refer; and
3.3    in the case of a witness not willing to provide a proof of evidence, a statement of the substance of the evidence that the party calling the witness expects the witness to give in relation to each issue.
3The time limit referred to in the order was extended. Similar orders were made in relation to witness statements to be filed and served by the plaintiff. In addition, orders were made to the effect that every witness statement was to stand as the evidence-in-chief of the witness concerned and the parties were not entitled, without leave of the Court, to lead evidence from that witness which was not contained in that person’s statement. The parties were not entitled to lead evidence from any person unless a witness statement had been filed and served, or a statement of the substance of the evidence had been filed and served.
4I assume that the order was made pursuant to the power of the Court to make pre-trial orders for the just, efficient, fair and expeditious trial of an action. This Court does not have a specific rule of court or practice direction dealing with the exchange of witness statements.
5Mr Benfield did not oppose the making of the order for the exchange of witness statements.
6The affidavit of Mr Benfield was used on an interlocutory application in Action 1810 of 1989. There is no issue of legal professional privilege in relation to the affidavit. The only issue in relation to the affidavit is whether the plaintiff should be required to tender additional paragraphs to those it sought to tender in order to avoid the paragraphs it sought to tender creating a misleading impression or being taken out of context.
7I ruled that the plaintiff could not tender any part of Mr Benfield’s witness statement. I ruled that the plaintiff could tender Mr Benfield’s affidavit but only if it tendered certain additional paragraphs, namely, paragraphs 4 (second para), 5(b) and (c), 6, 11, 12, 13 (second para). The plaintiff tendered those paragraphs in Mr Benfield’s affidavit it had identified and the additional paragraphs referred to in my ruling.
8My reasons for those rulings follow.
Mr Benfield’s Statement
9               Counsel for Mr Benfield opposed the tender of the statement on a number of grounds.
10First, he submitted that the statement was protected by legal professional privilege, and that there had been no waiver of privilege. For reasons I will give, I accept that submission. It follows that it is not strictly necessary for me to consider the other arguments which were advanced. However, in recognition of the detailed submissions of counsel, I will deal with them briefly.
11Secondly, counsel for Mr Benfield submitted that insofar as the plaintiff relied on s 45B of the Evidence Act 1929 (SA), and assuming the statement was not protected by legal professional privilege, the plaintiff was required to tender the whole statement. He argued that what was admissible under s 45B was a document which meant the whole document.
Thirdly, counsel for Mr Benfield argued that, quite apart from any issue of privilege, there is a rule of practice that a party cannot tender as admissions statements in an opposing party’s affidavit (or statement) filed in proceedings unless the opposing party has deployed the affidavit (or statement) in some way.
Fourthly, counsel for Mr Benfield submitted that at common law any tender of admissions contained in a document must be a tender of the whole document. He referred to Jack v Smail (1905) 2 CLR 684 and Gardner v Duve (1978) 19 ALR 695.
1. Legal Professional Privilege
Solicitors, Strachan Carr, act for Mr Benfield. However, the witness statement of Mr Benfield was prepared by Thomson Playford, solicitors, who act for the Colebatch defendants. At one point, counsel for the plaintiffs submitted that the statement was not privileged because it was not a communication between Mr Benfield and his solicitors. Counsel for Mr Benfield responded by submitting that the statement was protected by reason of the fact that common interest privilege existed between the defendants to the action. Counsel for the plaintiff responded to this submission by submitting that there could be no common interest privilege in relation to the dispute concerning RD1 because the Colebatch defendants were not involved in that cause of action. Counsel for the plaintiff accepted that common interest privilege existed in relation to the dispute concerning the breach of clause 9 and RD2.
After some discussion between counsel for Mr Benfield and myself, counsel sought the opportunity to put forward evidence to establish that in preparing the statement, Thomson Playford were acting as agents for Mr Benfield’s solicitors.
Counsel for Mr Benfield tendered an affidavit from his solicitor to this effect. Subsequently, counsel for the plaintiff abandoned his submission that the statement could not be privileged on the ground that it was prepared by Thomson Playford rather than Strachan Carr. I can proceed on the same basis as if the statement had been prepared by Mr Benfield’s solicitors.
I did not understand counsel for the plaintiff to argue that the statement was not protected by legal professional privilege when it was first prepared. I think counsel’s approach is correct. Even if the particular statement was prepared for the purpose of complying with the order of the court, it did not lose its essential character as a statement of a witness (State Bank (SA) v Smoothdale (No.2) Ltd (1995) 64 SASR 224 at 226 per King CJ with whom Mullighan and Nyland JJ agreed) (“Smoothdale”).
Counsel for the plaintiff submitted that legal professional privilege was lost when the statement was disclosed. In my opinion, it is clear that the document did not lose its privileged character because it was no longer confidential after it had been disclosed (Smoothdale per King CJ at 226). Rather, the real question is whether there was an express waiver of legal professional privilege when the document was disclosed.
I have reached the conclusion that legal professional privilege was waived by the disclosure of the statement only for the limited purpose of disclosing the nature of the evidence Mr Benfield would give as his evidence in chief if called as a witness, and for no other purpose, or to no greater extent. The steps whereby I have reached this conclusion are as follows:
1.It is possible that a waiver of legal professional privilege may be limited to a specific situation or purpose (Smoothdale per King CJ at 228).
2.There is a general waiver of privilege if a party expressly waives privilege or uses the statement for purposes incompatible with the retention of confidentiality.
I do not think that there was an express waiver of privilege. It is true that Mr Benfield did not oppose the making of the order which led to the filing and serving of the statement. However, I do not think the failure to object means that what would otherwise be a limited waiver becomes a general waiver. It seems to me that that could only be the case if it was clear that the potential waiver of privilege was a ground for opposing the making of the order, or there was something in the Rules of Court which made it clear that that was the result of an order for the filing and serving of a witness statement.
Clearly it is possible to construe the order as involving the disclosure of the statement for a limited purpose. Although it may not have been expressly said at the time the order was made, the order was made for the same reason that led to the practice direction under consideration in Smoothdale, namely, to facilitate “the just quick and cheap disposal of the proceedings” (at 228).
I do not think the fact that a party has consented to the relevant order means that he has expressly waived legal professional privilege for all purposes. He has consented to a waiver of the privilege for a limited purpose.
It cannot be said that Mr Benfield has used the statement in a manner which is incompatible with the retention of confidentiality. In fact, at the time of my ruling he had not used the statement at all.
3.It is necessary then to consider whether in the circumstances surrounding the delivery of the statement, the law imputes or implies a waiver of privilege. In this regard, I respectfully agree with the reasoning of King CJ in Smoothdale (at 229-231). In essence, whether the law will impute a waiver depends on whether the maintenance of the privilege would be unfair to the plaintiff (Attorney-General (NT) v Maurice (1986) 161 CLR 475).
In my opinion, there is nothing unfair in the maintenance of the privilege beyond the limited purpose I have identified. The order applied to both the plaintiff and the defendant. Even without an express statement of its purpose, the order was plainly made for similar reasons to those which led to the making of the New South Wales practice direction referred to in Smoothdale. Mr Benfield obtained no forensic advantage in disclosing the witness statement.
Clearly, there are differences between the facts in this case and the facts in Smoothdale. However, I do not think the differences are material differences in terms of the application of the Court’s reasoning to this case. The fact that in Smoothdale an order was made pursuant to a practice direction whereas the order in this case was made by consent is not, for the reasons I have given, a material point of distinction. Furthermore, the fact that the practice direction under consideration in Smoothdale expressly provided that if the witness did not give evidence, no other party may put the report or statement in evidence without leave of the court does not seem to have been of any real significance to the reasoning of King CJ. Finally, the fact that the practice direction expressly stated its purpose is not a material point of distinction. I have no difficulty in inferring that a similar purpose led to the making of the relevant order in this case.
Counsel for both parties referred me to a number of authorities in addition to Smoothdale. None of the cases, other than Black & Decker Inc v Flymo Limited [1991] 3 All ER 158, involved the use of statements in the very proceedings in which they had been disclosed pursuant to a court order or practice direction. Many of the cases involved a consideration of the principle preventing the use of documents disclosed on discovery for a collateral purpose (Harman v Secretary of State for the Home Department [1983] 1 AC 280) as well as a consideration of legal professional privilege.
Support for the contentions put forward by counsel for the plaintiff may be found in Black & Decker Inc v Flymo Limited (per Hoffmann J at 159) and Complete Technology Pty Ltd v Toshiba (Australia) Pty Ltd (1994) 53 FCR 125 (per Hill J at 130-131).
On the other hand, there is support for the views of King CJ in Smoothdale that a disclosure of the witness statement leads to a waiver of legal professional privilege only to the limited extent dictated by the reason for the disclosure in Fairfield – Mabey Ltd v Shell UK Ltd (Metallurgical Testing Services (Scotland) Ltd [1989] 1 All ER 576; Prudential Assurance Co Ltd v Fountain Page Ltd & Others [1991] 1 WLR 756; Abigroup Ltd v Akins & Others (1997) 42 NSWLR 623 per Bainton J at 631-635; Akins v Abigroup Ltd (1998) 43 NSWLR 539 per Mason P at 552-553. In saying this, I recognise that a number of these authorities can be distinguished on a variety of grounds.
It seems to me that I should follow the clear reasoning of the Court in Smoothdale. In my respectful opinion, that reasoning is right. Until the witness statement is used by the maker in some way, there is simply no intentional use of the statement incompatible with the maintenance of confidentiality such that an express waiver arises, nor do relevant considerations of fairness dictate a finding that there has been an imputed or implied waiver of privilege. There is no other evidence of express waiver even where a party consents to the orders under which the witness statement is disclosed. The party has expressly waived privilege only to an extent necessary to achieve the purposes of the order. Those purposes relate to the efficient disposal of the action at trial and the possibility of a resolution of the action before trial. Absent a clear statement in the Rules of Court or practice direction under which such an order is made, or possibly in the order itself, the purposes of the order do not include the provision of evidence to the recipient of the statement who may then use it as part of his or her case at trial.
2. Section 45B of the Evidence Act 1929 (SA)
Counsel for Mr Benfield contrasted the position under s 45B of the Evidence Act with the position under s 34C. Section 34C makes admissible a statement whereas what is admissible under s 45B is a document. The difference between the two sections means that under s 34C, parts of a document are admissible (ie, a statement), whereas under s 45B only the whole document is admissible. In other words, it was not open to the plaintiff to “pick and choose” the parts of a document it tendered under s 45B. It seemed to me that counsel for the plaintiff in making no reference to s 45B in the course of his submissions implicitly abandoned any reliance on it. No party suggested that it affected the question of legal professional privilege. I think the argument put by counsel for Mr Benfield is probably right when he says that parts of a document are not admissible under s 45B of the Evidence Act, but in the circumstances it is unnecessary for me to express a concluded view on the point.
3. A Rule of Practice
To support his submission that there was a rule of practice of the nature identified, counsel for Mr Benfield relied on Ex parte Child; Re Ottaway (1882) 20 Ch D 126 and In Re Cohen [1924] 2 Ch 515. He accepted that the statements in those cases related to the practice in the bankruptcy jurisdiction, and that the practice in Chancery at the time appears to have been different.
There is no authority on whether this aspect of the practice in bankruptcy in England in the 19^th century applies in this Court. To my mind, it is surprising that if there is such a rule of practice it has not been raised in any of the modern authorities. I think it is doubtful such a rule of practice exists in this jurisdiction, but again, it is unnecessary for me to express a concluded view on the point.
4. A Rule of Common Law that a Party Must Tender the Whole of a Document

I reject the submission that the plaintiff in seeking to tender admissions in the witness statement must tender the whole of the document. The cases to which counsel for Mr Benfield referred (Jack v Smail; Gardner v Duve) deal with the use of parts of a document in circumstances in which the whole document has been tendered. A party may tender parts of a document containing admissions. That party may not be selective in the sense that he cannot omit parts of the documents which explain or qualify the admissions, but there is no absolute rule that he must always tender the whole document in which the admission is contained (Adelaide Congregation of Jehovah’s Witnesses Inc v Pegasus Leasing Ltd, Olsson J, 26 October 1995, unreported ruling).
Mr Benfield’s Affidavit
I take the relevant principle to be that if a party wishes to tender part of a document in order to rely on admissions contained in the document, he may do so but he should be required to tender all passages which bear on the admission whether by way of explaining it, placing it in its proper context or qualifying it. I did not understand counsel for the plaintiff to dispute this basic proposition.
It seems to me that the paragraphs in the affidavit which I have already identified should form part of any tender by the plaintiff. I do not think it is necessary to go through each paragraph. It is enough for me to say that the additional paragraphs were relevant to effect of the statements in the paragraphs the plaintiffs sought to tender, and that as a matter of fairness to Mr Benfield, I formed the view they should be part of the tender.
RULING NO 2: SUBMISSIONS OF NO CASE TO ANSWER
At the conclusion of the plaintiff’s case, counsel for Mr Benfield and counsel for the first three defendants (K-Aire, Kemalex and Mr Colebatch) each sought to make a submission of no case to answer. The foreshadowed submission related to only some of the issues in the action.
Counsel for Mr Benfield sought to make a submission of no case to answer in relation to the following issues:
· The issue of whether Mr Benfield acted in breach of clause 9 of the Deed (“the breach issue”).
· Assuming the first issue is decided against Mr Benfield, the issue of the infringement of RD1 (“the infringement of RD1 issue”). As I understand what counsel put to me, the precise issue is whether the Silentaire grille was an obvious or fraudulent imitation of RD1.
Counsel for the first three defendants sought to make a submission of no case to answer in relation to the issue of whether those defendants induced or procured the breach of clause 9 by Mr Benfield (“the inducement issue”). Counsel for the first three defendants submitted that I should hear first from counsel for Mr Benfield on the breach issue. If that issue was determined in favour of Mr Benfield, there would be no need to hear a submission of no case in relation to the inducement issue.
Counsel for Mr Benfield submitted that he should not be required to elect to call no evidence in relation to the breach issue. He accepted that at some stage it would be proper to require him to elect to call no evidence in relation to the infringement of RD1 issue. Counsel for the first three defendants submitted that they should not be required to elect to call no evidence in relation to the inducement issue.
I did not hear full submissions on the various issues. It seemed to me that it was appropriate to hear an outline of the submissions, and then to determine at a relatively early stage whether it was appropriate to entertain the submissions of no case, and if so, whether I should require the defendants to elect to call no evidence either generally, or in relation to the particular issues. In doing so, I adopted an approach similar (but not identical) to the first of the three approaches identified by Tadgell J in Protean (Holdings) Ltd (Receivers and Managers Appointed) and Others v American Home Assurance Co [1985] VR 187 at 237.
After hearing submissions from all parties I ruled that I would not entertain the submissions of no case unless the defendants elected to call no evidence on any issue in the action. Counsel for the Colebatch defendants elected to call evidence, and in those circumstances, I did not entertain submissions of no case to answer.
An important aspect of the present argument is that whatever decision I made on submissions of no case, the trial of the action would proceed in the normal way in relation to the cause of action against all defendants based on the alleged infringement of RD2 (“the infringement of RD2 issue”). Furthermore, the plaintiff alleges that KA1 and KA2 are obvious or fraudulent imitations of RD2. KA1 and KA2 were manufactured in 1996. The acts and conduct of Mr Benfield and/or Mr Colebatch in 1996, and in particular the first half of 1996, leading up to the manufacture and sale of KA1 will be relevant to the question of whether KA1 and KA2 are fraudulent imitations of RD2. In addition, an important participant in events in 1996 leading up to the manufacture and sale of KA1 and KA2 was Mr Andrew Rogers, an industrial designer. Counsel for the Colebatch defendants told me during the argument that he would be calling Mr Rogers as a witness in relation to the infringement of RD2 issue.
The significance of this point is two-fold. First, even if I was to rule in favour of the submissions of no case, the trial of the action would still proceed in relation to the infringement of RD2 issue. The parties have been required to file written statements of their potential witnesses. My assessment of the issues in the case, and the number of potential witnesses to be called by the defendants, is that if I do not entertain the no case submissions, or if I indicate that I require the defendants to elect and they decide not to elect, the time taken in completing the trial of the action will not be significantly extended. It is difficult to be precise, but I am confident the “additional” time would be no more than a couple of days, a week at most. This is an important factor, particularly when it is assessed against the additional costs that might be incurred by the parties should any rulings I deliver in relation to the no case submissions be overturned on appeal. Secondly, the plaintiff alleges that acts and conduct by Mr Benfield in 1996 leading up to the production of KA1 were in breach of clause 9 of the Deed, and that acts and conduct by the first three defendants in 1996 constitute acts of inducement in terms of a breach of clause 9 by Mr Benfield. Those acts and conduct or closely related acts or conduct may also be relevant to the question whether KA1 is a fraudulent imitation of RD2. As far as I could see at the conclusion of the plaintiff’s case, there is an overlap (or at least a possible overlap) between the issues relating to the breach issue (at least insofar as the plaintiff relies on acts and conduct of Mr Benfield in 1996) and the inducement issue on the one hand, and the allegation that KA1 and KA2 are a fraudulent imitation of RD2 on the other. In other words, if I heard and upheld the defendants’ submissions on the breach issue and the inducement issue, it is at least possible that I would hear evidence in relation to the infringement of RD2 issue which would also have been relevant to those issues.
It has been said that there is a settled rule of practice that a defendant wishing to make a no case submission should be required to elect to call no evidence. I do not propose to set out all the relevant authorities. Many of them are collected in the reasons for judgment of Finkelstein J in Compaq Computer Australia Pty Ltd v Merry & Ors (1998) 157 ALR 1 at 6 – 7. As Finkelstein J observes, there are good practical reasons for the practice. If a no case submission is accepted and no election is required and the decision is later overturned on appeal, then the appeal court will have to order a retrial with all the inconvenience and expense to the parties that is involved in that course. Furthermore, it is thought undesirable that the plaintiff’s evidence is reviewed twice. This will happen if a no case submission is entertained without calling on the defendant to elect, and the submission is then rejected.
Having said that, the rule of practice is not inflexible, and the court retains the discretion to depart from it.
A leading authority in this State is Residues Treatment and Trading Co Ltd v Southern Resources Ltd (1989) 52 SASR 54. In that case, Perry J considered whether there is a settled rule of practice in this State of the nature I have described or in fact a settled rule of practice that a party will be permitted to make a no case submission without being required to elect to call no evidence. His Honour identified four categories of circumstances in which a no case submission could be made, and the rule concerning election in each case. His Honour said (at 68 - 69):
“In my opinion, the evident good sense in the proposition that, generally speaking, a trial judge should not take a course which could result in him being obliged to review the evidence twice, once before the defendant has called any evidence and again after further evidence has been called, should lead to recognition of the general rule in the terms in which it has clearly been identified in other jurisdictions.
That is not to say that there is no reason to put counsel to their election if the submission of no case to answer may be advanced in a manner disengaged from any review of the evidence. But that is not the case here.
As to that aspect of the matter it seems to me that there are primarily four situations in which a submissions of no case to answer may be made. They are:
1.Where no reference at all to the evidence is required.
2.Where a reference to the evidence is required only to establish that there is an evidentiary hiatus or failure to adduce any evidence as to an essential element in the cause of action.
3.Where it is argued that on a consideration of the evidence adduced by the plaintiff taken at its highest from the plaintiff’s point of view, the evidence could not support the causes of action pleaded.
4.The situation where it is contended that although there is some evidence to support the plaintiff’s claim, it is so weak and unreliable that it should be dismissed without calling upon the defendant.
In the criminal jurisdiction, category 4 would be met by following the course referred to in R v Prasad (1979) 23 SASR 161: see in particular per White J at 172.
As to category 1, this should normally be argued on the pleadings, preferably before the trial commences. No question of election arises in that situation. Likewise, consideration of a submission of no case to answer in category 2 should not involve an election.
As to categories 3 and 4, these situations should normally be met by the application of what I have referred to as the general rule that counsel should be called upon to elect.
It has been conceded by all counsel that the case falls into category 3.
Before leaving the question of the situations in which a submission of no case to answer may be made, I should say that it seems to me that some confusion has arisen by the use of the expression ‘question of law’. It has sometimes been suggested that no election should be required if the consideration of the submissions is confined to a question of law.
But the adequacy of the evidence to support the plaintiff’s case is always a question of law. I think it better to say that if consideration of the submission of no case to answer involves the need to evaluate the evidence, other than simply to identify an hiatus of the kind referred to in example 2 above, the moving party should normally be put to his election.”
I note that in Compaq Computer, Finkelstein J expressed the view that the authorities show that category 2 cases identified by Perry J in Residues Treatment do in fact fall within what he called the general rule that a party will be required to elect.
Counsel for Mr Benfield submitted that his submission on the breach issue did not require a detailed consideration of the evidence. He said that the basis of his submission was such that it fell within category 2. Counsel for Mr Benfield said that he would argue that on the proper construction of clause 9, no breach can be established unless (among other things) the plaintiff can prove that there was an operating business before 9 September 1996. There is no need to consider the evidence, he submitted, other than to note that there is no evidence on that point. Therefore, he should not be required to elect to call no evidence on the issue. Counsel for the first three defendants made a similar submission in relation to the inducement issue in the sense that they argued that there was no need to consider the evidence, other than to note that there is no evidence on the point.
I do not agree that in relation to the breach issue, reference to the evidence is only required to establish an evidentiary hiatus. Even if Mr Benfield is right about the proper construction of clause 9, the plaintiff will no doubt refer to various documents in evidence, and ask me to draw the inference that there was an operating business before 9 September 1996. Although perhaps the evidence is not quite so clear, I think the same observation may be made in relation to the inducement issue.
There is a further reason for requiring an election on these issues. If I do not, and I rule in favour of the defendants and that ruling is overturned on appeal, then the defendants will be at liberty on a retrial to call evidence on those issues. That may involve the defendants calling witnesses who will have given evidence and been cross-examined before me on the infringement of RD2 issue, and possibly cross-examined on issues relevant to the breach issue and the inducement issue. To my mind that would be an undesirable outcome.
If there is a rule of practice in this State requiring election then the defendants should be required to elect unless in the exercise of my discretion I think the defendants should not be put to an election. I can see no reason, having regard to the reasons which normally justify a requirement that a party elect, not to require the defendant to make an election. If I approach the matter by reference to the four categories identified by Perry J in Residues Treatment, the foreshadowed no case submissions fall within category 3 and an election should be required.
I have also concluded that the defendants should be required to elect to call no evidence on any issue. I accept as the authorities make clear, that a party may make a no case submission with respect to some only of the issues in an action. Presumably, it is within the power of the court to require a party to elect to call no evidence as to only those issues. However, it is not appropriate to do that in this case. To deal with the breach issue and the inducement issue in the normal way will not involve a great deal of additional hearing time. Those issues overlap with the infringement of RD2 issue. There is a real possibility that I will hear evidence on the infringement of RD2 issue which will bear on the breach issue and the infringement issue. That evidence may suggest that my decision on that issue (if it is in favour of the defendants) is wrong. This case has similarities with the overlapping of issues identified by Perry J in Residues Treatment, although the fact of the overlapping was perhaps more obvious in that case.
It was for these reasons that I ruled that the defendants should elect to call no evidence on any issue before I would entertain the no case to answer submissions.
RULING NO 3: THE PLAINTIFF’S APPLICATION TO AMEND
I can deal with my reasons for this ruling quite briefly.
In the course of its case, the plaintiff applied to tender a letter from Mr Benfield of Heatshield to a Mr Zhou Xingen in China dated 5 January 1993 (MFI P 52). The letter invites negotiations about the possibility of a joint venture or agreement between Mr Benfield or Heatshield and Mr Xingen’s business involving the sale of (among other things) airconditioning outlet directors. The letter was said by the plaintiff to be relevant to the allegation that prior to 9 September 1996 Mr Benfield acted in breach of clause 9 of the Deed.
Counsel for Mr Benfield objected to the tender of the letter. He said that the letter or the issue raised by the letter had not been pleaded. This submission led to an application to amend by the plaintiff. Paragraph 13 of the Statement of Claim is the relevant paragraph. Leaving aside amendments which were not contentious, the plaintiff sought to amend paragraph 13 to add the following particulars of the allegation that Mr Benfield acted in breach of clause 9:
“(vi)Assisted the establishment of the K-Aire business by providing financial assistance in the form of a guarantee and security;
(vii)By himself, or by or through Heatshield, entered into negotiations with persons in China for the manufacture and supply of airconditioning outlets by Heatshield to those persons or for the supply by those persons of airconditioning outlets to Heatshield, for supply in Australia.”
I allowed the amendment and admitted the letter in evidence (P 52). My reasons follow.
Counsel for Mr Benfield did not consent to the amendment in paragraph 13(d)(vi) but he presented no detailed argument against it. It seems to me that I ought to allow the amendment. There is already before the Court evidence with respect to the allegation, and there is no doubt Mr Benfield has been on notice that it is alleged against him that he was involved in the establishment of the business conducted by K-Aire.
Counsel for Mr Benfield opposed the amendment in paragraph 13(d)(vii) on three grounds. He submitted that the amendment was deficient in form, that it was not arguable, and that Mr Benfield will suffer prejudice if the amendment is allowed.
I gave Mr Benfield the opportunity to put forward evidence of prejudice. No evidence was forthcoming. That is a significant factor in favour of granting leave to amend.
There are difficulties with the form of the amendment, but they are inherent in the existing pleading in paragraph 13. In my opinion, the allegation is arguable, or at least I am not prepared to hold that it is not arguable in the absence of full submissions on the proper interpretation of clause 9 of the Deed.
In my opinion, the absence of prejudice to Mr Benfield is the critical consideration. The nature of the proposed amendment and the absence of prejudice to Mr Benfield means that leave to amend should be granted.
APPENDICES A , B, C, D SHALL REMAIN ON THE COURT FILE

[2003] SASC 41

20 February 2003