Swarbrick v Burge & Ors
[2009] FMCA 985
•20 November 2009
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| SWARBRICK v BURGE & ORS | [2009] FMCA 985 |
| BANKRUPTCY – Application to set aside bankruptcy notice – whether application made before time for compliance expired – whether an application actually made. BANKRUPTCY – Application to set aside bankruptcy notice – whether application for order to set aside bankruptcy notice on the ground that applicant has counter-claim, set-off or cross-demand – whether application made before time for compliance expired – whether Court satisfied that debtor has counter-claim, set-off or cross-demand – cross-demand alleges breach of contract and unlawful interference with contractual relations. COPYRIGHT – Design of boat plug and mouldings – issue of artistic craftsmanship – previous proceedings in Federal Court and High Court. WORDS AND PHRASES – “within”. |
| Acts Interpretation Act 1901 (Cth), ss.2(1), 36(1), 46(1) Legislative Instruments Act 2003 (Cth), s.5 |
| ANZ Banking Group Ltd v Frost Holdings Pty Ltd [1989] VR 695 JG Fleming, The Law of Torts (9th Edn) (Sydney: LBC Information Services, 1998) |
| Applicant: | JOHN HARLEY SWARBRICK |
| First Respondent: | BRENT BURGE |
| Second Respondent: | TREVOR ROGERS |
| Third Respondent: | BENJAMIN WARREN |
| Fourth Respondent: | BOLD GOLD INVESTMENTS PTY LTD |
| Fifth Respondent: | GLEN PETER BOSMAN |
| Sixth Respondent: | SERGIO EDWARD ZAZA |
| File Number: | PEG 78 of 2009 |
| Judgment of: | Lucev FM |
| Hearing date: | 7 October 2009 |
| Date of Last Submission: | 7 October 2009 |
| Delivered at: | Perth |
| Delivered on: | 20 November 2009 |
REPRESENTATION
| For the Applicant: | In person |
| Counsel for the Respondents: | Mr A Aristei |
| Solicitors for the Respondents: | Stables Scott |
ORDERS
That the application be dismissed.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT PERTH |
PEG 78 of 2009
| JOHN HARLEY SWARBRICK |
Applicant
And
| BRENT BURGE |
First Respondent
| TREVOR ROGERS |
Second Respondent
| BENJAMIN WARREN |
Third Respondent
| BOLD GOLD INVESTMENTS PTY LTD |
Fourth Respondent
| GLEN PETER BOSMAN |
Fifth Respondent
| SERGIO EDWARD ZAZA |
Sixth Respondent
REASONS FOR JUDGMENT
Introduction – previous proceedings in Federal Court and High Court
The applicant, Mr Swarbrick, is a naval architect and the designer of a yacht known as the “JS 9000”.[1]
[1] Affidavit of John Harley Swarbrick, sworn 3 June 2009, preamble and para.2 (“Swarbrick’s First Affidavit”).
In September 2003 Mr Swarbrick commenced proceedings in the Federal Court seeking intellectual property protection in respect of the JS 9000 design. Mr Swarbrick was successful before the Federal Court at first instance,[2] and on appeal before the Full Court of the Federal Court.[3] On appeal to the High Court however Mr Swarbrick lost, and the appellants, the respondents in the present proceedings, were successful.[4] On 31 July 2007 the High Court ordered that Mr Swarbrick pay the present respondents’ costs of the Intellectual Property Litigation. On 5 June 2008 a Deputy District Registrar of the Federal Court ordered that Mr Swarbrick pay costs in the sum of $125,110 to the present respondents.[5]
[2] Swarbrick v Burge & Ors (2004) 138 FCR 353; [2004] FCA 813 (“Swarbrick – Federal Court”).
[3] Burge & Ors v Swarbrick (2005) 149 FCR 193; [2005] FCAFC 257 (“Swarbrick – Federal Court Appeal”).
[4] Burge & Ors v Swarbrick (2007) 232 CLR 336; [2007] HCA 17 (“Swarbrick – High Court”). Collectively, the previous proceedings in the High Court and the Federal Court will be described as the “Intellectual Property Litigation”.
[5] Swarbrick’s First Affidavit, appendix H, is the bankruptcy notice (“Bankruptcy Notice”). A copy of the relevant costs order (“Costs Order”) is attached to the Bankruptcy Notice.
The present application
The present application is said to be an application under the Bankruptcy Act 1966 (Cth)[6] to set aside a bankruptcy notice issued as a consequence of Mr Swarbrick’s failure to pay the costs of $125,110.
[6] “Bankruptcy Act”.
Issues
The issues which arise in these proceedings are:
a)whether proceedings to set aside the Costs Order in respect of which the Bankruptcy Notice was issued have been instituted by Mr Swarbrick;[7]
[7] Bankruptcy Act, s.41(6A)(a).
b)whether an application has been made to this Court to set aside the Bankruptcy Notice;[8]
[8] Bankruptcy Act, s.41(6A)(b).
c)if the proceedings or an application referred to above had been instituted or made respectively, then whether that has been done before the expiration of the time fixed for compliance with the Bankruptcy Notice;[9]
[9] Bankruptcy Act, s.41(6A) and (7).
d)whether Mr Swarbrick has applied to this Court for an order setting aside the Bankruptcy Notice on the ground that he has a counter-claim, set-off or cross-demand;[10]
e)if he has applied for a set aside order on the basis that he has a counter-claim, set-off or cross-demand, whether:
i)he did so before the expiration of the time fixed for compliance with the requirements of the Bankruptcy Notice;[11]
ii)the counter-claim, set-off or cross-demand could not have been set up in the action or proceeding in which the judgment or order was obtained;[12] and
iii)the counter-claim, set-off or cross-demand was equal to or exceeding the amount of the judgment debt or sum payable under final order;[13]
f)whether, in the event that there is an application to set aside the Bankruptcy Notice or for a set aside order on the basis of a counter-claim, set-off or cross-demand, such a claim has merit.
Legislation
[10] Bankruptcy Act, s.41(7).
[11] Bankruptcy Act, s.41(7).
[12] Bankruptcy Act, s.40(1)(g).
[13] Bankruptcy Act, s.40(1)(g).
Bankruptcy Act
Section 41(6A) and (7) of the Bankruptcy Act provides as follows:
(6A) Where, before the expiration of the time fixed for compliance with the requirements of a bankruptcy notice:
(a)proceedings to set aside a judgment or order in respect of which the bankruptcy notice was issued have been instituted by the debtor; or
(b)an application has been made to the Court to set aside the bankruptcy notice;
the Court may, subject to subsection (6C), extend the time for compliance with the bankruptcy notice.[14]
(7) Where, before the expiration of the time fixed for compliance with the requirements of a bankruptcy notice, the debtor has applied to the Court for an order setting aside the bankruptcy notice on the ground that the debtor has such a counter‑claim, set‑off or cross demand as is referred to in paragraph 40(1)(g), and the Court has not, before the expiration of that time, determined whether it is satisfied that the debtor has such a counter‑claim, set‑off or cross demand, that time shall be deemed to have been extended, immediately before its expiration, until and including the day on which the Court determines whether it is so satisfied.
[14] Section 41(6C) is not relevant for present purposes.
Section 40(1) of the Bankruptcy Act provides as follows:
(1) A debtor commits an act of bankruptcy in each of the following cases:
...
(g)if a creditor who has obtained against the debtor a final judgment or final order, being a judgment or order the execution of which has not been stayed, has served on the debtor in Australia or, by leave of the Court, elsewhere, a bankruptcy notice under this Act and the debtor does not:
(i)where the notice was served in Australia—within the time specified in the notice; or
(ii)…
comply with the requirements of the notice or satisfy the Court that he or she has a counter‑claim, set‑off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under the final order, as the case may be, being a counter‑claim, set‑off or cross demand that he or she could not have set up in the action or proceeding in which the judgment or order was obtained.
Bankruptcy Rules
Rule 2.01(3) of the Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth)[15] provides as follows:
(3)An application must state:
(a) each section of the Bankruptcy Act, or each regulation of the Bankruptcy Regulations, under which the proceeding is brought; and
(b) the relief sought.
[15] “Bankruptcy Rules”.
Rule 3.02 of the Bankruptcy Rules provides as follows:
(1)An application to set aside a bankruptcy notice must be accompanied by:
(a) a copy of the bankruptcy notice; and
(b) an affidavit stating:(i)the grounds in support of the application; and
(ii)the date when the bankruptcy notice was served on the applicant; and
(c)a copy of any application to set aside the judgment or order in relation to which the bankruptcy notice was issued and any material in support of that application.
(2)If the application is based on the ground that the debtor has a counter‑claim, set‑off or cross demand mentioned in paragraph 40 (1) (g) of the Bankruptcy Act, the affidavit must also state:
(a)the full details of the counter‑claim, set‑off or cross demand; and
(b)the amount of the counter‑claim, set‑off or cross demand and the amount by which it exceeds the amount claimed in the bankruptcy notice; and
(c)why the counter‑claim, set‑off or cross demand was not raised in the proceeding that resulted in the judgment or order in relation to which the bankruptcy notice was issued.
(3)The application and supporting documents must be served on the respondent creditor within 3 days after the application is filed.
Whether the “application” was filed before the expiration of the time fixed for compliance with the Bankruptcy Notice
It is convenient to commence by examining whether an “application” has been filed before the expiration of the time for compliance with the Bankruptcy Notice.
It is common ground that Mr Swarbrick was served with the Bankruptcy Notice on 13 May 2009 at 6.00pm.[16]
[16] Transcript at 6; Affidavit of Nicholas James Timoney, sworn 8 June 2009, para.2.
The time allowed for compliance with the Bankruptcy Notice was “within 21 days”.[17] Section 36(1) of the Acts Interpretation Act 1901 (Cth)[18] provides that:
Reckoning of time
(1)Where in an Act any period of time, dating from a given day, act, or event, is prescribed or allowed for any purpose, the time shall, unless the contrary intention appears, be reckoned exclusive of such day or of the day of such act or event.
[17] Bankruptcy Act, s.40(1)(g)(i), as specified in para.3 of the Bankruptcy Notice: “within 21 days after service on you of this Bankruptcy Notice”.
[18] “Acts Interpretation Act”.
The provisions of the Acts Interpretation Act apply to the provisions of s.40(1)(g) of the Bankruptcy Act,[19] but also apply to the terms of the Bankruptcy Notice, it being a notice prescribed under s.41(2) of the Bankruptcy Act by reg.4.02 of the Bankruptcy Regulations 1996 (Cth), and is thus a legislative instrument to which the Acts Interpretation Act applies.[20] Thus, the day upon which the Bankruptcy Notice was served is excluded from the calculation of the 21 days.
[19] Acts Interpretation Act, s.2(1).
[20] Acts Interpretation Act, s.46(1); Legislative Instruments Act 2003 (Cth), s.5.
The above interpretation is consistent with the law relating to the meaning of the word “within” in this context. In Susiatin v Minister for Immigration and Multicultural Affairs[21] the Federal Court observed as follows:
“I turn then to the provision of s 478(1)(b). As has been noted, it is there provided, as a mandatory requirement, that an application of the present kind "must be lodged with a Registry of the Federal Court within 28 days of the applicant being notified of the decision".
The first question that arises concerns the meaning of the term "within" in this context. In Reynolds v Reynolds [1941] VLR 249, O'Bryan J said (at 252):
The word `within' in relation to a period of time does not usually mean `during' or `throughout the whole of'; it is more frequently used to delimit a period `inside which' certain events may happen.
[21] (1998) 83 FCR 574; (1998) 52 ALD 238 (“Susiatin”).
In Morton v Hampson [1962] VR 364, the Full Court said (at 365):
The modern rule in relation to a period of time fixed by statute `within' which an act is to be done after a specified event is that the day of the event is to be excluded; the next day is that first day of the stipulated period and the time expires on the last day of the period, counting from and of course including the first day.
In Ward v Walton (1989) 10 MVR 537, a question arose as to the meaning of s 44(3)(b)(i) of the Limitation Act 1981 (NT) which prohibits the exercise of a discretion to extend the time to lodge an action for damages arising from a motor vehicle accident unless the Court is satisfied that the action has been instituted "within 12 months after the ascertainment of" the material facts by the plaintiff. Asche CJ said (at 541):
So far as the Oxford English Dictionary defines `within' in temporal terms, those definitions are as follows: `In the limits of (a period of time); most usually, before the end of, after not more than; also, since the beginning of, not more than... ago; or generally between the beginning and end of, in the course of, during.
Clearly some of those definitions favour the appellant, (`before the end of'), some, the respondent (`during'). In the context, however, and to avoid an otherwise absurd result I consider that the former meaning is appropriate. For it seems to make good sense for the court to be satisfied that `the action was instituted within' (ie, before the end of or not later than) '12 months after the ascertainment of those facts by the plaintiff'.
A reading of `within' as meaning `before the end of' appears in Earl of Morton's Trustees v McDougal 1944 SC 410... Lord Justice-Clerk Cooper said, at 443: “It is to be noted that the words are `within one month' and not `within the month'. According to its normal significance, as evidenced by the dictionaries, `within' when applied to a period of time most usually means `before the end of'... It seems to me that that is a sufficient meaning to give to the words of the statute - in other words to read them as prescribing a time limit on the expiry of which, if the claim and particulars have not been given, the claim will prescribe.
In my opinion, the word "within" in the present context, has a meaning similar to that attributed to it in the authorities I have mentioned, that is to say, it should be read as indicating the limits of a period before the end of which the relevant act must be done and that for this purpose, the day of the act in question is to be excluded.”[22]
[22] Susiatin FCR at 580 per Beaumont J; ALD at 243-244 per Beaumont J.
Therefore, the day upon which the Bankruptcy Notice was served is excluded from the calculation of the 21 days.[23] Thus, Mr Swarbrick was required to comply with the Bankruptcy Notice by 3 June 2009. The present “application” was filed on 3 June 2009, and was therefore filed before the expiration of the time for compliance with the Bankruptcy Notice.
[23] Contrast M Murray, Keay’s Insolvency: personal and corporate law and practice (6th Edn) (Sydney: Lawbook Co, 2008) p.60, para.[3.240] which suggests, wrongly in the Court’s view, that “within 21 days” amounts to only 20 days clear days and that the day of service counts as the first day. The suggestion is made without citation of authority, a fact in itself unusual in this generally helpful and practical text.
If there is in fact an application:
a)to set aside the Bankruptcy Notice, time for compliance with the Bankruptcy Notice may therefore be extended under s.41(6A)(b) of the Bankruptcy Act, or
b)for an order setting aside the Bankruptcy Notice on the ground that Mr Swarbrick has a counter-claim, set-off or cross-demand, time for compliance will be deemed to have been extended under s.41(7) of the Bankruptcy Act.
Section 41(6A)(a) – are there proceedings to set aside the Costs Order?
There is no dispute that there are, and have been, no proceedings instituted to set aside the Costs Order which is the subject of the Bankruptcy Notice. Time for compliance with the Bankruptcy Notice cannot therefore be extended under s.41(6A)(a) of the Bankruptcy Act.
Section 41(6A)(b) - is there an application to set aside the Bankruptcy Notice?
Setting aside interim orders sought, which are no longer relevant, Mr Swarbrick seeks, in the “application”, the following orders on grounds said to be stated in Swarbrick’s First Affidavit:
“1.The Respondents make payment to the Applicant the monetary amount that the Respondents are indebted to the Applicant, the amount of $991,890.00
2.The Respondents return all property to the Applicant that has been removed from The Albany boatyard of Swarbrick Yachts International by Respondents Brent Burge, Trevor Rogers and Benjamin Warren.
3.Respondent Glen Bosman is to return to the Applicant all documentation, plans, specifications etc given to him by Brent Burge.”
Swarbrick’s First Affidavit is entitled as follows:
“AFFIDAVIT OF JOHN HARLEY SWARBRICK
IN SUPPORT OF APPLICATION PURSUANT TO BANKRUPTCY RULE 3.02
TO SET ASIDE BANKRUPTCY NOTICE
FEDERAL MAGISTRATES COURT (BANKRUPTCY ACT) RULES 2006”
A second affidavit of Mr Swarbrick sworn on 13 July 2009,[24] in response to an affidavit of Glen Peter Bosman sworn 24 June 2009,[25] is similarly entitled. Likewise an affidavit sworn by Mr Swarbrick on 7 August 2009,[26] but which also bears the heading “AMENDED COUNTERCLAIM”.
[24] “Swarbrick’s Second Affidavit”.
[25] “Bosman’s Affidavit”.
[26] “Swarbrick’s Third Affidavit”.
A review of the application and Mr Swarbrick’s First, Second and Third Affidavits reveals no express setting out of grounds upon which the Bankruptcy Notice is sought to be set aside. It is therefore necessary to examine the facts deposed to by Mr Swarbrick in order to see whether any grounds are otherwise discernible.
The relevant order sought by Mr Swarbrick for these purposes (that is the purpose of having the Bankruptcy Notice set aside) is the order sought for the payment of money consequent upon an alleged debt of $991,890.
Swarbrick’s First Affidavit sets out a series of alleged facts under the heading “Summary of Facts Relevant to Application”.[27] Assuming for the purposes of this part of these reasons for judgment, and without deciding as to their factual accuracy or their admissibility, that the facts are as deposed to in Swarbrick’s First Affidavit, none of the facts relate to an application to set aside the Bankruptcy Notice. Each of the facts relates to, and sets up, what is described as a “Counter-claim”.[28] The counter-claim is for sums of money, totalling $1.117m, being:
a)$700,000, alleged to be the aggregate sum of professional fees for design and costs for the JS 9000 boat building project pursuant to an agreement called the Burge Agreement;[29]
b)$15,000, alleged to be the aggregate sum for professional fees for the loss of design, geometrical and mechanical engineering details contained in what is described as “the Console mould”;[30]
c)$12,000, alleged to be the aggregate sum of professional fees for the loss of design, geometrical and mechanical engineering details contained in the keel moulding, rudder moulding, bulkhead moulding and chain plate knee moulding;[31] and
d)a claim for a sum of $390,000, allegedly being the aggregate sum for the loss of a ten JS 9000 boat order placed by an English agent, JS Yachts UK with Swarbrick Yachts International and John Swarbrick in February 2003.[32]
[27] Swarbrick’s First Affidavit, paras.1-29.
[28] Swarbrick’s First Affidavit, paras.30-33.
[29] Swarbrick’s First Affidavit, para.30.
[30] Swarbrick’s First Affidavit, para.31.
[31] Swarbrick’s First Affidavit, para.32.
[32] Swarbrick’s First Affidavit, para.33; “Ten Boat Order”.
Each of the above claims is said to be a claim against “the Respondents”.[33]
[33] Swarbrick’s First Affidavit, paras.30-33.
The “legal basis” for the counter-claim is not clearly set out but appears to relate to:
a)alleged breach of contract in relation to the Burge Agreement;
b)alleged unauthorised removal/theft of property;
c)alleged breach of copyright (although Mr Swarbrick said at hearing that this was not being alleged, but then appeared to argue that there was a breach);[34] and
d)alleged unlawful interference with contract.[35]
[34] Transcript at pp.52 and 54.
[35] Swarbrick’s First Affidavit, para.34.
Mr Swarbrick says that, taking into account the counter-claim, there results a debt due to him by “the Respondents” (jointly) of $991,890, being the $1.117m less the amount of $125,110 referred to in the Bankruptcy Notice.
In determining the nature of the application, and the basis for it, the Court has not been assisted by the fact that Mr Swarbrick has not complied with:
a)rule 2.01(3)(a) of the Bankruptcy Rules, in that the application does not state under which sections of the Bankruptcy Act or which regulations of the Bankruptcy Regulations the application has been made; and
b)rule 3.02(2)(a) of the Bankruptcy Rules in that the application does not give “full details” of the alleged counter-claim, set-off or cross-demand.[36]
[36] As to which see paras.96-98 below.
On the basis of the contents of Swarbrick’s First Affidavit it is clear that there was no application to set aside the Bankruptcy Notice under s.41(6A)(b) of the Bankruptcy Act as at the date of that affidavit, 3 June 2009. Further, the Bankruptcy Notice itself is not sought to be impugned, with one arguable exception dealt with below.[37] Rather, there is an application which asserts that Mr Swarbrick has a counter-claim, set-off or cross-demand. Therefore this is an application which seeks to set aside the Bankruptcy Notice under s.41(7) of the Bankruptcy Act. Mr Swarbrick confirmed this when he submitted to the Court that:
“I believe that I was carrying on with this action or counter-claim or set-off claim based on section 41(7).”[38]
[37] See paras.28-32 below.
[38] Transcript at 14.
The exception arises from the following statement by Mr Swarbrick:
“The judgment order and the amount claimed by the Respondents are the costs of Appeal to the High Court. Had the possibility of Warren’s conviction in the Perth Magistrates Court been established and been known to the Applicant prior to Federal Court proceedings W 195 of 2003, the Respondents would not have by way of reason, been justified to a “plea of innocence” and the matter of the order of the High Court to raising Respondents’ costs would not be an issue.”[39]
[39] Swarbrick’s First Affidavit, para.37. The reference to “Warren” is a reference to the third respondent.
Mr Swarbrick says that the costs claimed are those of the High Court appeal. This is not the case. The Costs Order is one made by a Deputy District Registrar of the Federal Court. That much is clear from the Certificate of Taxation and Costs Order attached to the Bankruptcy Notice, both of which issued from the Western Australian District Registry of the Federal Court.[40]
[40] Swarbrick’s First Affidavit, Appendix H.
It is not apparent from the Certificate of Taxation and Costs Orders what part of the Federal Court proceedings the Costs Order concerns. However, Mr Bosman’s evidence, unchallenged in this respect, was that it was the costs of the Full Federal Court appeal[41] that were taxed.[42]
[41] Swarbrick – Federal Court Appeal.
[42] Bosman’s Affidavit, para.5.
The Court finds that the Costs Order is related to the costs of the appeal to the Full Court of the Federal Court, and not the High Court appeal, and Mr Swarbrick’s evidence to the contrary is incorrect.
In the latter part of paragraph 37 of Swarbrick’s First Affidavit set out above, Mr Swarbrick asserts that the Costs Order would not have been made had the possibility of Warren’s conviction been established and been known to him prior to the Federal Court proceedings, because the respondents would not have been justified in pleading innocent infringement of copyright and the matter of the order of the High Court awarding the Respondents’ costs would not be an issue.[43]
[43] Swarbrick’s First Affidavit, para.37. The Court assumes that the reference to a “plea of innocence” is a reference to a plea of innocent infringement of copyright: Copyright Act, s.116(2).
Mr Swarbrick also says that he informed Mr Bosman of Mr Warren’s conviction “with respect [to] stealing part of the Hull and Deck moulds, the same matter the Respondents appealed to the High Court.”[44]
[44] Swarbrick’s First Affidavit, para.39.
Mr Swarbrick’s assertion requires an examination of the bases for the Intellectual Property Litigation, including that part of which went to the High Court.
What was in issue throughout the Intellectual Property Litigation was the phrase “a work of artistic craftsmanship” in ss.10 and 77(1) of the Copyright Act 1968 (Cth). The High Court said:
“The litigation turns upon the construction and application of provisions of the Copyright Act 1968 (Cth) (the Copyright Act), particularly the phrase “a work of artistic craftsmanship” which appears in the definition of “artistic work” in section 10 and in section 77(1).”[45]
[45] Swarbrick – High Court CLR at 341 per Gleeson CJ, Gummow, Kirby, Heydon and Crennan JJ; HCA at para.2 per Gleeson CJ, Gummow, Kirby, Heydon and Crennan JJ.
The High Court also said that “the critical issue” in the Intellectual Property Litigation “was whether they were works of artistic craftsmanship, a matter upon which turned the defence to infringement.”[46] The “works” there referred to were “the plug, the mould, the hull and deck mouldings, the Bateau Rouge and certain drawings.”[47]
[46] Swarbrick – High Court CLR at 368 per Gleeson CJ, Gummow, Kirby, Heydon and Crennan JJ; HCA at para.101 per Gleeson CJ, Gummow, Kirby, Heydon and Crennan JJ.
[47] Swarbrick – High Court CLR at 368 per Gleeson CJ, Gummow, Kirby, Heydon and Crennan JJ; HCA at para.101 per Gleeson CJ, Gummow, Kirby, Heydon and Crennan JJ.
The appeal before the Full Court of the Federal Court was “concerned specifically with the meaning of the term “work of artistic craftsmanship””.[48]
[48] Swarbrick – Federal Court Appeal FCR at 195 per Moore, North and Emmett JJ; FCAFC at para.5 per Moore, North and Emmett JJ. See also FCR 201, 202 and 204-206 per Moore, North and Emmett JJ; FCAFC paras.40, 42 and 52-64 per Moore, North and Emmett JJ.
At first instance in the Federal Court the issue of artistic craftsmanship was also central.[49]
[49] Swarbrick – Federal Court FCR at 355, 360 and 362-373 per Carr J; FCA at paras.2, 57 and 63-137 per Carr J.
The High Court said that at first instance the Federal Court:
a)ought to have concluded that the plug[50] was not “a work of artistic craftsmanship”, because Mr Swarbrick’s work in designing it was not that of an artist – craftsman;[51] and
b)“correctly described, for present purposes, the hull and deck mouldings as manifestations of the plug … they might well be regarded as reproductions in a material form of the plug within the meaning of s31 of the Copyright Act.”[52]
[50] The plug “is a hand-crafted full-scale model of the finished yacht which is, in all respects, visually identical to the hull and deck of the finished JS 9000 yacht”: Swarbrick – Federal Court FCR at 356 per Carr J; FCA at para.17 per Carr J.
[51] Swarbrick – High Court CLR at 364-365 per Gleeson CJ, Gummow, Kirby, Heydon and Crennan JJ; HCA at para.85 per Gleeson CJ, Gummow, Kirby, Heydon and Crennan JJ.
[52] Swarbrick – High Court CLR at 365-366 per Gleeson CJ, Gummow, Kirby, Heydon and Crennan JJ; HCA at para.89 per Gleeson CJ, Gummow, Kirby, Heydon and Crennan JJ.
Significantly, the High Court found that:
“There is no substance in the claim that the hull and deck mouldings are to be supported independently as works of artistic craftsmanship, thereby obviating the obstacle placed by s77 of the Copyright Act in the path of Mr Swarbrick.”[53]
[53] Swarbrick – High Court CLR at 366 per Gleeson CJ, Gummow, Kirby, Heydon and Crennan JJ; HCA at para.90 per Gleeson CJ, Gummow, Kirby, Heydon and Crennan JJ.
In applying the pivotal statutory provision, s.77 of the Copyright Act, the Federal Court observed that “one starts by excluding from its operation any work of artistic craftsmanship.”[54]
[54] Swarbrick – Federal Court FCR at 378 per Carr J; FCA at para.169 per Carr J.
The question of whether the work was one of artistic craftsmanship is a question entirely antecedent to, and divorced from, any issues concerning:
a)innocent infringement; or
b)the consequence of the hull and deck moulds being stolen, if that is what occurred.
The above two issues are simply irrelevant to the issues determined in the Intellectual Property Litigation. This is further confirmed by a reading of the judgments in the Intellectual Property Litigation, in which the issues raised by Mr Swarbrick did not arise for determination. It can also be inferred that any question of theft of the hull and deck moulds was not a matter which concerned the Federal Court at first instance. The allegation that Mr Warren had been charged by the police with stealing a JS 9000 console mould from Swarbrick Yachts International (as well as the alleged involvement of Mr Burge in related activities) was raised, not by Mr Swarbrick but by the respondents, in affidavit material put before the Federal Court in September 2003.[55] That was more than four months before the Federal Court hearing began in February 2004.[56] The issue of the alleged theft of the console mould by Warren was therefore before the Court. It can be inferred that if it was an issue warranting attention by the Court either:
a)Mr Swarbrick’s then legal representatives would have put the matter squarely before the Court; or
b)the Court would itself have raised the matter.
There is no evidence that either happened.[57]
[55] Bosman’s Affidavit, Annexure Q: and specifically Annexure D to an affidavit sworn by Mr Bosman on September 30, 2003.
[56] Swarbrick – Federal Court.
[57] Exhibit R1 (being the papers for the Judge in the Federal Court at first instance in Swarbrick – Federal Court).
It follows therefore that these issues provide no basis on which to impugn the Bankruptcy Notice, and in particular the Costs Order, upon which the Bankruptcy Notice rests. They cannot therefore constitute grounds to set aside the Bankruptcy Notice under s.41(6A)(b) of the Bankruptcy Act.
The Court concludes that there is therefore no application to set aside the Bankruptcy Notice under s.41(6A)(b) of the Bankruptcy Act.
Section 41(6A) - have the jurisdictional prerequisites have been met?
Section 41(6A) of the Bankruptcy Act is the sole source of the Court’s power to extend time for compliance with a Bankruptcy Notice.[58]
[58] McLean v Australia and New Zealand Banking Group Ltd (1993) 42 FCR 300 at 302 and 304 per Ryan J.
Neither of the jurisdictional prerequisites for the operation of s.41(6A) have been met before time for compliance has expired. Therefore, this Court has no jurisdiction and cannot extend time under s.41(6A) of the Bankruptcy Act, and cannot therefore set aside the Bankruptcy Notice under s.41(6A).[59]
[59] Deputy Commissioner of Taxation v Willis (2007) 210 FLR 279 at 281-282 per Wilson FM; [2007] FMCA 579 at paras.9-10 per Wilson FM; Brookfield & Anor v Davey Products Pty Ltd [1998] FCA 1201 (“Brookfield”); Re Shaddock; Ex parte Commonwealth Bank of Australia [1998] FCA 355 (“Shaddock”).
Section 41(7) - is there an application for an order to set aside the Bankruptcy Notice?
In order to satisfy s.41(7) of the Bankruptcy Act, so as to obtain a deemed extension of time in which to comply with the Bankruptcy Notice, Mr Swarbrick must:
a)have applied for an order to set aside the Bankruptcy Notice;
b)have made the above application before the expiration of time for compliance with the Bankruptcy Notice;
c)have made the application on the ground that he has a counter-claim, set-off or cross-demand; and
d)establish that the counter-claim, set-off or cross-demand:
i)was one that he could not have set up in the action or proceeding in which the Costs Order was obtained; and
ii)that it is equal to or exceeds the amount payable under the Costs Order.[60]
[60] Bankruptcy Act, ss.40(1)(g) and 41(7).
An application for an order to set aside the Bankruptcy Notice
For reasons set out above,[61] there is, in the Court’s view, no actual application to set aside the Bankruptcy Notice. However, and more relevant for the purposes of s.41(7), Mr Swarbrick has not “applied … for an order” to set aside the Bankruptcy Notice by 3 June 2009. There is nothing in the “application” filed 3 June 2009 or Swarbrick’s First Affidavit that constitutes an application for “an order setting aside the Bankruptcy Notice”.[62]
[61] See paras.17-45 above.
[62] Bankruptcy Act, s.41(7).
The fact that no order was sought on 3 June 2009, nor relief claimed, is confirmed by Swarbrick’s Third Affidavit which specifically makes a claim for the Bankruptcy Notice to be set aside.[63] This is not, however, an application for an order of the type envisaged by s.41(7) of the Bankruptcy Act because by the time the specific claim for relief was made in Swarbrick’s Third Affidavit on 7 August 2009, the act of bankruptcy had been committed as there had been no compliance with the Bankruptcy Notice as required by 3 June 2009. The latter claim for relief is beyond the expiration of time for compliance and cannot therefore trigger the operation of the deemed extension of time in s.41(7) of the Bankruptcy Act.[64]
[63] Swarbrick’s Third Affidavit, para.19.
[64] Brookfield. The principle that applies is the same as that with respect to the same words (“before the expiration of the time fixed for compliance”) in s.41(6A), as to which see also the other authorities cited in fn.59 above.
Before the expiration of time for compliance
It follows from the above discussion[65] that there was no application for an order to set aside the Bankruptcy Notice on or before time for compliance expired on 3 June 2009. Mr Swarbrick’s application must therefore fail.
[65] See paras.49-50 above.
On the ground of a counter-claim, set-off or cross-demand
The claim made by Mr Swarbrick is probably not a counter-claim or set-off, given that he was the applicant in the proceedings out of which the appeal giving rise to making of the Costs Order. Rather, it is properly described as a cross-demand.[66]
[66] PP McQuade & MGR Gronow, Australian Bankruptcy Law and Practice (6th Edn) (Pyrmont: Thomson Reuters, 2008) para.40.1.345.
In any event, whatever its characterisation, the nature of the exercise in which the Court is involved is set out in Guss v Johnstone[67] where the High Court said:
[67] (2000) 171 ALR 598; [2000] HCA 26 (“Guss”).
38 The nature of the exercise upon which Sundberg J was engaged is well established by a long line of authority.
39 In Vogwell v Vogwell, Latham CJ said, in relation to a corresponding provision:
"[T]he authorities show that the matter to which the court looks is this, - whether it is just that the claim should be determined before the bankruptcy proceedings are allowed to continue; in other words, whether it is a claim which it is proper and reasonable to litigate."
40 The state of satisfaction referred to in s 40(1)(g), and s 41(7), involves weighing up considerations as to the legal and factual merit of the claim relied upon by the debtor, and the justice of allowing the bankruptcy proceedings to go ahead or requiring them to await the determination of the claim.[68]
[68] Guss ALR at 606 per Gleeson CJ, Gaudron, McHugh, Kirby and Callinan JJ; HCA at paras.38-40 per Gleeson CJ, Gaudron, McHugh, Kirby and Callinan JJ.
In Ebert v The Union Trustee Company of Australia Limited[69] the High Court said:
… section 52 (j) makes it necessary that a debtor served with a bankruptcy notice, if he does not comply with its requirements, should satisfy the Court of Bankruptcy that he has a counter-claim, set-off or cross demand which equals or exceeds the amount of the judgment debt. The debtor clearly must satisfy the Court that there exists in him a counter-claim, set-off or cross demand. "Cross demand" is the word relied upon here. The appellant cannot satisfy the Court that a cross demand exists by showing no more than that she propounds one and states how she suggests that she can make it out … Perhaps the standard may be expressed by saying that the debtor must show that he has a prima facie case, even if then and there he does not adduce the admissible evidence which would make out a prima facie case before a court trying the issues that are involved in his counter-claim, set-off or cross demand.[70]
[69] (1960) 104 CLR 346 (“Ebert”).
[70] Ebert CLR at 350 per Dixon CJ, McTiernan and Windeyer JJ.
In assessing the legal and factual merit of any cross-demand it is only necessary, for present purposes, to have regard to the Burge Agreement and the 10 Boat Order, which together constitute $1.09m of the $1.117m of the cross-demand.
Burge Agreement
In relation to the Burge Agreement, Swarbrick’s First Affidavit says as follows:
“3.I have known Brent Burge (Burge) since 1969 from our time at Guildford Grammar School.
4.In approximately April 2001 in meetings with Burge, Paul Burnham and myself at Paul Burnham’s Architectural studio, Napoleon Street, Cottesloe, agreement was reached to further develop a yacht design that I had under part construction in time for a Boatshow in Dusseldorf, Germany. The design was to become known as the “JS 9000”
5.The agreement (Burge Agreement), which was partly oral and partly by conduct, whereby:
(a)Burge was to provide the monetary funding for the design and completion of patterns, moulds and construction of the first yacht from the moulds and forthcoming Boatshow in Germany January 2002.
(b)in return, John Swarbrick and Paul Burnham would provide management of the project (Project).
6.Pursuant to Agreement with Burge I opened on the 9th April 2001 a Commonwealth Bank account (Bank Account). Hereto and attached as Annexure “A” is a copy of a letter from the Commonwealth Bank that relates to that account. I understood that the Commonwealth Bank was the bank that Burge personally operated through. The agreement was that Burge was to place funds in this particular account for the Project.
7.Despite repeated assurances from Burge, monetary funding has never been directed towards the Project or placed in the Bank Account.
8.The Project was carried out at my fathers pattern making workshop to February 2002. In March 2002, the Project relocated to Albany, Western Australia.
9.When the Project was relocated to Albany, Burge made many visits, staying for days or weeks as a house guest at my home to approximately April 2003. While in Albany Burge had access and use of my home and boatyard / Project office. I made Burge aware on many occasions that specifications, drawings, and documentation was highly confidential, notably the method of laminate engineering (construction technique) of the JS 9000. I considered Burge a trustworthy friend.
10.Burge, in approximately February 2003, informed me that he had a Financial Advisor that was interested in “backing” him in the Project pursuant to the Agreement of 2001. The Financial Advisor was an Accountant, Glen Bosman.
11.I received a telephone call from Glen Bosman (Bosman) in approximately April 2003 whilst I was in Singapore. Bosman enquired if I would meet with him at Claremont the following day in Perth on my way back to Albany.
12.At the Claremont meeting with Bosman, I was informed that Burge had approached him several times in the past on various business proposals, Bosman stating Burge had informed him that there was a “window of opportunity” in the Project. Bosman informed me that he had investors that may be interested in the JS 9000 Project. These investors, if interested, would assume the role as outlined in the Burge Agreement. The next contact with Bosman was by telephone on Tuesday 2 September 2003”[71]
[71] Swarbrick’s First Affidavit, paras.3-12, typed from the original without amendment.
Swarbrick’s First Affidavit then goes on to deal with issues related to the copying of the flop moulding of the JS 9000 yacht design.
Mr Swarbrick then claims “from the Respondents the sum of $700,000.00, being the aggregate sum of professional fees for design and costs for the Project pursuant to the Burge Agreement.”[72]
[72] Swarbrick’s First Affidavit, para.30.
The evidence does not establish which terms of the Burge Agreement are “partly oral” and “partly by conduct”.[73] Furthermore, the evidence does not establish essential terms of the Burge Agreement going to the alleged provision of monetary funding by Burge. In relation to an agreement alleged to be formed in April 2001 for the purposes of further developing a yacht design for a boat show in Germany in January 2002, nothing is said about the amount or amounts of monetary funding to be paid, or when or how they are payable. Thus, there is no evidence of an essential term of the contract, that is, the price to be paid, or any mechanism, method or formula to fix that price[74]
[73] Swarbrick’s First Affidavit, para.5.
[74] G Scammell and Nephew Ltd v Ouston [1941] AC 251 (no contract where agreement made to supply a van “on hire purchase terms”); Courtney & Fairbairn Ltd v Tolaini Bros. (Hotels) Limited [1975] 1 WLR 297 (no contract where agreement to perform building work failed to fix a price or a mechanism for determination of price); ANZ Banking Group Ltd v Frost Holdings Pty Ltd [1989] VR 695 (specification of rent for a lease is essential); NZI Insurance Australia Ltd v Baryzcka (2003) 85 SASR 497; [2003] SASC 190 (method for fixing rent in a lease is essential).
A similar defect affects the claim made by Mr Swarbrick for the sum of $700,000 “being the aggregate sum of professional fees for design and costs for the Project pursuant to the Burge Agreement.” There is no evidence as to how the sum of $700,000 was arrived at and no evidence of the professional fees charged and costs incurred, or over what period, or for what periods of time, those fees and costs were said to be incurred. Furthermore, a claim for professional fees for design and costs is not necessarily consistent with the alleged agreement whereby Mr Swarbrick and Mr Burnham were to “provide management of the project”.[75] There is not necessarily a correlation between management of the project and monetary funding for the design and completion of patterns etc and construction of the first yacht, and it is not necessarily apparent as to how an agreement to provide project management results in a claim for “professional fees for design and costs”.
[75] Swarbrick’s First Affidavit, para.5(b).
The evidence of the bank account is not helpful. All that the letter from the Commonwealth Bank, written on 14 May 2009, does is “confirm that your account [account number given] was opened on the 09/04/2001 and closed 29/04/2002”.[76] It says nothing of the name or purpose of the account. And, relevantly, if the account was established for the purpose suggested by Mr Swarbrick (that is payment of monies or funds by Mr Burge towards the project management costs), the closure of the account on 29 April 2002 might be said to indicate that it was no longer required for that purpose.
[76] Swarbrick’s First Affidavit, Annexure A.
A further difficulty with this claim arises from the fact that if the agreement was an agreement, then it was arguably breached in January 2002. This is because it is said that the agreement is one to further develop the JS 9000 design in time for a boat show to be held in Germany in January 2002.[77] If, as is apparent from the remainder of Swarbrick’s First Affidavit, the monetary funding had not been provided by that time, then there was a breach of the Burge Agreement in January 2002. Furthermore, the fact that the bank account into which the monies were to be paid was closed on 29 April 2002 indicates that if there was an agreement in the terms suggested by Mr Swarbrick, it had been breached or terminated on or before 29 April 2002. In either case, the Burge Agreement can not now be the subject of any action (that is, in this instance, a cross-demand) because the limitation period for commencing an action for breach of the alleged agreement would have expired in January 2008 or by 29 April 2008.[78]
[77] Swarbrick’s First Affidavit, paras.4 and 5.
[78] Limitation Act 1935 (WA), s.38(1)(c)(v); Limitation Act 2005 (WA), s.13.
Although the evidence refers to certain events in which Mr Burge was involved after January 2002, including staying at Mr Swarbrick’s home in Albany after the project was relocated there in March 2002, and advising that he had a financial advisor (Mr Bosman) who was interested in backing the project pursuant to the Burge Agreement in February 2003,[79] there is no evidence as to how, if at all, the Burge Agreement was varied or extended beyond the time of the boat show in Germany in January 2002. Those are of course critical issues to the assessment of monies required to be paid, if any, under the Burge Agreement, and the calculation of monies claimed by Mr Swarbrick as a debt owing to him.
[79] Swarbrick’s First Affidavit, paras.8-10, see also paras.11-12.
The entire basis for the payment of monies under the alleged Burge Agreement is, in the Court’s view, uncertain, and on the evidence presently available to the Court, warrants a conclusion that there was no contract at all as alleged.
The cross-demand against the creditor must also be mutual with the debt claimed in a bankruptcy notice. In Stec v Orfanos[80] the Full Court of the Federal Court said as follows:
24 The primary judge then said that there was a more general answer to all the alleged cross demands. This was that in answer to a bankruptcy notice issued by several joint creditors, the debtor may not raise a debt owed by one or some of them individually. Mr Stec's claims were not against all those described in the notice as "the creditor". His Honour relied on James at 643 and on an earlier decision of his own, Emanuele v Grey (unreported 17 December 1997), which also relied on the passage in James. Where a debtor seeks to set aside a bankruptcy notice on the ground that the debtor has a cross demand which equals or exceeds the amount of the judgment or order on which the bankruptcy notice is founded, the judgment on the one hand and the cross demand on the other must be mutual and due in the same right: Re Anderson; Ex parte Alexander (1927) 27 SR (NSW) 296; James v Abrahams (1981) 51 FLR 16 at 27. The requirement that the two claims be "in the same right" is directed to the capacities in which the claimants claim. Thus a claim by a judgment creditor personally cannot be answered by a claim against the creditor as a member of a partnership or as an executor or trustee. See Re Wedd; Ex parte Wedd (1961) 19 ABC 36; Re Molesworth (1907) 51 Sol J 653; Vogwell v Vogwell (1939) 11 ABC 83 at 89. But the requirement relevant to the present case is that the claims be mutual; that is that they be of the same kind or nature. Thus joint debts cannot be set off against several debts: Middleton v Pollock (1875) LR 20 Eq 515 at 518. Here three of Mr Stec's claims were against ERI alone. There is thus no mutuality in relation to these claims. His other claim was against Messrs Conroy, Rybak and Georgopolos. Again there is no mutuality because one of the joint creditors, ERI, is not the subject of the cross claim.[81]
[80] [1999] FCA 457 (“Stec”). It should be noted that the Full Court in Stec whilst agreeing with the primary Judge’s conclusion that a debtor may only raise as an answer to a Bankruptcy Notice issued by several joint creditors a cross-demand against those creditors jointly, the Full Court observed that James v Federal Commissioner of Taxation (1995) 93 CLR 631 was not authority for this proposition.
[81] Stec at para.24 per Beaumont, Branson and Sundberg JJ.
Although Mr Swarbrick alleges that the debt due to him is due by “the Respondents” jointly,[82] this particular aspect of the cross-demand (that is, the Burge Agreement cross-demand) is not mutual because it is against one only of the joint creditors, Mr Burge, and not all of the joint creditors. It follows that this part of the cross-demand cannot succeed as there is no mutuality.
[82] See para.25 above.
The Court also notes that there appears to have been no action commenced in relation to the Burge Agreement in any court of competent jurisdiction, prior to the cross-demand being raised in Swarbrick’s First Affidavit.
The Court, having regard for the circumstances set out above, is of the view that, even on a benevolent construction,[83] the cross-demand lacks legal and factual merit and does not establish a prime facie case against the respondents. Furthermore, the lack of mutuality is fatal to the prospect of the success of the Burge Agreement as a part of the cross-demand.
[83] Re Brink, Ex parte Commercial Banking Co of Sydney Ltd (1980) 30 ALR 433 at 440 per Lockhart J.
The Ten Boat order
The cross-demand in relation to the Ten Boat Order appears to claim damages in tort for unlawful interference with contractual relations.
The legal basis for the claim is set out as follows:
“Loss and damage caused by the Respondents due to the disruption and loss of an existing 10 boat order with one of the Applicants Agents. Bosman admitting to the Applicant that the Respondents copy of the JS 9000 was to fulfil the same order.”[84]
[84] Swarbrick’s First Affidavit, (second) para.33(iv).
Mr Swarbrick claims from the respondents the sum of $390,000 “being the aggregate sum for the loss 10 boat order that had been placed by the English Agent, JS Yachts UK with Swarbrick Yachts International and John Swarbrick in February 2003.”[85]
[85] Swarbrick’s First Affidavit, para.33.
Mr Swarbrick’s evidence on this matter is very limited. It is as follows:
“28.At these meetings in 2004 in Claremont, Glen Bosman stated that he and Sergio Zaza decided to commercially fund the copying of the JS 9000 yacht design after visiting my primary European Agent in England, Richard Horton of JS YACHTS UK. Bosman said, in effect that the Respondents were preparing in 2003 to put their copy of the JS 9000 into production and displace an existing 10 boat order from JS YACHTS UK held by myself and Swarbrick Yachts. Bosman also said that the Respondents were reliant on my European Agents to sell and distribute the Respondent copy of the JS 9000. Bosman further stated that “the Respondents had no knowledge in the selling the JS 9000”.
29.In September 2003 I informed my English Agent that Burge had commenced a copy of the JS 9000. The English Agent terminated their programmed 10 boat order for the period June – December 2003. At this time, I was unaware that the my English Agent had conducted meetings with the Respondents.”[86]
[86] Swarbrick’s First Affidavit, paras.28 and 29, typed from the original without amendment.
Jamie Bell is a person who has worked as a contract laminator constructing fibreglass mouldings at the direction and supervision of Mr Swarbrick.[87]
[87] Affidavit of Jamie Bruce Bell, sworn 10 July 2009 at para.3 (“Bell’s Affidavit”). Bell’s Affidavit does not make it clear for whom Mr Bell actually “worked”, and the precise legal nature of the relationship.
In relation to the Ten Boat Order Mr Bell says as follows:
“13.I am aware that JS Yachts UK had placed a ten boat order additionally to their original seven boat order. I had moulded a total of 10 keels for JS Yachts UK prior to SYI resuming all building works at their own Boatyard.
14.As a result of the unaccounted mouldings (as per #12 above mentioned), Swarbrick and I agreed to a spreadsheet numbering system relating to build orders. On this spreadsheet list (located on the tool store room at SYI) was a block order for 10 boats for JS yachts UK. I had completed all moulding works pursuant to the initial JS Yachts seven boat order.”[88]
[88] Bell’s Affidavit, paras.13 and 14.
The reference to “unaccounted mouldings” is a reference to a claim by Mr Swarbrick that Mr Bell had been invoicing him for mouldings that were not received, in circumstances where he says that Mr Burge was transporting mouldings to the boat yard of Swarbrick Yachts International.[89]
[89] Bell’s Affidavit, para.12.
Mr Bell says that in approximately August/September 2003 he was approached by Mr Burge with an offer of employment to fabricate mouldings in Pinjarra. Mr Bell declined the offer because as he understood it he would in effect be making unauthorised copies of the JS 9000.[90] Mr Bell says that at the meeting in August/September 2003 where he was offered employment, Mr Burge showed him “a black diary that had records of meetings and plans devised by himself [Burge], Trevor Rogers, Benjamin Warren, UK agents Richard Horton and Richard Devereaux, to copy by “flop moulding” the JS 9000.”[91]
[90] Bell’s Affidavit, para.18.
[91] Bell’s Affidavit, para.19(i).
Dean James Connolly works as a foreman for Swarbrick Yachts International and has constructed various versions of the JS 9000 under the direction and supervision of Mr Swarbrick.[92]
[92] Affidavit of Dean James Connolly, sworn 10 July 2009 (“Connolly’s Affidavit”).
In relation to the Ten Boat Order Connolly says as follows:
“24.I refer to Glen Bosman’s affidavit sworn 24 June 2003 [22] 10 Boat Order. I personally prepared a build schedule list in my capacity as Foreman at SYI. At the time I prepared this list, SYI had moulded parts for 10 Yachts ordered by JS Yachts UK. I am aware that 3 of the yachts were never completed and shipped to England as Swarbrick and SYI became aware that the JS YACHTS UK were involved in giving directions to Brenton Burge on his boatbuilding venture to copy the JS 9000.
25.I placed the production build list on a wall in the SYI Boatyard. SYI had completed and shipped seven yachts to JS Yachts UK. Itemised on the list a 10 block build regime order for JS yachts UK, my knowledge is that these 10 boats were a priority order to establish the yacht as a “one design class.”
26.To assist in the early delivery of the 10 boat order, JS Yachts UK were to take delivery of partly complete boats unlike the programmed order of the first 7 boats. JS Yachts were to take delivery of only mouldings, spars, rigging and catalogue equipment was to be purchased and fitted in England by JS Yachts UK.”[93]
[93] Connolly’s Affidavit, paras.24-26, typed from the original without amendment.
In Bosman’s Affidavit Mr Bosman says as follows concerning the Ten Boat Order:
“21.[28] In his second sentence of this paragraph, Swarbrick states that the Respondents were preparing to displace an existing 10 boat order that Swarbrick’s company had with the English agents. I am not aware nor has Swarbrick put forward any evidence to support a 10 boat order. I refute ever having made this comment or being aware of there being a 10 boat order.
22.[29] Swarbrick states that English agent terminated the 10 boat order. In an email to me on 15 February, 2006 the English agent advises me that he read about this so called 10 boat order in an email newsletter Scuttlebutt. His response is that it was totally false and the rest of the claim a joke.”[94]
[94] Bosman’s Affidavit, paras.21 and 22. The references to [28] and [29] in the above quote are references to the paragraph numbers in Swarbrick’s First Affidavit.
Also attached to Bosman’s Affidavit was a copy of an email from the English agent, Richard Horton, from JS Yachts, who describes as “totally false” a statement attributed to Mr Swarbrick that a UK agent (presumably Horton on behalf of JS Yachts) was “ordering 10 more” JS 9000s.[95] The evidence in the email was not objected to.
[95] Bosman’s Affidavit , Annexure O.
Mr Bosman was cross-examined by Mr Swarbrick, and, relevantly gave evidence as follows:
a)that he and Mr Zaza (the sixth respondent) had travelled to England in 2003 and met with Richard Horton and Richard Devereaux from JS Yachts UK;[96]
b)that his purpose in travelling to England and Europe was to get an understanding of the international yacht market, and determine if there was any interest in an Australian built yacht of this type, and, if so, how it might be promoted, and to that latter end he and Mr Zaza had discussions with Austrade;[97]
c)denied that his aim in 2003 was to enlist the services of JS yachts UK to quickly launch a one-design class boat;[98]
d)said that he and Mr Zaza undertook the trip to England and Europe (which included a visit en route to Singapore) without taking any documentation or photos; and therefore for relevant purposes no documentation or photos related to the JS 9000;[99]
e)that he had no idea who were the agents for the JS 9000 in Europe;[100]
f)he did not go to England and Europe to inform himself or gather information on the activities of Mr Swarbrick or Swarbrick Yachts International, and was unaware of those activities until approached by English yachting agents seeking to recover yachts from Mr Swarbrick and/or Swarbrick Yachts International;[101] and
g)there “were no contracts, no obligations or any agreements entered into anywhere. There was understanding from the people in the UK that at such time that we built a yacht that they could see what the quality was like, they would reassess their position as to what they would do.”[102]
[96] Transcript at 24 and 27.
[97] Transcript at 24-25, 27 and 28.
[98] Transcript at 26-27.
[99] Transcript at 27-28.
[100] Transcript at 28.
[101] Transcript at 29.
[102] Transcript at 32.
The Court was impressed by Mr Bosman’s evidence. He appeared to be a reliable, no-nonsense person who gave straightforward and truthful, if occasionally testy, answers. The Court finds no reason to disbelieve any of his evidence.
In order to establish unlawful interference with contractual relations Mr Swarbrick must establish that each of the respondents:
a)with knowledge of the Ten Boat Order (assuming it to be the “contract” allegedly interfered with); and
b)with intent to prevent or hinder the performance of the Ten Boat Order;
c)either:
i)persuaded, induced or procured JS Yachts UK not to perform its obligations under the Ten Boat Order (so-called “direct interference”); or
ii)committed some act, wrongful in itself, to prevent performance (so-called “indirect interference”).[103]
[103] JG Fleming, The Law of Torts (9th Edn) (Sydney: LBC Information Services, 1998) p.758.
Interference with any valid and enforceable contract will found the action.[104] What evidence is there that the Ten Boat Order was, or was part of, a valid and enforceable contract? The answer is “very little”.
[104] DC Thomson & Co Ltd v Deakin [1952] Ch 646 at 677 per Lord Evershed MR.
Mr Swarbrick asserts that there was a Ten Boat Order, and Messrs Bell and Connolly indicate that work was proceeding in relation to such an order. However, the Ten Boat Order itself, assuming it was in writing or that there is some written evidence of offer and acceptance, was not put in evidence, as it might easily have been. Even if it was an oral offer and acceptance there is no evidence of it, or the agreed terms. Importantly, there is no evidence as to consideration: what was the price of all or each of the boats the subject of the Ten Boat Order? There is no evidence of an agreed price, or even an estimated agreed price or price range for all, some or each of the boats. It may be, as the evidence suggests that Mr Swarbrick and/or Swarbrick Yachts International were making yachts to a schedule or to order, but the evidence falls far short of establishing a valid and enforceable contract, even allowing for the fact that meagre evidence of terms may be enough.[105] Here there is no evidence of essential terms. Therefore, there is no evidence of a contract the terms of which have been unlawfully interfered with, and this aspect of Mr Swarbrick’s cross-demand therefore fails at the outset. The Court therefore concludes that the cross-demand has no prospects of success.
[105] Daily Mirror Newspapers Ltd v Gardner [1968] 2 QB 762. At 780 Lord Denning MR referred to the evidence in support of the terms of the contract as “meagre”, and the United Kingdom Court of Appeal affirmed a mandatory and negative injunction granted at first instance.
Even if there were a valid and enforceable contract, the claim of unlawful interference with contractual relations faces other difficulties.
There is no direct evidence that any of the respondents, and in particular Mr Bosman, had knowledge of the Ten Boat Order. There is insufficient evidence to be able to infer that any of the respondents knew that there was a similar boat order contract of some type between JS Yachts UK and Mr Swarbrick, or, (if it be relevant) Swarbrick Yachts International.
There is no evidence of intent to prevent or hinder the performance of the Ten Boat Order by Messrs Bosman or Zaza. On Mr Bosman’s evidence they were engaged on a fact finding trip to ascertain possible demand in certain markets, and there is nothing in the evidence, properly construed, which suggests any involvement by Mr Bosman or Mr Zaza in interference with the alleged contractual relations between Mr Swarbrick and JS Yachts UK.
As to the other individual respondents there is evidence of steps being taken to copy the JS 9000, or parts of it. However, an intention to copy, even where acted upon, and even if illegal, does not, without more, disclose intent to prevent or hinder the performance of the Ten Boat Order. In this case even if certain of the respondents were copying the JS 9000, and discussing those activities with Horton and Devereaux in England (which is about as high as this evidence could go) there is no evidence and no necessary nor causal connection between the act of copying and any intent to prevent or hinder performance of the Ten Boat Order. In the circumstances, the Court concludes that Mr Swarbrick has failed to, on any evidence, demonstrate that any of the respondents had, or might have had, the required intent.
The lack of evidence in relation to both of the required elements – knowledge and intent – of the tort of unlawful interference with contractual relations also means that there is no reasonable prospect of Mr Swarbrick succeeding in relation to this aspect of the cross-demand.
A further reason that Mr Swarbrick has no reasonable prospect of success in relation to the unlawful interference with contractual relations cross-demand is that there is no proof of damage. Not only, as explained above,[106] is there no evidence of the price of the boats, or the consideration agreed, but there is also no evidence of the costing of:
a)materials,
b)labour;
c)marketing;
d)production;
e)transport; or
f)statutory taxes and duties (such as GST and customs or import charges and duties),
in relation to the Ten Boat Order.
[106] See para.85 above.
There is no evidence of the estimated profit to be made in relation to each yacht. That is relevant because it is clear that at least some of the boats were to be partially fitted out in England with components purchased in England by JS Yachts UK.[107]
[107] Connolly’s Affidavit, para.26, as set out at para.78 above.
There is no evidence which can be used to calculate loss. Therefore, the entire basis for the sum of $390,000 alleged to be the loss on the Ten Boat Order is, in the Court’s view, uncertain. The loss, prima facie, is simply not established on the evidentiary material presently before the Court. That is a further reason why the unlawful interference with contractual relations cross-demand cannot succeed.
The Court also notes that there is insufficient evidence to enable it to conclude in respect of the unlawful interference cross-demand, that:
a)any contract concerning the Ten Boat Order was:
i)with Mr Swarbrick rather than Swarbrick Yachts International;
ii)alternatively, not a contract to which both Mr Swarbrick and Swarbrick Yachts International were parties; and
b)the claims are mutual.
The insufficiency of the evidence in regard to the above matters also weighs against the prospects of success of the unlawful interference cross-demand.
A further reason that the application to set aside the Bankruptcy Notice lacks legal and factual merit is because of the failure to comply with r.3.02 of the Bankruptcy Rules, which requires “full details” of the cross-demand to be stated in the affidavit. The Federal Court has held that:
a)“where a rule of court governs the procedure to be followed when making a particular application, a litigant is obliged to follow that procedure, or … obtain an order excusing … [the litigant] from doing so”;[108] and
b)the requirement to provide full details was “satisfied if the details stated are sufficient to show the nature and substance of the cross action and to demonstrate that the debtor is bona fide in … [the debtor’s] contention that the cross action exists”.[109]
[108] James v Hill [No 2] (2005) 3 ABC(NS) 631 at 633-634 per Branson J; [2005] FCA 981 at para.7 per Branson J. See also Crimmins v Glenview Home Units [1999] FCA 515 at para.11 per Branson J (“Crimmins”).
[109] Crimmins at para.19 per Branson J.
In circumstances where s.41(5) of the Bankruptcy Act required notice disputing the validity of the sum specified in a bankruptcy notice as the amount due to the creditor to be given within the time allowed for payment, and r.3.02 of the Bankruptcy Rules required that the application “must” be supported by affidavit setting out the grounds in support of the application, this Court held that the failure to file an affidavit setting out the grounds in support was a failure depriving the Court of jurisdiction to set aside a bankruptcy notice.[110]
[110] La Pegna v Commissioner of Taxation (2006) 204 FLR 364 at 373-374 per Lucev FM; [2006] FMCA 1643 at paras.50, 54 and 55 per Lucev FM.
For reasons set out above, Swarbrick’s First Affidavit does not set out full details of his cross-demands in relation to the Burge Agreement or the Ten Boat Order. It therefore fails to set out the substance of the cross-demand and fails to demonstrate that Mr Swarbrick is bona fide in his contention that the cross-demands exist.[111]
[111] And for like reasons his later claim for $5.5m in relation to the Ten Boat Order must fail; even if it had not been made outside time.
Conclusion – on the ground of the cross demand
For the reasons set out above Mr Swarbrick has not been able to establish legal and factual merit, or a prima facie case, for his cross-demands in relation to:
a)the Burge Agreement; and
b)unlawful interference with contractual relations,
nor has he provided the “full details” of the cross-demand generally.
For reasons set out below,[112] the failure to establish the above two claims is sufficient to find that a claim to set aside the Bankruptcy Notice on the ground of the cross-demand cannot succeed.
A counterclaim, set-off or cross-demand that could not have been set up in the action or proceeding in which the judgment or order was obtained
[112] See para.105 below.
Mr Swarbrick says that he could not have set up the cross-demand because the Costs Order arose out of the proceedings in the High Court. However, that does not explain why Mr Swarbrick did not try to set up the cross-demand in the proceedings in the Federal Court.[113] The facts as he asserts them were known before the commencement of the first instance hearing. Mr Swarbrick has not satisfied the Court that they could not have been formulated into a cause or causes of action, such as now appear to be asserted, falling within the accrued jurisdiction of the Federal Court, and included in an amended statement of claim, irrespective of any possible procedural difficulties.[114] The Court considers that the cross-demand could have been set up in the Federal Court proceedings and, therefore, the application now made cannot succeed.
[113] Westbrook v National Australia Bank Ltd [1999] FCA 892 at paras.14-15 per Merkel J.
[114] Re Ling; Ex parte Ling v Commonwealth (1995) 58 FCR 129.
Equal to or exceeding the amount of the judgment debt or sum payable under final order
For reasons set out above Mr Swarbrick has failed to establish a legally or factually meritorious, or prima facie case, in relation to his claim for:
a)$700,000, alleged to be the aggregate sum of professional fees for design and costs for the JS 9000 boat building project pursuant to an agreement called the Burge Agreement; and
b)a claim for a sum of $390,000, allegedly being the aggregate sum for the loss of the Ten Boat Order.
Mr Swarbrick has therefore failed to establish to the requisite standard a claim for $1.09m of the $1.117m which constitutes the cross-demand.
The remaining sum of $27,000 is not a sum equal to or exceeding the amount of the Costs Order. And, even if the cross-demands with respect to the remaining amount of $27,000 were the subject of valid cross-demands, because they do not equal or exceed the amount of the Costs Order, the proper course is to refuse to set aside the Bankruptcy Notice.[115] For this reason also, Mr Swarbrick’s application must fail.
Conclusion re application under s.41(7) of the Bankruptcy Act
[115] Patane v Asteron Life Ltd formerly Royal & Sun Alliance Financial Services Ltd) (ACN 001 698 228) (2004) 2ABC(NS) 85 at 100-101 per Lander J; [2004] FCA 232 at paras.100-101 per Lander J.
In circumstances where:
a)there was no application for an order to set aside the Bankruptcy Notice, either at all or made on or before the expiration of time for compliance with the Bankruptcy Notice;
b)no ground of the cross-demand was made out, or had any reasonable prospect of success on its legal and factual merit;
c)the cross-demand could have been set up in the proceedings before the Federal Court; and
d)a claim for a sum equal to or exceeding the amount of the Costs Order has not been made out,
the application under s.41(7) of the Bankruptcy Act cannot succeed, as the elements of that sub-section have not been made out.
Further, the application was not made before time for compliance with the Bankruptcy Notice expired. Therefore, the automatic or deemed extension of time for compliance with the Bankruptcy Notice under s.41(7) of the Bankruptcy Act does not come into operation.[116]
Miscellaneous issues
[116] Shaddock.
Objections to evidence
Because of the findings and conclusions set out above, it is unnecessary for the Court to consider the objections to the admissibility of Mr Swarbrick’s evidence. Even without objection the application does not have the required legal or factual merit.
Prior claims
The Court notes that no prior claims have been made in any court of competent jurisdiction concerning the cross-demands. The cross-demands now made were not made until:
a)the last possible day on which an application to set aside the Bankruptcy Notice could be made; and
b)several years after the relevant events had occurred.
Merits
In circumstances where:
a)the Bankruptcy Notice has not been impugned;
b)the Costs Order has not been impugned;
c)no claim for a sum greater than the amount of the Costs Order has, or could have, been made out, on the evidence before the Court,
no claim on the merits alone would have succeeded in any event. This supports the conclusion that the application must be dismissed.
Conclusions and order
For reasons set out above the Court has concluded that:
a)it does not have jurisdiction to extend time for compliance with the Bankruptcy Notice under s.41(6A) of the Bankruptcy Act;
b)the deemed extension of time for compliance with the Bankruptcy Notice under s.41(7) of the Bankruptcy Act does not apply; and
c)the application would have failed on its merits, in any event.
The application to set aside the Bankruptcy Notice must therefore be dismissed. There will be an order accordingly.
The Court will hear the parties as to costs.
I certify that the preceding one hundred and twelve (112) paragraphs are a true copy of the reasons for judgment of Lucev FM
Associate: S. Gough
Date: 20 November 2009
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