Tirops Safety Technology Pty Ltd v Lazer Safe Pty Ltd - [2005] WASC 164

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: TIROPS SAFETY TECHNOLOGY PTY LTD & ORS -v- LAZER SAFE PTY LTD & ORS [2005] WASC 164

CORAM: MASTER NEWNES

HEARD: 2 JUNE 2005

DELIVERED : 29 JULY 2005

FILE NO/S: CIV 2691 of 2002

BETWEEN: TIROPS SAFETY TECHNOLOGY PTY LTD (ACN 081 412 553)
First Plaintiff
THOMAS JOHN APPLEYARD
Second Plaintiff
SAFE-T-CORPORATION PTY LTD (ACN 069 330 007)
Third Plaintiff
AND
LAZER SAFE PTY LTD (ACN 090 113 572)
First Defendant
LAZER SAFE INVESTMENTS PTY LTD (ACN 081 637 872)
Second Defendant
ROBERT MEREDITH APPLEYARD
Third Defendant
OMNITRONICS PTY LTD (ACN 008 999 424)
Fourth Defendant
DAVID CHRISTOPHER NICOLSON
Fifth Defendant

Catchwords:

Practice and procedure - Application for security for costs - Whether defendants caused plaintiffs' impecuniosity - Whether order for security would stifle action - Relevant principles - Turns on own facts

Legislation:

Circuits Layouts Act 1989 (Cth)

Corporations Act 2001 (Cth), s 1335

Rules of the Supreme Court 1971, O 25

Result:

Security for costs ordered

Category: B

Representation:

Counsel:

First Plaintiff                :     Mr M L Bennett
Second Plaintiff            :     Mr M L Bennett
Third Plaintiff               :     Mr M L Bennett
First Defendant             :     Mr RJ Price
Second Defendant         :     Mr R J Price
Third Defendant           :     Mr R J Price
Fourth Defendant          :     Mr R J Price
Fifth Defendant            :     Mr R J Price

Solicitors:

First Plaintiff                :     Bennett & Co
Second Plaintiff            :     Bennett & Co
Third Plaintiff               :     Bennett & Co
First Defendant             :     Guy Provan
Second Defendant         :     Guy Provan
Third Defendant           :     Guy Provan
Fourth Defendant          :     Guy Provan
Fifth Defendant            :     Guy Provan

Case(s) referred to in judgment(s):

Bell Wholesale Co Pty Ltd v Gates Export Corporation (No 2) (1984) 2 FCR 1
BPM Pty Ltd v HPM Pty Ltd, unreported; FCt SCt of WA; Library No 960206; 17 April 1996
Buckley v Bennell Design & Construction Pty Ltd (1974) 1 ACLR 301
Caruso Australia Pty Ltd v Portec (Aust) Pty Ltd (1984) 1 FCR 311
Drumdurno Pty Ltd v Braham (1982) 42 ALR 563
Harpur v Ariadne Australia Ltd (No 2)[1984] 2 Qd R 523
Hughes v Canon Australia Pty Ltd (1990) 8 ACLC 209
Jet Corp of Australia Pty Ltd v Petres Pty Ltd (1983) 50 ALR 722
M A Productions Pty Ltd v Austrama Television Pty Ltd & Anor (1982) 7 ACLR 97
Newtrend Pty Ltd v Oceanic Life Ltd [1990] WAR 1
Pacific Acceptance Corporation Ltd v Forsythe (No 2) [1967] 2 NSWR 402
Pearson v Naydler [1977] 1 WLR 899
Sent v Jet Corporation of Australia Pty Ltd (1984) 2 FCR 201
Tradestock Pty Ltd v TNT (Management) Pty Ltd (1977) 14 ALR 52

Case(s) also cited:

Australian Prudential Regulation Authority v Rural and General Insurance Ltd [2004] FCA 933
Blair v Blair [2002] VSC 131
Chapman v Luminis Pty Ltd (No 3) (2000) 104 FCR 368
Deposit and Investment Co Ltd (Receivers Appointed) v Peat Marwick Mitchell & Co (1996) 39 NSWLR 267
Fuelxpress Ltd v LM Ericsson Pty Ltd (1987) 75 ALR 284
In the Marriage of Kennedy and Evans, Trust Bank (1994) 18 FamLR 472
In the Marriage of Lea (1990) 14 FamLR 293
J Aron Corporation v Newmont Yandal Operations Pty Ltd [2004] NSWSC 996
Jovista Pty Ltd v FAI General Insurance Co Ltd [1999] WASC 44
Marsden v Amalgamated Television Services Pty Ltd [2001] NSWSC 77
Pan Pharmaceuticals Ltd Re; Selim v McGrath [2004] NSWSC 129

MASTER NEWNES: This is an application by the defendants for security for costs. The plaintiffs do not deny that they would be unable to meet the defendants' costs if the defendants were successful at trial, but say that in the exercise of its discretion the Court should refuse to order security to be provided. The plaintiffs say, in essence, that the plaintiffs' lack of means has been brought about by the wrongful conduct of the defendants and that in light of the resources of the plaintiffs, and those who stand behind the corporate plaintiffs, the making of an order for security for costs would stifle the action.
The action was commenced by the plaintiffs on 9 December 2002. The statement of claim was filed on 28 February 2003. No steps were taken in the action between June 2003 and September 2004 while endeavours were made to settle the matter. Those endeavours having proved fruitless, in September 2004 the defendants sought directions to progress the action to trial. At this stage the matter has not progressed beyond the delivery of a statement of claim (which extends to 61 pages) and certain particulars of it.
In the statement of claim, the first plaintiff pleads that it has, since 27 January 1998, carried on the business of the research, development, manufacture and sale of a safety system for use in connection with press brake machines and other machine tools. The system is described in the statement of claim as the "TIROPS system". TIROPS is an acronym for "travelling instant response operator system" and is a safety system for use on press brake machines, which are used for bending sheet metal.
The first plaintiff claims to be the owner of two inventions, the first of which is the subject of a patent and the second of which is the subject of a patent application. The patent is described as the "TIROPS Generation 1 Patent 667057" for which the lodgement date is 16 October 1991 and the prior date is 18 October 1991. It was sealed on 25 June 1996. The patent application is described as the "TIROPS Generation 2 Patent Application 33352/01", for which the priority date is 5 January 1996 and the lodgement date is 6 January 1997.
It is pleaded that the integers and features of the patent application were based on, or are a modification or enhancement of, the invention which is the subject of the patent.
The plaintiffs plead that the second plaintiff is the registered proprietor of the patent and the patent application ("the patents") and the first plaintiff is now the legal or beneficial owner of the intellectual property rights associated with the inventions.
The plaintiff pleads that the TIROPS system incorporates the technology embodied in the patents, together with associated confidential information and copyright material of the plaintiff, EL Rights in respect of certain circuit layouts under the Circuit Layouts Act 1989 (Cth), and the registered trademark "TIROPS". It is pleaded that the confidential material relating to the inventions includes know‑how and other information which is not disclosed in the complete specifications of the patents and which is confidential to the plaintiffs.
The first defendant is the registered proprietor of patent number 738619, which is described as the "Lazer Safe Patent". The priority date of that patent is 5 May 1999 and its lodgement date is 5 May 2000.
It is pleaded that the first defendant manufactures and supplies a press brake safety system for use in conjunction with press brake machines and other machine tools (the "Lazer Safe Product"). The first defendant is controlled by the second defendant, which holds approximately 75 per cent of the issued shares. It is alleged the second defendant carried on the business of manufacturing and supplying the press brake safety system from about March 1998 to December 1999, when it changed its name from Lazer Safe Pty Ltd to Lazer Safe Investments Pty Ltd. Since that time it has been the non‑operating holding company of the first defendant.
The plaintiffs allege that the third defendant was appointed a director of the second defendant on 3 May 1998 and of the first defendant on 26 November 1999. The third defendant has effectively run each of the first and second defendants.
It is pleaded that the fourth defendant has, since early 1993, carried on the business of research, development and supply of software and electronic hardware design, including circuit layouts. The fifth defendant has been a director of the fourth defendant since October 1981 and effectively controls the fourth defendant.
It is alleged that, in early 1993, the second plaintiff requested the fourth defendant, through the fifth defendant, to provide a quotation for the development of a custom-designed printed circuit board controller to replace the programmable logic controller of the TIROPS system. In the course of dealings with the fourth defendant, the second plaintiff provided confidential information relating to the TIROPS system. The fourth defendant subsequently provided a quotation, but due to the second plaintiff's financial constraints no agreement was concluded. The plaintiffs plead that it was a term of the quotation that any intellectual property rights created in the course of the work would vest absolutely in the second plaintiff.
It is pleaded that in early October 1994 the second plaintiff obtained from the fourth defendant an updated price for the same work, on the same terms. In the course of dealings with the fourth defendant, the second plaintiff provided the fourth defendant with confidential information regarding the TIROPS system.
It is alleged that the dealings between the second plaintiff and the fourth and fifth defendants gave rise to obligations on those defendants not to use or disclose the confidential information except for the purposes of the second plaintiff and companies associated with him.
It is pleaded that, in early 1995, an agreement was made between the second plaintiff and the fourth defendant that the fourth defendant would assist in the further development of the invention, the subject of the first patent, by designing a custom micro-processor PCB controller to control laser beams. It is pleaded that it was an implied term of that agreement that any intellectual property rights created would belong absolutely to the second plaintiff and, to the extent necessary, would be assigned by the fourth defendant to the second plaintiff. The plaintiffs say that in connection with the agreement the second plaintiff provided the fourth defendant with confidential information.
The plaintiffs plead that, pursuant to the agreement, the fourth defendant undertook design work in respect of the controllers from about January 1995 to about October 1997 and manufactured controllers in that period.
It is alleged that the fourth and fifth defendants have, in breach of their contractual duties of confidence and like duties at law, used and disclosed the confidential information of the plaintiffs, and have failed to return confidential documents to the second plaintiff and to assign all rights associated with the work to the second plaintiff. It is alleged that the fourth defendant has made unauthorised use of the confidential information to provide products and services to the first defendant and/or the second defendant, and/or has used the confidential information as a spring board to enable it to modify or enhance the TIROPS system to supply it to those defendants. It is alleged the first plaintiff, or alternatively the third plaintiff ("STC"), is entitled to the confidential information and to enforce rights in respect of it.
The plaintiffs say that from about October 1994 the third defendant was employed by Safe‑T‑Heat Product Pty Ltd ("STH") in connection with the research and development of the TIROPS system, and continued in that employment until May 1995 when he was employed by STC. The third defendant subsequently became a director of STC. His employment with STC continued until November 1997, when it was terminated by STC. The third defendant resigned as a director of STC shortly before that time.
It is alleged that, during his employment by STH and STC, the third defendant obtained information concerning contractors, consultants and customers, and their requirements regarding press brake safety equipment.
It is alleged that, since November 1997, the third defendant has disclosed and used that confidential information to enable the first and second defendants to compete with STC and the second plaintiff and, from 27 January 1998, with the first plaintiff, including by procuring the Lazer Safe Patent for the first defendant. The plaintiffs say that in disclosing and using that confidential information the third defendant is in breach of his obligations arising as a former employee under the employment agreements with STC and STH, and his statutory duties arising from his capacity as a former director. It is alleged that the first plaintiff, alternatively STC, is entitled to the benefit of the employment agreements and entitled to enforce them, and that the duties under the Corporations Act are owed to STC. STC has assigned its right to damages to the first plaintiff.
It is alleged that by reason of the third defendant's breaches of his contractual and statutory duties the plaintiffs have suffered loss and damage.
The plaintiffs allege that each of the first and second defendants was or ought to have been aware that the information disclosed to it was confidential information of the second plaintiff or companies associated with him, including STH and STC. It is alleged that the first and second defendants were accordingly under an obligation to keep that information confidential and not to use it or disclose it for any purpose other than those of the second plaintiff, or the companies associated with him. The plaintiffs allege that, in breach of that obligation, the first and second defendants have disclosed and used the information, including for the purpose of causing or procuring the design, manufacture and sale of electrical control systems and other components for use in press brake safety systems. In particular, it is alleged that those defendants have provided confidential information to the fourth defendant and used it for the purposes of obtaining the Lazer Safe Patent, and to manufacture and market the Lazer Safe Product, and have used it as a spring board for their business. It is alleged that they have thereby obtained an unfair advantage over the plaintiffs and have made large profits.
It is further alleged that the first and second defendants have infringed the first patent and that the third defendant has aided and abetted them in that. It is alleged the fourth defendant has infringed the patent by designing, and manufacturing electrical control systems and other components for use in press brake safety systems, and supplying them to the first and second defendants for use in the Lazer Safe Product.
It is also alleged that the first plaintiff is the owner of the copyright in respect of intellectual property relating to the patents and the TIROPS system, and that the defendants have infringed that copyright for purposes associated with the Lazer Safe Product, including applying for the Lazer Safe Patent.
The plaintiffs also claim, in respect of the same matters, breaches of the Trade Practices Act and Fair Trading Act, and infringement of the plaintiffs' rights under s 19 of the Circuit Layouts Act.
In an affidavit in opposition to the application, the second plaintiff (the third defendant's father), says that the TIROPS patents are registered in his name but, as a result of various assignments, are now beneficially held by the first plaintiff, which was established in 1998 to exploit the technology that he and STC owned. He says he and two others developed the TIROPS concept. According to the second plaintiff, in January 1993 his company, Mako Holdings Pty Ltd, absorbed the radiant heating business operated by his son, Brad, and the company was renamed Safe-T‑Heat Products Pty Ltd. Although most of STH's income was produced through heating sales, the profit was directed toward the development of TIROPS. The second plaintiff says that STC was formed in May 1995 to market the generation 2 Tirops system.
The second plaintiff says that 107 generation 1 TIROPS systems had been fitted throughout Western Australia by 1995 and others had been fitted in various parts of Asia.
According to the second plaintiff, the third defendant was employed by STH on a part‑time basis in October 1994. In 1995, the third defendant was employed full‑time by STC to work on the TIROPS project, but he was not a director or shareholder of STC. The second plaintiff says the third defendant put considerable pressure on him to become a director and shareholder of both STC and STH, and eventually, in August 1997, the second plaintiff agreed. However, his and Brad's relationship with the third defendant deteriorated over that period and continued to deteriorate.
The third defendant resigned his directorships in September 1997 and was dismissed as an employee of STC in November 1997. The second plaintiff says that, by 1997, STC and STH were in a parlous financial position. Among other things, there was an outstanding debt to the fourth defendant, which had been manufacturing components for STH and STC. Because of the outstanding debt, the fourth defendant refused to provide further components and refused to return the intellectual property required to manufacture the TIROPS system. As the fourth defendant held all the relevant documentation relating to the intellectual property know‑how in the TIROPS controller, STC was unable to produce or sell any TIROPS systems. Without the relevant documentation, the second plaintiff says, STC was unable to engage any other manufacturer.
According to the second plaintiff, the fourth defendant then commenced manufacturing a product for the first and second defendants. The fourth defendant has since ceased manufacturing for the first and second defendants.
The second plaintiff claims that the plaintiffs' current impecuniosity is largely a result of the defendants' conduct. The first plaintiff no longer has the intellectual property for the TIROPS system in its possession and it therefore cannot manufacture or develop the products. As it has been unable to develop the technology and to supply its customers, the customers have turned to the defendants. The first plaintiff has similarly been hampered in its efforts to licence the patents. The second plaintiff denies the third defendant's claim that the patents are now obsolete. The second plaintiff says that the first plaintiff is not currently receiving any income and the patents are currently not being commercialised in the form of the manufacture of products or of licensing.
The second plaintiff says he is not in a strong financial position and that, in early 1999, as a result of financial problems, his home was sold by BankWest and he now lives in rented accommodation. His only income is a pension. The second plaintiff claims that the third defendant, in particular, has put a great deal of financial pressure on him, including by various proceedings commenced against STC and by proceedings commenced against him to recover a debt. It is not clear, however, that, with the possible exception of winding up proceedings instituted by the third defendant against STC and STH which were dismissed, any of the proceedings were without a proper foundation.
In his affidavits in support of this application the third defendant says that the TIROPS system was not novel technology, but that the concept had been known for many years. He says there were similar systems to the TIROPS system available in Australia in the early 1990s, and the concept is quite simple and its implementation quite straightforward.
The third defendant says that he was asked to become involved in the TIROPS project by his father, the second plaintiff, and by Brad, and was heavily involved in it by the time STC was formed to take it over. STH retained the heating element business. The third defendant says he was involved in dealing with suppliers, including the fourth defendant.
The third defendant says that after STC was formed he was involved in the TIROPS project with STC and Brad was involved in the heating element business with STH. The second plaintiff, who was close to retirement age, was involved with both companies but not in their day‑to‑day operations, and had no input into the further development of the TIROPS system. The third defendant says that he (the third defendant) was the inventor of the invention which formed the subject of the second TIROPS patent application.

The third defendant acknowledges that there was a decline in his relationship with his father and brother. He has, however, a very different version of the reasons for the deterioration in the relationship. I do not think it is necessary for present purposes to go into that. The third defendant does contend, however, that one of the main problems with the business of STC was that his father and brother wanted to sell or licence the technology, whereas he wanted to develop the system so it could be manufactured and sold by STC.
The third defendant says that at the time of his dismissal STC had money in the bank and credit facilities which allowed it to trade but, following his dismissal, did not have anyone who knew anything about the TIROPS project.
The third defendant says that in early 1998 he obtained funding from a small group of investors to develop a press guard safety system. The second defendant was registered on 13 February 1998 and commenced operations in about March 1998. The third defendant says that, since 1998, he has been managing director of the first and second defendants and has been involved in the design, development, marketing and sale of laser safety devices. In November 1999, the second defendant transferred its business to the first defendant. He says that the first defendant currently sells its products to customers in 25 countries and he regularly travels overseas to meet with customers to discuss their requirements and the market for products of that nature.
The third defendant denies that he used any confidential information belonging to STC, and says he used the knowledge, skill and experience he had gained while working for STC. He says the concepts of the TIROPS system were already disclosed in prior art and in the patents themselves, both the patent and the patent application having been published.
According to the third defendant, since 1998 the technology required to meet the relevant safety standards has changed beyond recognition and a completely new design has been required to meet the necessary international standard. Without international certification, products cannot be sold. The third defendant says that from about December 1998, and during the course of 1999, he developed a new system which utilised a planar laser beam and involved new circuitry and software for the controller. The third defendant says the system he developed is completely different, both in concept and detailed design, to the TIROPS product.
The application by the defendants is brought under O 25 and, so far as it concerns the first and third plaintiffs, also pursuant to s 1335 of the Corporations Act 2001 (Cth). The latter, so far as relevant, provides:
"Where a corporation is plaintiff in any action or other legal proceeding, the court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful in his, or her or its defence, require sufficient security to be given for those costs and stay all proceedings until the security is given."
It was not in dispute that the plaintiffs will be unable to pay the defendants' costs if the defendants are successful in defending the action. It was also not in issue that the plaintiffs' claim was bona fide and had reasonable prospects of success.
It is well established that the Court has a wide discretion whether to require a corporate plaintiff to provide security. In the exercise of its discretion the Court will be concerned to achieve a balance between ensuring the defendant is adequately and fairly protected, and avoiding injustice to an impecunious company by unnecessarily shutting it out or prejudicing it in the conduct of the litigation: Buckley v Bennell Design & Construction Pty Ltd (1974) 1 ACLR 301 at 304; Tradestock Pty Ltd v TNT (Management) Pty Ltd (1977) 14 ALR 52 at 56.
The inability of the plaintiffs to pay the defendants' costs should the defendants succeed not only goes to the jurisdiction of the Court to order security but is a factor, and often the most significant factor, in the exercise of the Court's discretion: Pearson v Naydler [1977] 1 WLR 899 at 906; Sent v Jet Corporation of Australia Pty Ltd (1984) 2 FCR 201 at 215; Harpur v Ariadne Australia Ltd (No 2)[1984] 2 Qd R 523 at 529; BPM Pty Ltd v HPM Pty Ltd, unreported; FCt SCt of WA; Library No 960206; 17 April 1996.
The fact that ordering security might frustrate the plaintiffs' claim is an important consideration but it does not inevitably mean that an order for security should be refused: Pacific Acceptance Corporation Ltd v Forsythe (No 2) [1967] 2 NSWR 402 at 407; Pearson v Naydler; Harpur v Ariadne Australia Ltd at 529 – 533. Whether an order for security would have the effect of stultifying the action raises the question of whether those who stand behind the corporate plaintiffs have the means to provide appropriate security.
In Bell Wholesale Co Pty Ltd v Gates Export Corporation (No 2) (1984) 2 FCR 1, the Full Court of the Federal Court said:
"In our opinion a court is not justified in declining to order security on the ground that to do so will frustrate the litigation unless a company in the position of the appellant here establishes that those who stand behind it and who will benefit from the litigation if it is successful (whether they be shareholders or creditors or, as in this case, beneficiaries under a trust) are also without means. It is not for the party seeking security to raise the matter; it is an essential part of the case of a company seeking to resist an order for security on the ground that the granting of security will frustrate the litigation to raise the issue of the impecuniosity of those whom the litigation will benefit and to prove the necessary facts."
It is therefore incumbent upon a plaintiff who wishes to resist an application for security to put before the Court a full and frank statement of the assets and liabilities of the shareholders and creditors of the plaintiff: Newtrend Pty Ltd v Oceanic Life Ltd [1990] WAR 1 at 3. Unless a plaintiff establishes that those who stand behind it and who will benefit from the litigation if it is successful are also without means, no conclusion can properly be reached that the effect of an order for security will be to frustrate the plaintiff's claim: BPM Pty Ltd v HPM Pty Ltd (supra).
Whether the plaintiffs' impecuniosity was caused by the defendants' wrongful conduct is a relevant consideration on an application for security for costs: M A Productions Pty Ltd v Austrama Television Pty Ltd & Anor (1982) 7 ACLR 97 at 100. But it is not to be considered in isolation and it must be considered together with the issue of whether the effect of an order for security will be to stultify the action. If that is not the case, or has not been shown to be the case, the fact that the defendant has caused the plaintiffs' own impecuniosity will hardly be good reason to decline security: BPM Pty Ltd v HPM Pty Ltd (supra). The plaintiffs bear an evidentiary onus to show that the defendants' wrongful actions have brought about their lack of means: BPM Pty Ltd v HPM Pty Ltd (supra).
The directors of the first plaintiff are the second plaintiff, Mr Bradley Appleyard and Mr Robert Davis. The shareholders are the second plaintiff, Mr Bradley Appleyard, Mr Graham Neil, Mr Paul Begley, Vertically Deficient Pty Ltd, 89 Enterprises Pty Ltd, and T J and J McLaren jointly. Mr Robert Davis is not a shareholder but it appears from a search at ASIC that Mr and Mrs Davis are chargees of a charge granted by the first plaintiff on 2 August 1999 which secures all of the first plaintiff's assets and undertaking to a maximum amount of $500,000.
It would appear from searches conducted by the defendants' solicitors that Mr Davis is the registered proprietor of land of substantial value. Mr Begley is a director of several other companies and a director and shareholder of 89 Enterprises Pty Ltd, which appears to be a family company. He has a one per centum interest in the house which he owns jointly with his wife, who owns the remaining interest. The house is valued at some $1.6 million. Neither the second plaintiff nor Mr Bradley Appleyard own any land in Western Australia. The house in which the second plaintiff lives is owned by a company, but there is no evidence as to the directors or shareholders of the company.
The shareholders of STC are Julia Appleyard, the second plaintiff and Bradley Appleyard. There is no evidence as to the financial position of Julia Appleyard.
The plaintiffs have not, in fact, sought to adduce any evidence as the financial position of any of the shareholders of either of the corporate plaintiffs. In that regard they have simply relied on the affidavits filed on behalf of the defendants to contend that, on the evidence, none of those associated with the corporate plaintiffs has any significant assets, apart from Mr Davis. It is, however, obvious that the public records to which the defendants have access will not necessarily reveal all of the assets owned by an individual or company. No explanation was offered for the failure by the plaintiffs to adduce evidence of the financial position of those who stand behind the corporate plaintiffs.
There has been no proposal that any of the shareholders of either of the corporate plaintiffs or that Mr Davis, as a secured creditor of the first plaintiff, provide any security for the defendants' costs. It was not suggested that in the circumstances it would be unreasonable to expect Mr Davis, in his capacity as a creditor, to do so.
The defendants deny that the plaintiffs' impecuniosity has been brought about by the defendants. They point out that, on the second plaintiff's evidence, both STC and STH were "in a parlous financial position by 1997". The second plaintiff also says in his affidavit that in 1997 there were outstanding debts owing to the fourth defendant which the plaintiffs were unable to pay.
The financial position of the first plaintiff appears to have been little, if any, better following its formation in January 1998. In a letter from the first plaintiff's solicitors on 13 April 2000 to the directors of the second defendant, the first plaintiff's solicitors say that the first plaintiff was unable to institute proceedings against the defendants in May 1998 "through a lack of funds", but that it had now completed a substantial capital raising and intended to enforce its legal rights in relation to the infringements. Subsequently, the plaintiffs made extensive applications for preliminary discovery against each of the first, second and fourth defendants.
It was also submitted on behalf of the defendants that there was no evidence that STC had ever had any significant assets. It has a paid up capital of $2.00. A copy of STC's annual return lodged with ASIC and dated 31 January 2003 contains an endorsement in handwriting made by the second defendant, as a director, in the following terms: "Safe‑T‑Corporation Pty Ltd effectively ceased business December 1997 – has no assets – no bank account. It will remain registered until infringement litigation against Lazersafe Pty Ltd is resolved"
It was further submitted that there was no evidence to support the contention that the plaintiffs would have exploited the intellectual property within the life of the litigation or, if they had, that their financial position would have improved to the extent that they would be able to meet the defendants' costs of the action.
I accept that the plaintiffs have not discharged the evidentiary onus to show that their impecuniosity was caused by the defendants' wrongful conduct. There is no evidence that tends to suggest that the financial position of the respective corporate plaintiffs has deteriorated as a result of the alleged wrongful conduct of the defendants.
No evidence had been adduced by STC as to its financial position before and after the relevant events to demonstrate that its financial position has deteriorated as a result of those events. No accounts or other financial records have been put in evidence by STC. Such evidence as there is in respect of the financial position of STC suggests that its financial position was parlous before the alleged conduct.
The first plaintiff was not incorporated until 27 January 1998, some two months after the third defendant's involvement with the business of the second plaintiff and STC ceased, and at about the time the conduct complained of is alleged to have first occurred. As I have said, it seems it had limited funds in May 1998. In October 1999 it took an assignment of all of the intellectual property of the second plaintiff and STC in respect of, in effect, the TIROPS system. The first plaintiff also pleads that it is and has been since at least 23 March 2001 entitled to the benefit of and to enforce the agreements between the second plaintiff and the fourth defendant. It further pleads that since the same date it has been entitled to the benefit of and to enforce the employment agreement made by STH with the third defendant. There were presumably assignments to the first plaintiff of such rights, effective as at 23 March 2001.
It seems clear that at the time the first plaintiff acquired the intellectual property rights in the TIROPS system each of the plaintiffs, including the first plaintiff, was aware that it was alleged the first defendant had breached the rights of the holders of that intellectual property. That is apparent from the letter dated 22 May 1998 to the second defendant from solicitors acting for, among others, the first plaintiff, in which that allegation is made.
Moreover, STC and the first plaintiff were at all relevant times controlled by the second plaintiff and Mr Bradley Appleyard. At the time it acquired the intellectual property in the TIROPS system, the first plaintiff must have been aware that the fourth defendant had, on the plaintiffs' case, refused to return confidential documents to the second plaintiff and to assign to the second plaintiff the rights to intellectual property which came into existence in the course of the fourth defendant's work under the contract, thereby preventing the development and sale of the TIROPS system.
It was submitted by counsel for the plaintiffs that it was obvious that the impecunious state of the first plaintiff had been caused by the activities of the defendants. There is, however, no evidence that that is the case. Indeed, having regard to the time at which, and the circumstances in which, the first plaintiff acquired the relevant intellectual property, it is by no means obvious that that would be the case. I should add that no accounts or other financial records were put in evidence by the first plaintiff.
The plaintiffs submitted that in this case there was a public interest factor which militated against an order for security. It was argued that the allegations of breach of fiduciary duty and contract, patent and copyright infringement, and breaches of the Trade Practices Act and Fair Trading Act each involved standards of conduct which it was in the public interest to maintain.
I do not accept that there is in this case any distinct public interest factor of any significant weight. The fact that a plaintiff seeks to enforce obligations in the nature of public standards of conduct which it is the public interest to maintain may be a relevant factor: Jet Corp of Australia Pty Ltd v Petres Pty Ltd (1983) 50 ALR 722 at 733; Caruso Australia Pty Ltd v Portec (Aust) Pty Ltd (1984) 1 FCR 311; Drumdurno Pty Ltd v Braham (1982) 42 ALR 563 at 569. But the factor of public interest has much less impact where the conduct was limited to the parties inter se and was not directed to the public at large: see Caruso Australia Pty Ltd v Portec (Aust) Pty Ltd (supra); Hughes v Canon Australia Pty Ltd (1990) 8 ACLC 209.
This case concerns a commercial dispute between the parties over certain, specific intellectual property. The plaintiffs seek to enforce the private rights claimed by the plaintiffs by way of declarations as to the plaintiffs' rights, injunctions to protect those rights, and damages. It does not involve the public at large nor was it suggested that it raised any particular point of public interest or novelty. It therefore stands in no different position to the vast majority of commercial disputes which come before the Court. That s 52 of the Trade Practices Act and s 10 of the Fair Trading Act are invoked is the factor least likely to distinguish it from the usual commercial claims which come before the Court.
It was further submitted that the relationship of the parties also militated against an order for security, the third defendant having formerly been an employee of STH and an employee and director of STC. It was submitted that, on the evidence, STC, through the agency of the third defendant, had incurred considerable debts to the fourth defendant which had contributed to the financial problems of the second and third plaintiffs and led to their dispute with the fourth defendant. It was argued that the defendants should not be allowed to take advantage of that conduct of the third defendant, which effectively destroyed the business of the plaintiffs.
It is sufficient to say that, in my view, the evidence falls a long way short of establishing that anything the third defendant did in his capacity as an employee of STH or STC, or as a director of STC, caused the current impecuniosity of the corporate plaintiffs. Indeed, the affidavit evidence rises little, if at all, above mere assertions to that effect.
The position of the second plaintiff must be considered under O 25 of the Rules of the Supreme Court.
It was submitted on behalf of the defendants that the second plaintiff is not a proper plaintiff in the proceedings as it is not alleged that he is the beneficial owner of the patents, the owner of any of the copyright works alleged, the owner of any of the EL rights alleged, an employer to whom its alleged the third defendant owed fiduciary duties, a party alleged to own the confidential information or a party to the alleged contract with the fourth defendant. The second plaintiff is simply one of the shareholders of the first plaintiff. He holds approximately 15 per cent of the issued capital.
I accept that the second plaintiff's role appears to be in the nature of a nominal plaintiff, whose participation is simply to facilitate the claims of the corporate plaintiffs. Whether he is properly joined as a plaintiff is not a matter which arises for decision on this application. It appears from his evidence that he does not have the capacity to meet any significant costs that he incurs in the action, let alone the defendants' costs. As submitted by counsel for the defendants, it is I think to be inferred that his costs are being met by others. It was submitted, and I accept, that in the circumstances the second plaintiff is amenable to an order for security for costs and that any order should be made against all of the plaintiffs.
In my view, having regard to all of the circumstances, the defendants are entitled to an order for security for costs. It is therefore necessary to turn to the amount and form of the security that should be provided.
At this stage the defendants have not filed a defence, but it appears from the affidavit evidence that there will be little common ground between the parties. Counsel for the defendants said that every significant allegation in the statement of claim will be in issue. In the circumstances I do not doubt that the action will be complex and the trial time-consuming. The action has already been admitted to the Long Causes List, on the basis that the trial will take 10 days or more. Patent infringement actions of their nature, including the technical subject-matter involved, tend to be complex and time-consuming. It also seems inevitable that the claims for breach of confidence and breach of fiduciary duty will involve a detailed examination of matters going back to at least early 1995. There are, in addition, claims concerning copyright over software programmes and EL rights. The damages claims are also likely to be contentious. The defendants' solicitor has estimated the trial length at not less than 20 days. I do not consider that to be an unreasonable estimate.

One of the issues on this application was whether the estimate of the defendants' costs should be made on the scale of costs under the Rules of the Supreme Court or on the basis that a special costs order would be made after trial. The defendants argued that this case involved unusual difficulty, complexity and importance and thus met all of the (disjunctive) criteria set out in s 215 of the Legal Practice Act for a special costs order. Whether such an order should be made is, of course, is a matter ultimately to be determined by the trial judge, but on the material before me I am satisfied that it is likely such an order would be made and that on this application the defendants' costs should therefore be estimated on that basis.
The plaintiffs' solicitors have prepared a draft bill of costs in which they estimate the defendants' total costs of the action in the sum of $141,057.00. It is based upon a trial lasting 10 days. If 20 days is allowed, that bill would increase to some $200,000. It is also notable that no allowance has been made for the cost of transcript or for anyone other than senior and junior counsel attending the trial. In a trial of this nature and length, I consider it would be appropriate to make an allowance for transcript and for a solicitor attending the trial. Counsel for the defendants also pointed out that the costs had been calculated by reference not to the current scale but to its predecessor and thus further understated the allowable costs.
A number of the items in the bill of costs seem to me, in any event, to be too low. For instance, the sum of $3130 has been allowed for the defence to a complex 62 page statement of claim which pleads a variety of different causes of action, including infringement of patent, breach of copyright and breach of fiduciary duty, and which is supplemented by some 20 pages of detailed particulars. The total sum of $627 has been allowed for answers to a request for particulars, $4180 for giving discovery and $2090 for inspection and giving inspection. No allowance has been made for any interlocutory applications beyond five directions hearings of one hour each and one attendance at a callover. It is the case that substantial discovery has been given by the defendants following applications by the plaintiffs for pre‑action discovery, but I accept that the ambit of discovery in the action will be wider than that and that discovery and inspection is likely to be costly.
The defendants' have estimated their costs by reference to the number of hours of work it is considered will be required to the close of pleadings and then for discovery, for preparation of evidence and for trial respectively, rather than specifically by reference to the items in the scale of costs. The total amount estimated by the defendants' solicitor is $496,500. It includes items of $5000 for disbursements to the close of pleadings (in addition to counsels' fees), $5000 for disbursements for discovery and $10,000 for disbursements for preparation of evidence, but there is no indication of the nature of those disbursements or how they have been calculated. It also includes amounts for both a solicitor and an articled clerk attending the trial, in addition to senior and junior counsel.
While the plaintiffs' estimate tends to err on the side of parsimony, the defendants' estimate tends to err on the side of ample generosity. It is difficult not to conclude that the plaintiffs' and the defendants' estimates have been drawn on the lowest and highest end respectively of the available range, in what seems to be the time honoured fashion. The real position, as is so often the case in applications of this sort, seems to me to lie somewhere between them, although so far as can reasonably be assessed at this stage, rather more toward the defendants' estimate than the plaintiffs'.
On the necessarily limited material before me, I am inclined at this stage to think that a total figure of some $350,000 for the defendants' costs of the action is more likely to be an appropriate figure. In saying that I am conscious of the complexity normally involved in patent infringement proceedings and the fact that it appears from the statement of claim that much of the litigation will involve quite technical material and include specialised matters such as claims concerning copyright over software programmes and EL rights. Moreover, some causes of action will apparently involve a detailed examination of factual matters going back some ten or more years. I recognise, of course, that in an action of this sort there is necessarily an element of speculation involved in estimating the costs of the whole action at this stage.
It appeared to be common ground that any order for security should provide for security in stages. That seems to me to be the proper approach. This action is at an early stage and the costs that the defendants are likely to incur will depend to a significant degree upon how the matter unfolds. I would therefore order that the first and third plaintiffs' provide security in an amount of $50,000 for the action up to the completion of discovery and inspection. I will hear the parties on the time within which, and the manner by which, that security is to be provided. I would order that following the completion of discovery and inspection the defendants be at liberty to relist the matter for orders for security up to entry for trial and for the trial respectively. Once the pleadings are closed, and discovery and inspection have been given, the parties should be in a better position to make estimates of the costs for those stages of the action. In the meantime, I would give the parties liberty to apply to vary the amount of security up to the completion of discovery and inspection, should good cause arise.
I will hear the parties on the orders to be made in light of my reasons and on costs.