| JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA LOCATION : PERTH CITATION : TULIP BAY PTY LTD -v- STRUCTURAL MONITORING SYSTEMS LTD [2013] WADC 79 CORAM : EATON DCJ HEARD : 1 MARCH & 22 APRIL 2013 DELIVERED : 23 MAY 2013 FILE NO/S : CIV 1052 of 2012 BETWEEN : TULIP BAY PTY LTD Plaintiff
AND
STRUCTURAL MONITORING SYSTEMS LTD
Defendant
Catchwords: Practice and procedure - Appeal from a registrar's refusal to set aside judgment in default of appearance and to stay proceedings - Effect of arbitration clause Legislation: Commercial Arbitration Act 1985
District Court Rules 2005
Rules of the Supreme Court 1971 Result: Appeal allowed
(Page 2)
Default judgment set aside
Proceedings stayed
Representation: Counsel:
Plaintiff : Mr M P L Noonan-Crowe
Defendant : Mr A P Rumsley
Solicitors:
Plaintiff : Valenti Lawyers
Defendant : Alan Rumsley
Case(s) referred to in judgment(s):
Dobbs v National Bank of Australasia Ltd [1935] HCA 49; (1935) 53 CLR 643
French v Triple M Melbourne Pty Ltd [2006] VSC 36
Starrs v Retravision (WA) Ltd [2012] WASCA 67
(Page 3)
1 EATON DCJ: The plaintiff filed a writ accompanied by an indorsement of claim in this court on 10 April 2012. It sought to recover an amount of $95,414.39 being a royalty alleged to be payable by the defendant to the plaintiff pursuant to a technology agreement made between the plaintiff and the defendant and another party dated 29 November 1999, and damages in the sum of $20,000 in respect of the defendant's alleged failure to transfer certain shares to the plaintiff in breach of an agreement, said to be partly oral and partly in writing, made in October or November 2010.
2 According to the affidavit of Matthew Peter Laurence Noonan-Crowe sworn 13 April 2012 and filed on that day, he served the defendant with the writ by posting it by ordinary post to the defendant's registered office at Unit 5, 15 Walters Drive, Osborne Park, WA, 6017 on 11 April 2012. He deposed to having, on 13 April 2013, duly indorsed the writ of summons with the details of service on the defendant. 3 On 11 May 2012 the plaintiff entered default judgment there having been no appearance by the defendant, the amount of the judgment being for $95,414.39 with interest thereon and for $20,000 with interest thereon and costs to be taxed. 4 On 19 June 2012 the defendant entered an appearance and filed an application to set aside the default judgment and to stay proceedings pursuant to s 53(1) of the Commercial Arbitration Act 1985. The latter was adjourned to a special appointment on 29 August 2012. On that day it was further adjourned to 14 September 2012. It appears that, on that day, the matter was part heard before Deputy Registrar Harman but was further adjourned. It was again listed on 11 October 2012. The deputy registrar reserved his decision. On 12 November 2012 he dismissed the defendant's application to set aside the default judgment and published reasons for doing so. On that day the defendant filed a notice of appeal. 5 The District Court Rules 2005 provide that a party dissatisfied with a decision of a registrar may appeal to a judge. Such an appeal is to be by way of a new hearing of the matter that was before the registrar. 6 The defendant's appeal was filed within time. There is no contention that the default judgment entered by the plaintiff was irregular. (Page 4)
7 Order 13 of the Rules of the Supreme Court 1971 deals with judgments entered in default of appearance to a writ. Order 13 r 10 provides that the court may, on such terms as it thinks just, set aside or vary any judgment entered in default of appearance. 8 In support of the application to set aside default judgment, the deputy registrar had before him an affidavit of Sam Michael Wright sworn 18 June 2012 and in response to the application he had before him affidavits sworn by Mr Noonan-Crowe on 26 August 2012 and 12 September 2012, an affidavit by Suzanne Janet McMeekin sworn 1 August 2012 and an affidavit of Kenneth John Davey sworn 30 July 2012. In addition, the deputy registrar had before him written submissions from both plaintiff and defendant. 9 So far as the hearing of the appeal is concerned, I have before me the aforementioned affidavits and the affidavit of Alan Phillip Rumsley sworn 26 February 2013 in support of the appeal. On 22 April 2013 I admitted that affidavit into evidence having struck out pars 9, 10 and 11 and annexures APR3 and APR4 in consequence of an objection by counsel for the plaintiff and a concession in that regard by counsel for the defendant. I have the benefit, in addition, of oral and written submissions from both parties. 10 In his affidavit sworn 18 June 2012 Sam Michael Wright deposed to being the secretary of the defendant company and being authorised to swear the affidavit on its behalf. The defendant was incorporated in Western Australia on 23 February 1995. Mr Wright was a director from 28 May 2010 to 29 February 2012. He is the secretary of that company having held that position since 1 September 2010. The company's principle place of business from 6 June 2002 until 31 March 2012 was Unit 5, 15 Walters Drive, Osborne Park, WA, 6017. As from 1 April 2012 its principle place of business was 50 Derby Road, Subiaco, WA, 6008. 11 Mr Wright, in his affidavit, deposes to the company having, in April 2012, changed its registered office and principle place of business from the address in Osborne Park to the address in Subiaco. ASIC documents confirm that the change of registered address was filed on 17 April 2012. Mr Wright deposes to the Osborne Park premises having been vacated in the first week of April 2012 and there being an Australia Post re-direction arrangement with respect to mail in effect from about 20 April 2012. He said that, during April 2012, an employee of the defendant routinely checked the Osborne Park premises for mail. (Page 5)
12 That employee was the financial controller of the defendant at the time, namely, Suzanne Janet McMeekin who swore an affidavit on 1 August 2012 deposing to the fact that the defendant had moved out of the Osborne Park premises in the first week of April 2012. She said that she arranged for re-direction of mail from one post office box to another, not from one street address to another. She regularly checked the old post office box for mail to the defendant prior to the re-direction. Her last visit to the Osborne Park premises was on 10 April 2012 when she left 'the occupants' a number of 'return to sender' stickers to be put on mail arriving at that address for the defendant. The premises were not checked again. The plaintiff posted its writ on the day after, namely 11 April 2012. 13 On 31 May 2012 the defendant received a statutory demand from the plaintiff's solicitor by post at its Subiaco office. That arrived under cover of a letter from the plaintiff's solicitors dated 30 May 2012 addressed to the Subiaco address as the registered office of the defendant. 14 By letter of 7 June 2012 the defendant's solicitor, Mr Rumsley, wrote to the plaintiff's solicitors enclosing a notice of arbitration and points of claim. In it he advised: I have been provided with a copy of your letter dated 30 May 2012, attaching a statutory demand in respect of default judgment in District Court proceedings CIV 1052 of 2012. I am instructed that my clients have not received a copy of any originating process in respect of the District Court proceedings and your letter dated 30 May 2012 was the first notice they received of such proceedings. As clause 17 of the Technology Agreement precludes the District Court from dealing with the dispute, I am instructed to request that your client agree to: 1. Withdraw the statutory demand; 2. Consent to orders in the District Court proceedings setting aside the default judgment and discontinuing the proceedings with no order as to costs; 3. Confirm the appointment of the Arbitrator nominated in the Notice of Arbitration; and 4. Include the claim by your clients in respect of the $95,414.39 in the Arbitration. If your client does not agree as set out above, within 7 days, I am instructed to apply to set aside the default judgment and issue proceedings to set aside the statutory demand. (Page 6)
15 The background to this matter is the Tulip Bay Pty Ltd is a company incorporated in Western Australia on 28 July 1993. On 30 July 1993 Mr Davey was appointed a director and has continued in that role. The parties and Mr Davey entered into an agreement called a 'technology agreement' on 29 November 1999. It recites that Mr Davey is the inventor of 'the technology', a term that is not defined within the agreement. It recites further that he had assigned the full beneficial ownership of the technology to Tulip Bay Pty Ltd. It appears that there was a licence agreement made on 18 July 1995 between the parties and Mr Davey and that it was varied by letter of 8 December 1998 between the parties. 16 In an affidavit sworn 30 July 2012 Mr Davey deposed to having invented the technology, the subject of the agreement. He says that in 2006 he was an employee of the defendant and that there was, at that time, a problem with the technology which needed to be resolved in order for it to be used in airborne operation. His employer, Structural Monitoring Systems Ltd (SMS), had pursued an electronic solution to the problem which, in his opinion, was impractical. He deposed to having validated an alternative solution to the problem and to having advised his employer in that regard. His advice, he said, had been ignored by SMS. In consequence, he says, he lodged an Australian Provisional Patent Specification, the purpose of the subject matter of that specification being to 'overcome a technical deficiency for airborne monitoring' and to bring his solution to the 'obvious deficiency in the technology to the attention of the defendant's management'. 17 In August 2008 Mr Davey ceased being an employee of SMS. 18 On 18 June 2009 Mr Davey lodged an Australian Provisional Patent Application numbered 2009902812 named 'system and method for the detection of flaws in aircraft structure'. 19 Pursuant to the agreement of 29 November 1999 between the parties and Mr Davey, SMS paid $500,000 to Tulip Bay and exercised an option to purchase the licensor's patents and all other intellectual property rights pertaining to the technology, including enhancements to it. SMS agreed to pay an annual royalty from and including the year ended 30 June 2000 until the date by which there is no longer any patent in existence owned by SMS. 20 The agreement of 29 November 1999 contains an arbitration clause. That clause (cl 17) provides that any dispute, controversy or claim arising out of or in connection with the deed or anything done or omitted to be (Page 7)
done under the deed, shall be exclusively and finally settled by arbitration. The clause provides for the appointment of an arbitrator and provides further that, unless otherwise agreed, arbitration proceedings would be held in Perth in accordance with the Commercial Arbitration Act 1985. 21 Mr Davey deposes to his patent application 2009902812 being the subject of arbitration in 2010 and to the arbitrator's finding that the technology the subject of his application was an enhancement for the purposes of the agreement dated 29 November 1999. By the agreement 'an enhancement' means each improvement, update, revision, modification, extension or change to the technology. By the agreement SMS acquired full beneficial right, title and interest in each enhancement. 22 Mr Davey deposes to having attempted to negotiate an arrangement with SMS after May 2010 and into 2011 for the development of the technology, the subject of his application and to SMS having failed to respond to his entreaties. 23 On 15 November 2011 Tulip Bay commenced proceedings in the Federal Court of Australia seeking an order that SMS be wound up based on an alleged failure to comply with a statutory demand to pay $69,476.47 pursuant to the agreement of 29 November 1999. Tulip Bay was represented in those proceedings by Valenti Lawyers and SMS was represented by Alan Rumsley, Lawyer. It is the case that the parties' legal representatives before me are those which represented them, respectively, in the matter before the Federal Court. Proceedings in that court were the subject of mediation before Registrar Blades on 30 January 2012. Tulip Bay was represented there by Mr Noonan-Crowe of Valenti Lawyers and SMS was represented by Mr Rumsley. The matter was not resolved at mediation and was, in due course, listed for directions before Registrar Jan on 1 February 2012. He stood the matter down and, during the interval which followed, the parties agreed that SMS would make payment under protest and that the proceeding would otherwise be dismissed. On 14 February 2012 the proceedings were formally dismissed by consent with the issue of costs to be determined by the registrar on the papers. 24 Mr Wright, in his affidavit of 18 June 2012, deposes to there being a dispute as to SMS's liability to pay the amounts, the subject of the writ and indorsement of claim in this court based upon alleged breaches by Tulip Bay and Mr Davey of the agreement of 29 November 1999. He deposes to Tulip Bay and Mr Davey having lodged patent applications on 9 June 2006, 18 June 2009 and 24 July 2009 without the knowledge or (Page 8)
consent of SMS. Those matters became the subject of arbitration proceedings pursuant to cl 17 of the agreement of 29 November 1999. The arbitrator's finding and reasons for decision are annexed to his affidavit. The finding, in a nutshell, was that the subject matter of patent application 2009902812 was an enhancement of the technology owned by SMS. 25 There are presently further arbitration proceedings on foot, having been commenced by a notice of arbitration dated 7 June 2012 pursuant to cl 17 of the agreement dated 29 November 1999. A preliminary conference was conducted on 14 February 2013 at which time certain directions were made by the presiding arbitrator, Mr P J Hannan. Further directions were made on 5 March 2013. Counsel for SMS informed me from the bar table that the arbitration proceedings presently on foot are proceeding to a substantive hearing to be conducted in late June 2013. 26 Counsel for Tulip Bay contends that cl 17 of the technology agreement is not binding on the parties and presents no bar to Tulip Bay having commenced proceedings in this court and pursuing those proceedings. The terms of that clause have already been mentioned in passing. 27 Mr Noonan-Crowe, in his submissions, referred me to Dobbs v National Bank of Australasia Ltd [1935] HCA 49; (1935) 53 CLR 643. The action before the court concerned a joint and several guarantee given by the appellant and two other sureties to the respondent bank to secure a customer's account. The appellant, firstly, denied that the customer was indebted to the bank and, secondly, alleged that the respondent bank had breached a collateral promise. The first arose out of a certificate signed by an officer of the bank said to be conclusive of the customer's indebtedness. The bank relied upon that certificate as destructive of the appellant's denial of indebtedness. 28 The relevant clause in the guarantee provided: A certificate signed by the manager or acting manager for the time being of your head office or of any other office of your bank at which the banking account of the customer shall for the time being be kept stating the balance of principle and interest due to you by the customer shall be conclusive evidence of the indebtedness at such date of the customer to you. (Page 9)
29 The appellant contended that the clause, upon its true construction, did not make the certificate conclusive of the legal existence of the debt but only of the amount. Rich, Dixon, Evatt and McTiernan JJ said: But the manifest object of the clause was to provide a ready means of establishing the existence and amount of the guaranteed debt and avoiding any enquiry upon legal evidence into the debts going to make up the indebtedness. The clause means what is says, that a certificate of the balance due to the bank by the customer shall be conclusive evidence of his indebtedness to the bank. Upon this construction the appellant contends that the clause is void. The contention is based upon the view that it attempts to oust the jurisdiction of the court upon an issue essential to the guarantor's liability and to substitute for the judgment of the court the determination or opinion of an officer of the bank. This argument appears to us to involve a misunderstanding of the principle upon which it professes to rely. It confuses two different things. A clear distinction has always been maintained between negative restrictions on the right to invoke the jurisdiction of the courts and positive provisions giving efficacy to the award of an arbitrator when made or to some analogous definition or ascertainment of private rights upon which otherwise the courts might have been required to adjudicate. It has never been the policy of the law to discourage the latter. The former has always been invalid. No contractual provision which attempts to disable a party from resorting to the courts of law was ever recognised as valid. It is not possible for a contract to create rights and at the same time to deny the other party in whom they vest the right to invoke the jurisdiction of the courts to enforce them. Parties may agree in the sense of arriving at a common intention as to their future action but, because they do not contemplate legal relations, avoid the creation of rights and thus preclude resort to the courts (see: Rose & Frank Co v JR Crompton & Bros Ltd; Cohen v Cohen). Parties may contract with the intention of affecting their legal relations, but yet make the acquisition of rights under the contract dependent upon the arbitrament or discretionary judgment of an ascertained or ascertainable person. Then no cause of action can arise before the exercise by that person of the functions committed to him. There is nothing to enforce; no cause of action arises. But the contract does not attempt to oust the jurisdiction (Scott v Avery; Caledonian Insurance Co v Gilmour). What no contract can do is take from a party to whom a right actually accrues, whether ex contractu or otherwise, his power of invoking the jurisdiction of the courts to enforce it (Kill v Hollister; Thompson v Charnock; Czarnikow v Roth, Chmidt & Co). Accordingly a contract providing for arbitration did not, apart from statute, prevent the institution of an action or suit even though an action or breach of contract was committed by the refusal to refer (In Re Smith & Service & Nelson & Sons, per Bowen LJ). But if, before the institution of an action, an award is made, it governed the rights of the parties and precluded them from (Page 10)
asserting in the courts the claims which the award determined. By submitting the claims to arbitration, the parties confer upon the arbitrator an authority to conclusively determine them. That authority enables him to extinguish an original cause of action. His award will do so if it negatives the existence of liability. It will do so if it operates, not merely to ascertain the existence and measure of the original liability, but to impose a new obligation as a substitute, whether the obligation results from the tenor of the award or from an antecedent undertaking of the parties to give affect to the determination it embodies Crofts v Harris; Allen v Harris; Freeman v Berndard; Allen v Milner; Commings v Heard). The award given under authority of the parties operates as a satisfaction pursuant to their prior accord of the causes of action awarded upon. 30 I disagree with Tulip Bay's contention as regards the affect of cl 17 of the technology agreement. It does not purport to oust the jurisdiction of the courts. To the contrary, it provides that arbitration proceedings shall be conducted in accordance with the Commercial Arbitration Act 1985 (WA). That Act places the court in a supervisory role so far as arbitration proceedings are concerned. For example, pursuant to s 10, where there is a vacancy in the office of arbitrator the courts may, on the application of a party to the arbitration agreement, in certain circumstances, make an appointment to fill the vacancy. Pursuant to s 17 of the Act, the courts make, on the application of any party to an arbitration agreement, and subject to and in accordance with the rules of court, issue a subpoena requiring a person to attend for examination before the arbitrator with or without the production of documents. Pursuant to s 33 of the Act, an award made under an arbitration agreement may, by leave of the court, be enforced in the same manner as a judgment or order of the court to the same effect, and where leave is so given, judgment may be entered in terms of the award. 31 Section 53 of the Commercial Arbitration Act provides that: (1) If a party to an arbitration agreement commences proceedings in a court against another party to the arbitration agreement in respect of a matter agreed to be referred to arbitration by the agreement, that other party may, subject to subsection (2), apply to that court to stay the proceedings and that court, if satisfied - (Page 11)
all things necessary for the proper conduct of the arbitration, may make an order staying the proceedings and may further give such directions with respect to the future conduct of the arbitration as it thinks fit. An application under that section shall not, except with the leave of the court in which the proceedings have been commenced, be made after the applicant has delivered pleadings or taken any other step in the proceedings other than the entry of an appearance. 32 The term 'arbitration agreement' in the agreement of 29 November 1999 means an agreement in writing to refer present or future disputes to arbitration. There can be no doubt, in my view, that cl 17 of the technology agreement is an arbitration agreement. 33 Structural Monitoring Systems has entered an appearance but has not delivered pleadings. It has taken a step in the proceedings, that step being to apply to set aside judgment in default of appearance and to seek a stay pursuant to s 53 of the Act. Such a step would not, in my view, be a step that requires leave under s 53(2) of the Act. If it does, I would grant leave. 34 Tulip Bay, being a party to an arbitration agreement, has commenced proceedings in this court against SMS, another party to the arbitration agreement, in respect of a matter agreed to be referred to arbitration by the agreement. The application by SMS for a stay is, in all the circumstances, entirely appropriate. 35 As mentioned, O 13 r 10 of the Rules of the Supreme Court provides that the court, on such terms as it thinks just, may set aside or vary any judgment entered in default of appearance. That discretion is not qualified but, as a general rule, a judgment regularly entered will not be set aside unless the court is satisfied that there is a defence on the merits. 36 Mr Rumsley contends that the defendant's defence is the subject matter of arbitration in which his client relies on breaches of the technology agreement dated 29 November 1999. The defence, he contends, includes a set-off and counterclaim for $436,896.93. 37 To some extent, the parties' disputes have been ongoing and resolved, in part, by arbitration and in part, in the courts, by alternative resolution. As to the former, on 10 May 2010, an arbitrator determined that the patent application lodged by Tulip Bay and Mr Davey on 18 June (Page 12)
2009 was an enhancement owned by SMS for the purposes of the agreement in circumstances where Tulip Bay disputed ownership by SMS. 38 Clause 4.9 of the agreement of 29 November 1999 provides: SMS shall have and enjoy quiet possession of the patents and other intellectual property rights uninterrupted by Tulip and Davey or any person claiming under either of them. 39 SMS contends that Tulip Bay and Mr Davey are in breach of that provision and that their conduct evinces an intention no longer to be bound by the contract. As such, SMS, it is said, relies upon the breaches as a repudiation of the technology agreement by Tulip Bay, a repudiation accepted by SMS. 40 Having regard to the admitted conduct of Mr Davey and Tulip Bay in lodging patent applications on 9 June 2006, 18 June 2009 and 24 July 2009, there would appear to be, prima facie, important breaches of the technology agreement. The impact of those breaches, whether there has been a repudiation and whether there has been an acceptance of the alleged repudiation are all matters of dispute, controversy or claim arising out of, in relation to or in connection with the agreement of 29 November 1999. They are matters for determination by way of arbitration. In my judgment, SMS has a defence on the merits. There are serious matters to be tried and resolved. 41 As to the circumstances of the entry of default judgment, there was an unfortunate and curious coincidence between the commencement of proceedings in this court by Tulip Bay, service of its originating process and the change of the defendant's place of business and registered office. It might well be argued, having regard to the affidavits of Mr Wright and Ms McMeekin, that the arrangements put in place to ensure continuity of correspondence during the period of transition were not entirely effective. It is the case, however, that the parties had been and still are represented by the same legal representatives, each involved in proceedings by way of arbitration and in the Federal Court. Tulip Bay served its originating process at the Osborne Park address which, at the time of the filing of that process, was, according to the relevant records, the registered office of SMS. Tulip Bay then entered judgment in default of appearance without any notice to the defendant's solicitors whatsoever. When it came to enforcement of its judgment, Tulip Bay ascertained the new registered office of SMS and forwarded its statutory demand to that new address in Subiaco. (Page 13)
42 In French v Triple M Melbourne Pty Ltd [2006] VSC 36 Bongiorno J regarded the entry of default judgment 'at the earliest possible opportunity without warning against parties known to the plaintiff's solicitor to be represented' to be legal, but a relevant factor in setting aside the judgment in the court's discretion. Entry of judgment in default of appearance in such circumstances does not make the entry of judgment irregular (see: Starrs v Retravision (WA)Ltd [2012] WASCA 67 per Allanson J, with whom Pullin JA and Murphy JA agreed [43]). In that case Allanson J said that the circumstances in which the judgment was entered, including the administrative error which lead to the rejection of the appellant's appearance, are relevant to the exercise of the discretion under O 13 r 10. 43 In the matter before me, having regard to the particular circumstances relating to the transition from one registered office to another, the coincidence of Tulip Bay's commencement of an action in this court, the arbitration provision in the technology agreement dated 29 November 1999, the clear existence of a dispute of an ongoing nature as between the parties and the merits of the defendant's defence having regard to the admitted conduct of Tulip Bay and Mr Davey, I am of the view that the appeal should succeed, the deputy registrar's decision should be overturned, the judgment in default of appearance should be set aside and the proceedings in this court should be stayed pursuant to s 53(1) of the Commercial Arbitration Act until further order of the court. I will hear the parties as to whether the court should make any further order as to the conduct of proceedings in this court or in the arbitration proceedings and as to the question of costs.
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