Victoria University of Technology v Wilson
[2003] VSC 299
•30 June 2003
54
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
PRACTICE COURT
No. 6114 of 2003
| VICTORIA UNIVERSITY OF TECHNOLOGY | Plaintiff |
| v | |
| KENNETH GREGORY WILSON | First Defendant |
| DONALD PETER FEAVER | Second Defendant |
| IP3 SYSTEMS LIMITED (A.C.N. 090 812 445) | Third Defendant |
| JIHUPA PTY LTD (A.C.N. 095 905 997) | Fourth Defendant |
| COAP PTY LTD (A.C.N. 095 906 988) | Fifth Defendant |
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JUDGE: | REDLICH J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 24 and 25 June 2003 | |
DATE OF JUDGMENT: | 30 June 2003 | |
CASE MAY BE CITED AS: | VUT v Wilson & Ors | |
MEDIUM NEUTRAL CITATION: | [2003] VSC 299 | |
Mareva Orders – Principles applicable – Sufficiency of evidence as to risk of dissipation – Standard of proof – Allegations of dishonesty in substantive claim relied upon to establish risk of dissipation – Balance of convenience.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr R. Kendall Q.C. with Mr B.J. Hess | Stephens Lawyers |
| For the 1st, 2nd, 4th, 5th Defendants | Mr B. Caine, S.C. with Ms H. Rofe | The Iron Group |
| For the 3rd Defendant | Mr P. Collinson | Deacons |
HIS HONOUR:
Victoria University of Technology has brought proceedings claiming ownership in an invention made by Professor Wilson, the first named defendant and Dr Feaver, the second named defendant. The university also claims ownership of certain programs and software created by them for the purpose of the working or performing of the invention. The patent for the invention stands in the name of the third defendant, IP3, who is also the owner of the software. The university claims that IP3 holds the invention and software on trust for the university, the first and second named defendants being, until recently, directors of IP3. The fourth and fifth named defendants each have a substantial shareholding in the third named defendant and are wholly owned by the first and second named defendants.
On 4 June 2003, the plaintiff (ex-parte) obtained Anton Piller orders and Mareva orders against each of the defendants, and those orders, with some variations, were continued by consent on 12 June 2003. I have before me a summons by the defendants seeking the dissolution of all of those orders, but the defendants made clear during submissions that the only orders which they seek are the dissolution of the Mareva orders.
The pressure of business in the Practice Court does not normally permit protracted argument by the parties, but having regard to the urgency of the matter I have attempted to meet the needs of the parties in relation to a matter which really was too substantial to be conveniently accommodated in this court. The constraints of this court necessitate that my reasons on matters of fact and law must be briefer than they otherwise would be.
The plaintiff is a university in Victoria with significant research and teaching facilities, having some 3,000 staff and 50,000 students. It has significant business activities. The first and second named defendants are, and were at all material times, employees of the university and residents in Victoria. Each was engaged in roles with the university which involved teaching and research. The first named defendant, Professor Wilson, is professor of the Victoria Graduate School of Business in the Faculty of Business and Law, and during the period October 1996 until December 2001 he was the Head of the School of Applied Economics. Since January 2002, he has been Professor in the School of Applied Economics. Dr Feaver is a Senior Lecturer in the School of Applied Economics in the Faculty of Business and Law.
During 1999, Wilson and Feaver, together with a former student of Wilson, one Craig Astill, discussed a concept for the facilitation of international transactions in the electronic marketplace, which I shall hereafter for convenience describe as “the invention”.
In December 1999, the third named defendant, IP3, was incorporated by Wilson, Feaver and Astill to develop the invention. The fourth named defendant, Jihupa Pty Ltd, was incorporated by Wilson on 14 December 1991, he being the sole director and secretary. The fifth named defendant, COAP Pty Ltd, was incorporated by Feaver on 14 February 2001, he being the sole director and secretary. Jihupa and COAP each respectively holds some 28% of the shares in IP3. In March 2000, Wilson, Feaver and Astill caused IP3 to make applications for a provisional patent, PQ6289, in Australia entitled E Commerce Facilitation, and a subsequent application in Australia, based on the patent application, entitled E Commerce Transaction Facilitation System and Method, made on 16 March 2001. Each application was made without the knowledge or approval of the university.
The invention described in the applications involves computer programs and software for its working. The university relies upon the fact that Professor Wilson and Dr Feaver were both directors of IP3 System at all material times, so that their knowledge is imputed to IP3. During the course of the application I was informed by counsel for IP3 that Professor Wilson and Dr Feaver had resigned as directors in mid-June 2003.
Prior to the making of the respective patent applications, and for some time thereafter, the first and second named defendants used university-owned computers at premises which may have included those of IP3. The university invites the court to infer that these computers and the data and information which was on them, which data the university contends belongs to the university, was used for the purpose of the development and exploitation of the invention. It is not disputed by the defendants that university computers were used off site by Professor Wilson and Dr Feaver, but it is claimed that the computers were used for the purposes of research for the university. To support the inference which the university contends for, the university relies upon the allegation that Professor Wilson demonstrated a marked reluctance to return the computers when requested to do so, and that when such equipment was eventually returned no information could be retrieved from the hard disk drives which had been scrambled or stripped so that the information thereon had been obliterated. The university further alleges that Professor Wilson made backup files of the computer programs and information before returning them to the university.
Professor Wilson in his affidavit acknowledges that in about May 2000, IP3 was short of infrastructure and resources, and in his capacity as head of the School of Applied Economics he lent two file servers to IP3 for the purpose of infrastructure support and communication. He deposed that none of the development work on the invention or programming or software was carried out on those file servers, they being returned to the university in November 2002. He said that before returning them he removed IP3’s data so as to restore the servers to the condition they were in when they were borrowed. Professor Wilson also acknowledged that he was unable to presently locate two lap-top computers which were signed out to him during his period as head of the department, and deposed that those lap-tops were at no time used by IP3 or for any purpose related to the invention, programs or software.
It appears that the university first became concerned with the activities of the first and second named defendants following complaints in late 2000. It undertook a fruitless search of the Australian Patent Office in December 2000. By mid-2002, as a result of an exchange of e-mails, staff members at the Department of Applied Economics became aware that Professor Wilson and Dr Feaver had founded IP3. Professor Wilson, in an e-mail, acknowledged that he had for the past two years been involved in a major privately funded high-risk research and development project. He stated that “the investment support had enabled a major intellectual contribution by us to be converted into intellectual property that is now being covered by international patent protection.”
As a consequence of these e-mails, the university undertook further enquiries and sought legal advice. Those investigations, it appears, continued during the latter part of 2002 and early 2003. The university submits that, because of the sensitivity of these issues within the university, it took the university time to investigate, retrieve and assemble a documentary record of what it describes as “the hitherto clandestine behaviour of Wilson and Feaver from the multitude of e-mails on the university’s computer system.” Delay in commencing these proceedings, it said, was explicable on that basis.
Amongst the e-mails retrieved by the university was one from Dr Feaver dated 10 February 2003 to the following effect:
“Since mid-2000 I have been seconded to a private sector technology company to assist them with the development of a sophisticated piece of software. As I write, the company is now the subject of a friendly takeover by a UK/US firm. If this deal is finalised I will have helped build a company that originated from ink on a whiteboard in terms of an IP concept to a going commercial entity having a valuation of approximately $A60 million.”
The university recovered this e-mail in late April 2003. It was the university’s view that this e-mail indicated the possibility of a sale of the invention by IP3: (See the affidavit of Vaughan Beck dated 28 May 2003 [Exhibit VB40]).
The university claims that the invention, the subject of the patent applications, was within the scope of the employment of Messrs Wilson and Feaver’s duties and was made by them during their employment by the university, using resources and equipment including staff time of the university, and using data and information from the university. The plaintiff contends that the first and second named defendants, by making the invention and creating the software, breached their terms and duties of employment, breached their fiduciary duties to the university and acted in breach of their duties as trustees of the invention on behalf of the university. By reason of these matters the plaintiff’s claim is that the invention and the software and programs, if they should be so separately described, are wholly owned by the university, or alternatively by the university and Mr Astill, and that the first, second and third named defendants hold their interests in the invention and the software on trust for the university. The university claims that IP3, Professor Wilson and Dr Feaver propose to continue to exploit and derive benefit and advantage from the invention and the software in breach of trust. The university now seeks the continuance of the Mareva orders.
On 4 June 2003, the plaintiff (ex-parte) obtained Anton Piller orders against the defendants. It also obtained Mareva-type orders against each of the defendants in the following terms:
"16 Until 4.15p.m. on 12 June 2003 or until further order:
16.1IP3 Systems by its directors servants or agents pay into an interest bearing trust account at National Australia Bank or such other Australian Bank ordered by the Court under the control of a person appointed by the Court, all moneys received or receivable, due or payable arising from any exploitation, sale or transfer of:
(a) the invention the subject of:
(i)Provision Patent Application No. PQ6289 filed in Australia on 16 March 2000;
(ii)PCT Application No. PCT/AU/01/00299 filed in Australia on 16 March 2001;
(iii)any patent applications or patents derived from or related to either of the above Applications filed in Australia or countries other than Australia;
(b)any improvements or modifications to the invention the subject of any of the above patent applications;
(c)any computer programs, software, data or information used for the working or exploitation of the invention the subject of the above patent applications including any improvements or modifications thereof.
16.2The said moneys shall remain in the said account bearing interest until the trial and determination of this proceeding or further order save that there may be allowed to be withdrawn therefrom such moneys as are necessary and accounted to the Plaintiff's Solicitors from time to time for:
(a)the preservation, maintenance or enhancement of any of the matters or things referred to at 16.1 (a) to (c) above including professional fees and charges to persons in respect of the maintenance in force of any of the said patent applications or patents;
(b)necessary legal expenses related to this proceeding;
(c) ordinary business expenses of IP3 Systems.
16.3Wilson, Feaver, Jahupa Pty Ltd and Coap Pty Ltd pay into the trust account referred to at paragraph 16.1 any moneys received or receivable, due or payable to them or each of them arising from:
A.Any exploitation, sale or transfer of any of the matters or things referred to at paragraph 16.1 above.
B.The sale or transfer or other disposition of the shares held by each of Jahupa Pty Ltd and Coat Pty Ltd in IP3 System.
C. The sale, transfer or other disposition of shares:
(a) held by Wilson in Jahupa Pty Ltd; and
(b) held by Feaver in Coap Pty Ltd.
17.Until 4.15p.m. on 12 June 2003 or further order, IP3 Systems, by its directors, servants or agents or otherwise howsoever be restrained from selling, transferring, disposing of or encumbering:
(a) patent applications in Australia being:
(i)Provisional Patent Application No. PQ6289 entitled "E-Commerce Facilitation";
(ii)PCT Application No. PCT/AU01/0299 entitled "E-Commerce Transaction Facilitation System and Method".
(b)any invention or any improvement or modification to the invention(s) described in the patent applications referred to in sub-paragraph (a) hereof.
(c)any patent applications in Australia or in countries other than Australia based on or relating to the invention(s) described in the patent applications referred to in sub-paragraph (a) above or any improvement(s) or modification(s) thereof or any patents resulting therefrom.
(d)any computer programs, software, data or information necessary or required for or used for the working or exploitation of the invention(s) described in the patent applications referred to in sub-paragraph (a) above or any improvements or modifications thereof and whether in Australia or in countries other than Australia.
18.An order that within seven (7) days of the date of this order, the Defendants and each of them file and serve an affidavit verifying the moneys received and hereafter receivable the subject of the orders at 16.1 to 16.3 hereof.
19.Until 4.15p.m. on 12 June 2003 or further order, each of Jahupa Pty Ltd and Coat Pty Ltd, by its directors, servants, agents or otherwise howsoever be restrained from assigning, transferring, disposing of, encumbering or dealing in any manner whatsoever with the shares respectively held by them in IP3 Systems.
20.Until 4.25p.m. on 12 June 2003 or further order, each of Wilson and Feaver be restrained from assigning, transferring, disposing of, encumbering or dealing in any manner whatsoever with the shares respectively held by them in Jahupa Pty Ltd and Coap Pty Ltd."
The further hearing of the plaintiff’s summons for interlocutory relief was adjourned until 12 June 2003. On that date each of the defendants was represented and orders were made by consent, continuing paragraphs 17, 19 and 20 until 4.15 on 26 June 2003, extending the time for compliance with order 18 to 4.15 on 26 June 2003, and vacating order 16 and substituting a new order 16. The new order 16 required the defendants pay into an interest-bearing trust account maintained by the solicitors for IP3 all moneys received or receivable, due or payable, arising from any exploitation, sale or transfer of the invention or any computer programs, software, data or information used for the working or exploitation of the invention. IP3 was given access to the money in the trust account for the limited purpose of preserving or maintaining the invention or the computer programs or software, IP3’s necessary legal expenses and its ordinary business expenses, subject to any expenditure over $1,000 being approved by the university’s solicitors. All of the Mareva orders were made returnable to this court on 26 June 2003.
The defendants now seek the discharge of all of the Mareva orders made on 4 and 12 June 2003 respectively, and it is to that application that I now turn. I must be satisfied before continuing these injunctions, that there is a serious question to be tried. The general rule was stated by the House of Lords in American Cyanamid Co v Ethicon Ltd[1] and it is well established now in principle in Australia: see Australia Coarse Grain Pool v Barley Marketing Board (No 1);[2] A. v Haydon;[3] Castlemaine Tooheys Ltd v South Australia;[4] Murphy v Lush;[5] and Re: Minister for Immigration ex parte Fazulahu.[6]
[1][1975] AC 396.
[2](1982) 46 ALR 398; 57 ALJR 425.
[3](1984) 56 ALR 73; 59 ALJR 1.
[4](1986) 161 CLR 148; 67 ALR 553.
[5](1986) 65 ALR 651; 60 ALJR 523.
[6](2000) 74 ALJR 830; [2000] HCA 23.
It is necessary for me to make some limited assessment of the evidence for the purpose of forming a view as to the strength of the plaintiff’s case, whether there is sufficient evidence to support the plaintiff’s claim that there is a real risk that the assets, the subject of dispute, would be dissipated by the defendants, and where the balance of convenience lies between the parties. Any conclusions which I reach cannot be based upon speculation and must be made in the knowledge that the longer the delay before trial the greater the impact of making or refusing these Mareva orders will be on one or other of the litigants’ rights.
There has been a prolonged interlocutory battle on affidavit evidence, the parties recognising that the balance of probability of success by the plaintiff may affect what balance of convenience should be struck: see Distillers Co (Biochemicals) Ltd v Times Newspapers Ltd (Thalidomide case);[7] ANI Corporation Ltd & Anor v Celtite Australia Pty Ltd;[8] and Bristol-Myers Squibb Pharmaceuticals Pty Ltd v Collinsand Omnigon Pty Ltd & Ors.[9] There is a clear interdependence between the strength of the plaintiff’s case and the balance of convenience. Whatever that balance be, there must be a case for the defendants to answer.[10]
[7][1975] QB 613.
[8](1990) 19 IPR 506 at 512.
[9](1995) 31 IPR 488.
[10]See Dean, Robert, Law of Trade Secrets, (2nd ed.) Sydney, Lawbook Co. at paragraph 8.35.
The plaintiff has, in my view, established that it has a good or reasonably arguable case. The principle upon which the plaintiff relies is unexceptionable in that an invention made by an employee in the course of his employment, or as a result of facilities afforded by the employment, is generally the beneficial property of the employer and arises because of the duty of fidelity owed to the employer: See British Reinforced Concrete Engineering Co Ltd v Lind;[11] Triplex Safety Glass Company Ltd v Scorah;[12] and Stirling Engineering Co Ltd v Patchett.[13]
[11](1917) 34 RPC 101.
[12][1938] Ch 211; [1937] 4 All ER 693 and (1938) 55 RPC 21.
[13][1955] AC 534.
The defendants, in their written and oral submissions, sought to argue that the plaintiff’s cause of action was weak. They submitted that the terms of Professor Wilson and Dr Feaver’s employment did not encompass their endeavours with respect to the invention. It was submitted on Professor Wilson’s behalf that misleading matters had been put before the court on 4 June 2003 to the effect that Professor Wilson’s terms of employment incorporated the university’s intellectual property policy. The argument was developed before me that the invention of Messrs Wilson, Feaver and Astill occurred in late December 1999 and early January 2000, and that thereafter the first and second named defendants played little part in the necessary development of the programs or software. This assertion appears difficult to reconcile with some of the contemporaneous material. For example, the plaintiff points to the e-mail from Dr Feaver in August 2002 in which he says that he and Professor Wilson had been involved for the past two years in a privately funded high-risk research and development project. In the absence of explanation from the defendants, such material will go some way towards supporting the plaintiff’s contentions.
Mr Caine, who appeared with Ms Rofe on behalf of Professor Wilson and Dr Feaver and the fourth and fifth named defendants, submitted that Professor Wilson and Dr Feaver had no legal or equitable interest in the software or programs, and that, even if they did, the terms of their contract could not catch such work. He referred to the definition of “intellectual property” in the university’s policy, Exhibit VB3 to Mr Beck’s affidavit, and submitted in the alternative that if the terms of employ were as wide as the plaintiff contended, they would be void as an unreasonable restraint of trade. It was said on behalf of the first and second named defendants that they could not have performed the work associated with the development of the software and programs, as such work fell outside their expertise or skill set. Each of these matters is clearly a question for determination at trial.
There are documents upon which the plaintiff relies which appear to be inconsistent with the claim that neither of them had the skills or time to do as the plaintiff alleges, and which, on their face, call for further explanation by the first and second named defendants. Mr Collinson, who appeared on behalf of IP3, submitted – correctly in my view – that if the first and second named defendants did do such work during university time, which is disputed, and even if they did use university equipment, which is disputed, such conduct by itself would not generate a right in the plaintiff to the invention unless the terms of their employment encompassed such work. Such facts, of course, if established, will be relevant to the resolution of various issues to be determined at trial.
It became clear during the course of submissions, and I so informed the parties, that it was apparent that there was a serious issue to be tried, and that time constraints did not permit the court to make a detailed assessment of the relative strength of the plaintiff’s causes of action. This view was not challenged by the parties during the course of submissions and it remains my view. It is sufficiently plain that there is a serious question to be tried and that the plaintiff has a realistic prospect of success. In other words, the plaintiff has a good or reasonably arguable case and, in the context of this application for preservation of assets, has shown a sufficient likelihood of success.
To maintain a Mareva or asset preservation order, as described by Kirby, J. in Cardile v LED Builders Pty Ltd,[14] a plaintiff must show that it has a good arguable cause of action and that there is a real risk of dissipation of assets that the defendant has within the jurisdiction, such that any judgment would not be satisfied: See Cardile v LED Builders Pty Ltd; Jackson v Sterling Industries Ltd;[15] Glenwood Management Group Pty Ltd. v Mayo;[16] Patterson v BTR Engineering (Aust) Ltd;[17] National Australia Bank Ltd v Dessau;[18] and Liquorland (Australia) Pty Ltd & Anor v Anghie & Ors.[19] The power to grant the order is part of the inherent jurisdiction of the court to prevent the frustration of its process: See Cardile v LED Builders Pty Ltd;[20] Patrick Stevedores Operation (No.2) Pty Ltd v Maritime Union of Australia (No 3);[21] and Frigo v Culhaci.[22] The court will not by injunction require a defendant to give security to a plaintiff’s claim: See National Australia Bank Ltd v Bond Brewing Holdings Ltd.[23] A mere claim by the plaintiff that the defendants intend to place assets beyond the plaintiff’s reach will be insufficient: See Frigo v Culhaci.[24] The function of the Mareva order is to reduce the risk of an unscrupulous defendant seeking to render itself judgment-proof or to dispose of assets in a manner prejudicial to the plaintiff’s ability to satisfy any potential judgment in the action: See Third Chandris Shipping Corporation v Unamarine SA (The Pythia; The Angelic Wings: The Genie;[25] Jackson v. Sterling Industries Ltd;[26] Liquorland (Australia) Pty Ltd v Anghie & Ors[27]and Western Australian Real Estate Investment Ltd v Pontoon Holdings Pty Ltd:[28] See also Spry, The principals of equitable remedies[29] and Meagher et al, Equity: doctrines and remedies.[30] The court will look to the effect rather than the purpose of the defendant’s conduct in determining whether the court’s processes are likely to be abused or frustrated: See Glenwood Management Group Pty Ltd v Mayo;[31] Beach Petroleum N L v Johnson;[32] Northcorp Ltd v Allman Properties (Australia) Pty Ltd;[33] and Hayden v Teplitzky.[34] The court’s power to make such orders is discretionary but, like other injunctive relief, the balance of convenience between the parties must also be considered: See Consolidated Constructions Pty Ltd v Bellenville Pty Ltd.[35] The granting of the Mareva order, even to an innocent plaintiff, can wreak havoc with a defendant’s business: See Meagher et al[36] and Frigo v Kulhachi.[37] Consequently, a high degree of caution is required when the court is invited to make such orders: See Cardile v LED Builders Pty Ltd. It is a drastic order which should not lightly be granted.
[14](1999) 198 CLR 380 at 412.
[15](1987) 162 CLR 612.
[16][1991] 2 VR 49.
[17](1989) 18 NSWLR 319.
[18][1988] VR 521 at 524.
[19][2001] VSC 362 per Warren J.
[20]See Footnote 14.
[21](1998) 195 CLR 1 at 32.
[22][1998] NSW CA Unreported 17 July.
[23][1991] 1 VR 386 per Brooking J at 553.
[24]See Footnote 22.
[25][1979] 1 QB 645.
[26]See Footnote 15.
[27]See Footnote 19.
[28][1999] WASC 162 at paragraph 11 per Miller J.
[29]Spry, I.C.F. (2001) The principles of equitable remedies: specific performance, injunctions, rectification and equitable damages (6th ed.) Pyrmont, NSW, Law Book Co. at 514.
[30]Meagher, R.P. et al (1992) Equity: doctrines and remedies, Sydney, Butterworths at paragraph 2185.
[31][1991] 2 VR 49.
[32](1992) 9 ACSR 404.
[33][1994] 2 Qd R 405.
[34](1997) 74 FCR 7 per Lingdren J.
[35][2002] FCA 1513.
[36]See Meagher et al Footnote 26 at paragraph 2188.
[37]See Footnote 21.
The plaintiff claims that the defendant holds the invention and software in trust for the university. IP3, by virtue of the first and second named defendants being directors thereof, has, the plaintiff says, direct notice of the trust. The plaintiff further claims that Wilson and Feaver, in breach of their fiduciary duty and obligations to the university, acted as they did and that the breach extends not only to the patent applications in respect of the inventions, but to the computer programs and software created to develop the invention and make it work. All of these are assets, the university says, which are held on trust by the defendants for it.
The plaintiff’s claim, therefore, is different in one sense from most cases in which Mareva orders are sought, arising out of claims for moneys owed, but disputed. Here, the plaintiff’s claim is for an equitable interest in these assets controlled by the defendants, who are, the plaintiff submits, thus dealing with entrusted assets beneficially owned by the university. It therefore seeks, inter alia, that IP3 holds these inventions, programs and software on trust for the university and it seeks an injunction to prevent the dissipation of assets held on trust and to restrain the trustee from dealing with such assets or the proceeds thereof. It is not disputed that it is necessary for the plaintiff to establish that there is a real risk of these assets being removed before judgment is satisfied. The plaintiff in its written and oral submission relies on what it describes as the clandestine conduct of the first and second named defendants and their lack of frankness with the university, in conjunction with the e-mail of Dr Feaver [Exhibit BV40], as leading to the conclusion that there is a real risk of dissipation. The plaintiff relies on the fact that the assets the subject of dispute are easily transmissible. Mr Kendall, who appeared with Mr Hess for the plaintiff, submitted that I should not accept the first and second named defendants’ denials of these serious allegations made by the plaintiff against them concerning their conduct and their lack of frankness with the university. In particular, the plaintiff submitted that I should not accept the explanations proffered by the defendants as to the use of the university’s equipment and information, their denial that their research activities extended to the making of the invention, and the inconsistencies in their account of their activity with the contemporaneous documentation. The plaintiff places substantial reliance upon the claim that the first and second named defendants failed to make any candid disclosure of their activity to the university over a two-year period.
Mr Collinson, who appeared on behalf of the third named defendant and whose submissions were adopted by the first, second, fourth and fifth named defendants, contended that there was no evidence at all of assets being dissipated. He submitted that Dr Feaver’s e-mail did not reveal any intention by the defendants to dispose of the invention or the computer programs or software, or to dissipate any of the proceeds from any disposition of such assets. He submitted that a takeover of IP3 would not have the effect of dissipating the assets, nor does it reveal any intention by the defendants to do so. The university’s failure to commence proceedings for injunctive relief for some six weeks after the e-mail was discovered demonstrated, he submitted, that the e-mail had not generated any real concern, and that I should take into account the university’s delay as a discretionary consideration.
Professor Wilson and Dr Feaver in their affidavits assert that the university was well aware of their activity and point to a number of documents produced by the university which, they submit, confirm their account. In particular, my attention was drawn to the memorandum of 3 December 2002 [VB39] and an e-mail by Professor Wilson to all of the staff in his department of 22 August 2002 [VB23]. The defendants rely upon the fact that the IP3 web site became public, as did their patent application. The extent of the university’s awareness of the work performed by the first and second named defendants and the related question of whether the university was led to believe that such work was done for its benefit are further issues which must await determination at trial.
All parties were given only limited time to develop their submissions and direct my attention to documents on this issue. Many of the documents to which the parties drew my attention were capable of supporting competing inferences, and each party claims that the documents contradict the other party’s case. There is a substantial conflict as to whether there is evidence of a danger that assets may be dissipated.
On interlocutory application this court is neither equipped nor required to make findings of fact, particularly as those who have provided evidence on affidavit have not been cross-examined. Despite these limitations it is necessary for me to form a view about the sufficiency of the evidence upon which the plaintiff relies. The University submits that the evidence establishes misconduct by the first and second named defendants, including the wilful concealment by Professor Wilson and Dr Feaver of the use of the university’s computer data and information and of the making of the patent application, even after being put on inquiry prior to making the first patent application, and the destruction by Professor Wilson or on his behalf of all of the data and information on the university’s computers prior to returning them. This activity, the plaintiff submits, indicates a willingness by the defendants to breach their duties of loyalty and good faith and to act dishonestly and to take steps to prevent discovery of their activities.
At the time that the injunctions were first made, the first and second named defendants together had a substantial interest in, and were directors of, IP3 Systems. They have now, I have been informed, resigned as directors, but the plaintiff submits that I should view their resignations as a further ground for suspicion. The plaintiff submits that the use of the university’s equipment was an essential mainstay of IP3’s assets in the creation and working of the invention and asks rhetorically, why otherwise would the university’s equipment have remained with the third named defendant until November 2002? The plaintiff invites me to infer that Professor Wilson would not have authorised such long-term use of the equipment if it were not being used for a university-related project. It points to the period of time during which no real disclosure was made of the first and second named defendants’ activities and the misleading nature of such disclosures when they were subsequently made.
Each of these allegations is disputed by the defendants, it being contended by them that full and frank disclosure has been made and that the work done by the first and second named defendants did not fall within the terms of their employment, nor were they in breach of any of their terms of employment in performing work in relation to the invention, the programs or software. The defendants submit that the exiguity of the plaintiff’s basis for seeking Mareva orders does not justify the making of such orders.
It is well established that, in determining whether there is a sufficiently substantial danger of defendants disposing of assets in order to defeat a judgment that might be obtained against them, the court is permitted to consider the evidence adduced by the plaintiff to establish its claim to the substantive relief sought: see Patterson v BTR Engineering (Aust) Ltd.[38] A risk of dissipation cannot be inferred merely from the fact that the plaintiff has a prima facie cause of action. One may in some cases, having regard to the nature of the plaintiff’s claim, infer the existence of a risk of dissipation partly or wholly from the fact that the plaintiff has a good, arguable case.[39] Where the plaintiff’s prima facie case against a defendant involves proof of allegations of serious dishonesty, such an approach may be appropriate.[40] The plaintiff, in this case, does rely upon allegations of dishonesty, though not gross in kind and not of the character which influenced White J. in Uniflex (Australia) Pty Ltd v Hanneybel[41] to grant a Mareva injunction or Beach J. in Mort v Woolf[42] to do so. For a similar approach, see Myer Stores Pty Ltd v Conforto[43] and LED Builders Pty Ltd v Eagle Homes Pty Ltd.[44]
[38](1989) 18 NSWLR 319, per Gleeson CJ at 325, Meagher, JA at 326 and Rogers AJA at 330-331.
[39]See Patterson v BTR, Footnote 17 per Meagher JA at 326 and Woodside Hospital Consulting Pty Ltd v Stockton Nominees [1998] VSC 121, per Chernov J.
[40]See Patterson v BTR Footnote 17, Pearce v Waterhouse [1986] VR 603, Mort v Woolf [2002] VSC 503, per Beach J.
[41][1998] Unreported WASC CIV 1541 17 August.
[42]See Mort v Woolf Footnote 40.
[43][2000] VSC 382.
[44](1997) 38 IPR 107 per Emmett J.
It is said that the first and second named defendants were secretive about the invention and demonstrated a lack of candour in providing information to the university. Such conduct, if established, is consistent either with a recognition by the defendants that they were in breach of their terms of employment in performing work in relation to the invention and the creation of the program and software during university hours and in using university equipment in breach of their terms of employment. Such conduct might also be explained on the basis that they recognised that such work as they were doing fell within the terms of their employment, showing a recognition that the fruits of their labour belonged to the university. Such conclusions as may be drawn from the defendants’ conduct may advance the plaintiff’s proof of its cause of action and at the same time establish a substantial danger that the defendants will dissipate the assets the subject of dispute. The e-mail of Dr Feaver of 10 February 2003 to which I have referred is also evidence to which the plaintiff points as providing a basis that there is a real risk of dissipation. The e-mail is, in my view, some evidence that the defendants contemplated selling the invention, programs or software through a sale of the shares in IP3.
In Mitchell v Saengjan,[45] Mildren J. formed the view that there was a combination of factors which gave rise to a feeling of unease, such that his Honour considered that there was a sufficient danger that the defendants would remove or dispose of the assets so that the plaintiff, if it succeeded in the action, would not be able to have its judgment satisfied. By contrast was the view formed by Bryson J. in Aquasun Pty Ltd v Coverdale Ram Pty Ltd,[46] where his Honour said:
“The facts in evidence reveal no conduct on the part of the defendant which can reasonably be interpreted as potentially having the effect of frustrating the ordinary processes of the court and the enforcement of its judgments or of being intended to do so or of being in any way evasive, indicating dishonesty, or otherwise indicating actually or potentially that the assets of the company have been or will be dealt with in an irregular way. I should not assume that the directors would behave irresponsibly or dishonestly unless some substantial ground for fearing that they may do so has been shown. “[47]
Barrett, J. in Parsram Brothers (Australia) Pty Ltd v Australian FoodsCompany Pty Ltd [48]took a similar view.
[45](1994) 117 FLR 273.
[46][2000] NSW SC 1146.
[47]See Aquasun Pty Ltd v Coverdale Ram Pty Ltd Footnote 46 at paragraph 5.
[48][2001] NSWSC 436.
The defendants have submitted that it is necessary for the plaintiffs to establish on the balance of probabilities that there is a danger that, by reason of assets being removed or disposed of, if the plaintiff succeeds it will not be able to have its judgment satisfied. The defendants erroneously cited Patterson v. BTR in support of this proposition. Gleeson C.J. in Patterson regarded, such a submission as bound to fail, because it was open to the theoretical objection which concerns the conceptual difficulties in applying such a standard to future events, and secondly, because such a test was too inflexible. The Chief Justice said:
“It is not difficult to imagine situations in which justice and equity would require the granting of an injunction to prevent dissipation of assets pending the hearing of an action, even though the risk of such dissipation may be assessed as being somewhat less probable than not.”[49]
Such a test has been considered and rejected in England for reasons which his Honour regarded as convincing. Rogers, A.J.A. also agreed with the Chief Justice’s reasons, as did Meagher, J.A., although Meagher JA went on to observe that he thought the plaintiff was required to prove on the balance of probabilities that there is a real risk of the dissipation of assets. My limited research does not suggest that the approach formulated in Patterson v. BTR by the Chief Justice has been the subject of criticism. The case has been referred to on a number of occasions by the High Court [50] with apparent approval and has been relied upon in the Federal Court of Appeal[51] and in a number of superior State courts of Australia.[52] A plaintiff need not necessarily prove that it is more likely than not that the assets will be dissipated. What must be established is a sufficient likelihood of risk which in the circumstances of a particular case justifies an asset preservation order.
[49]See Patterson v BTR Engineering Aust Pty Ltd Footnote 17 at 325.
[50]Patrick Stevedores Operations No. 2 Pty Ltd v Maritime Union of Australia Footnote 21; Australian Broadcasting Corp v Lenah Game Meats Pty Ltd (2001) 208 CLR 199.
[51]Australian Competition & Consumer Commission v Chaste Corp [2003] FCA 180.
[52]See for example Apple Computer Australia Pty Ltd (in liq) v Mekrizis [2002] NSWSC 393; GE Capital Australia v Davis [2001] NSWSC 933; Todd v Novotny& Anor [2001] WASC 171; Betta Cones Co. Pty Ltd v Microbyte Investments Pty Ltd Unreported VSC 22 September 1993; Lurgi (Australia) Pty Ltd & Anor v Gratz and Dietrich Unreported VSC 17 May 1996.
The affidavit evidence of the first and second named defendants is contradicted by contemporaneous and historical documents, some of which were created by them. Their claims as to the amount of time they spent in developing the invention, and whether it intruded into the university’s time, whether it was contrary to their terms of employment, and whether there is a nexus between that employment and the invention, is difficult to reconcile with a number of the exhibits. The explanations which they proffered as to the use of the university’s computer equipment give rise to similar observations. All of these matters call for further explanation from the first and second named defendants. There is material which supports the plaintiff’s assertion that the first and second named defendants concealed the full extent of their activity from the university, and a sale of shares in IP3 has at least at some stage in the past been contemplated.
Although this is, in my view, a borderline case, and my opinion has vacillated at various stages of the proceedings, I have concluded that there is a reasonable and sufficiently prominent inference open, on the untested evidence, that there is a realistic risk that the assets, the subject of dispute, will be dissipated. That is not to say that I am necessarily satisfied that such an occurrence is more likely than not. It is enough that the plaintiff has established a sufficient likelihood that a realistic risk exists to warrant the making of an order preserving the assets until trial.
In considering questions of balance of convenience, I take into account the fact that the plaintiff contends that the assets the subject of dispute are trust property in which it has at least an equitable claim. The defendants rely upon the evidence of the director and chief executive officer of IP3, Mr Youssef, that if the Mareva orders are not vacated, USA Health Investors LLC, which has entered into a share subscription agreement with IP3, and in which it appears it is the only source of income for IP3 in the immediate future, will terminate its agreement with IP3 and refuse to make any further payments. Mr Youssef deposes that if the next tranche of funds is not paid by USA Health, the operations of IP3 will be shut down and its staff will be terminated. Exhibit AY3 concerns the agreement between IP3 and USA Health and the right of USA Health to terminate the agreement if certain events occur. It is at least reasonably arguable that the continuation of the Mareva order in the form of order 16 would entitle USA Health to terminate the agreement.
There is a clear distinction to be drawn between those Mareva orders which restrain the defendants from transferring or disposing of the assets the subject of dispute and those orders which require the defendants to pay certain funds into an interest-bearing trust account under the control of the third named defendant’s solicitors, or which require the permission of the plaintiff before funds in excess of a certain amount can be expended.
I accept the submissions made on behalf of IP3 that the control of funds required by order 16 of the Mareva orders threatens the viability of IP3. I recognise that if the court was of the view that the plaintiff had demonstrated a strong plaintiff’s case, then the strength of the case on the balance of convenience may tilt in favour of granting the relief sought. See Slater Walker Superannuation Pty Ltd v Great Boulder Gold Mines Ltd [53] and Magna Alloys & Research Pty Ltd v Coffey.[54] This is not a case in which it is apparent from the affidavit evidence that one party’s case is very much stronger than the other. I have thus concluded that the hardship and detriment that may flow to IP3 from the maintenance of order 16, does not in all of the circumstances justify the continuance of that order, and I propose to dissolve the same. In other words, the grant of that interlocutory injunction would cause disproportionate hardship to IP3 and would not benefit the plaintiff to a corresponding degree.[55]
[53][1979] VR 107.
[54][1981] VR 23.
[55]See Spry, I.C.F. (1984), The principles of equitable remedies (3rd edition), Law Book Company, Sydney, pages 383-387.
By contrast to its approach to the continuance of order 16, IP3 did not pursue a balance of convenience argument with respect to orders 17, 18, 19 or 20. My strong impression derived from the manner in which the submissions were developed is that the continuation of such orders until trial would not generate any substantial hardship or convenience.
I therefore propose to make orders in the same or similar terms to orders 17, 18, 19 and 20 of the orders pronounced on 4 and 12 June 2003 respectively, to dissolve order 16 and in substitution thereof require the defendants to keep and provide an account of such moneys as they receive from the exploitation of the invention program or software. I will hear further from the parties as to the form of such orders, including the time by which the defendants be required to file affidavits in compliance with order 18.
414