Www Dot Wizards Pty Ltd v Globe Valley Pty Ltd
[2006] WASC 128
WWW DOT WIZARDS PTY LTD -v- GLOBE VALLEY PTY LTD & ANOR [2006] WASC 128
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2006] WASC 128 | |
| Case No: | CIV:1894/2005 | 11 MAY 2006 | |
| Coram: | MASTER NEWNES | 30/06/06 | |
| 13 | Judgment Part: | 1 of 1 | |
| Result: | Application to amend refused | ||
| B | |||
| PDF Version |
| Parties: | WWW DOT WIZARDS PTY LTD (ACN 106 182 209) GLOBE VALLEY PTY LTD (ACN 056 599 654) THOMAS HEGARTY |
Catchwords: | Practice and procedure Application to amend statement of claim Whether proposed amendments defective Principles to be applied Preincorporation contract Whether ratification by company has retrospective effect Whether pleading embarrassing Turns on own facts |
Legislation: | Copyright Act 1968 (Cth), s 196(3) Corporations Act 2001 (Cth), s 131, s 181, s 182 Rules of the Supreme Court 1971 (WA), O 1 r 4B |
Case References: | Atkinson v Fitzwater [1987] 1 WLR 201 Aztech Science Pty Ltd v Atlanta Aerospace (Woy Woy) Pty Ltd & Anor [2005] NSWCA 319 Banque Commerciale SA en Liquidation v Akhil Holdings Ltd (1990) 169 CLR 279 Dare v Pulham (1982) 148 CLR 658 Frank Jasper Pty Ltd v Deloitte Touche Tohmatsu (A Firm) [2006] WASC 24 General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 Hooker Corporation Ltd v Commonwealth (1986) 65 ACTR 32 Hospitals Contribution Fund of Australia v Hunt (1982) 44 ALR 365 Pancontinental Mining Ltd v Posgold Investments Pty Ltd (1994) 121 ALR 405 Bruce v Odhams Press Ltd [1936] 1 KB 697 Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 Coe v Commonwealth (1979) 24 ALR 118 Sinclair v James [1894] 3 Ch 554 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- Plaintiff
AND
GLOBE VALLEY PTY LTD (ACN 056 599 654)
First Defendant
THOMAS HEGARTY
Second Defendant
Catchwords:
Practice and procedure - Application to amend statement of claim - Whether proposed amendments defective - Principles to be applied - Preincorporation contract - Whether ratification by company has retrospective effect - Whether pleading embarrassing - Turns on own facts
Legislation:
Copyright Act 1968 (Cth), s 196(3)
Corporations Act 2001 (Cth), s 131, s 181, s 182
Rules of the Supreme Court 1971 (WA), O 1 r 4B
(Page 2)
Result:
Application to amend refused
Category: B
Representation:
Counsel:
Plaintiff : Mr I R Freeman
First Defendant : Mr M H Zilko SC
Second Defendant : Mr M H Zilko SC
Solicitors:
Plaintiff : Lavan Legal
First Defendant : Price Sierakowski
Second Defendant : Price Sierakowski
Case(s) referred to in judgment(s):
Atkinson v Fitzwater [1987] 1 WLR 201
Aztech Science Pty Ltd v Atlanta Aerospace (Woy Woy) Pty Ltd & Anor [2005] NSWCA 319
Banque Commerciale SA en Liquidation v Akhil Holdings Ltd (1990) 169 CLR 279
Dare v Pulham (1982) 148 CLR 658
Frank Jasper Pty Ltd v Deloitte Touche Tohmatsu (A Firm) [2006] WASC 24
General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125
Hooker Corporation Ltd v Commonwealth (1986) 65 ACTR 32
Hospitals Contribution Fund of Australia v Hunt (1982) 44 ALR 365
Pancontinental Mining Ltd v Posgold Investments Pty Ltd (1994) 121 ALR 405
(Page 3)
Case(s) also cited:
Bruce v Odhams Press Ltd [1936] 1 KB 697
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337
Coe v Commonwealth (1979) 24 ALR 118
Sinclair v James [1894] 3 Ch 554
(Page 4)
1 MASTER NEWNES: This is an application by the plaintiff to amend the writ and statement of claim in accordance with minutes of amended writ and statement of claim. The proposed amendments are opposed by the defendants.
The proposed pleading
2 In the proposed minute of amended statement of claim (the "minute") it is alleged that the plaintiff was incorporated on 3 September 2003 and that it owns and operates an internet florist business. The directors of the plaintiff until about 6 July 2005 were one Paul Rewell ("Rewell") and the second defendant, and thereafter Rewell was the sole director.
3 The second defendant is and was at all material times the director and controller of the first defendant.
4 The plaintiff alleges in par 7 of the minute as follows:
"7. Intellectual property of the Plaintiff
7.1 Pursuant to an agreement (the 'Agreement') made in or about February 2003 between Paul Rewell and the Second Defendant, the Second Defendant and Paul Rewell agreed to work together, in anticipation of the incorporation of the Plaintiff, between about February 2003 and about May 2005 on the development of a computer program (the 'System') to be the basis of the Business, on the basis that the work was done by Paul Rewell and the Second Defendant for the benefit of the Plaintiff and after 3 September 2003 as employees of the Plaintiff.
Particulars of agreement
- The Agreement was an oral agreement made between Paul Rewell and the Second Defendant, in or about February 2003.
7.2 The Agreement referred to in paragraph 7.1 hereof:
7.2.1 was ratified in the Plaintiff upon its incorporation, by the conduct of Paul Rewell and the Second Defendant,
- pursuant to section 131(1) of the Corporations Act 2001, on the basis that the Agreement was ratified by the conduct of those persons, being the only directors of the Plaintiff, continuing to work pursuant to the Agreement on the development of the System as employees of the Plaintiff after the date of registration of the Plaintiff (being 3 September 2003), until about May 2005, and carrying on the Business of using the System as developed by those persons and accepting consideration from the Plaintiff for the work done on the System;
- 7.2.2 thereafter took effect as an agreement between the Plaintiff and Paul Rewell and the Second Defendant."
5 The plaintiff pleads in par 8 of the minute that it was an express oral term of the Agreement that the work done by Rewell and the second defendant prior to the incorporation of the plaintiff was for the plaintiff's benefit and the consideration for the work would be paid to them by the plaintiff after its incorporation. The consideration is said to be the issue of shares in the plaintiff and such further funds as Rewell and the second defendant agreed as directors to be paid to them.
6 The plaintiff alleges in par 9 of the minute that it was a further express oral term of the Agreement that the System would be confidential information of the plaintiff.
7 It is then pleaded in par 10 to par 13 as follows:
"10. The Agreement contained implied terms that the Second Defendant had:
10.1 a duty of good faith and fidelity to the Plaintiff;
10.2 a duty so long as the Agreement susbsisted [sic] not to misuse any information confidential to the Plaintiff or to disclose such information to any third party; and
- 10.3 a duty, following the termination of the Agreement, not to use or disclose any confidential information of the Plaintiff to any third party.
which terms were implied as an incident of the employer/employee relationship.
- 11. It was an express oral alternatively implied term of the Agreement that Paul Rewell and the Second Defendant would assign any copyright owned by them in the System to the Plaintiff which assignment would occur at the time the Plaintiff became registered.
Particulars
- 11.1 In so far as the term was express it arises from the Agreement' [sic]
11.2 In so far as the term is to be implied it is to be implied from the express terms of the Agreement because the term is:
11.2.1 reasonable and equitable;
11.2.2 necessary to give business efficacy to the Agreement;
11.2.3 so obvious it goes without saying;
11.2.4 capable of clear expression and reasonably certain in its operation; and
11.2.5 not contradictory of any express terms of the Agreement.
Particulars
- 12.1 The term of the licence was for the period during which Paul Rewell or the Second Defendant or
- either of them or any of their related corporate entities had an interest in the Business or the Plaintiff.
- 13. The term is to be implied in the Agreement because:
13.1 Paul Rewell and the Second Defendant were engaged for reward to produce the System on behalf of the Plaintiff, which System is and was capable of being the subject of copyright;
Particulars
- The Plaintiff repeats the particulars to paragraph 8 above.
13.1.1 the use of the System by the Business was contemplated and agreed by Paul Rewell and the Second Defendant, pursuant to the Agreement; and
13.1.2 the implied licence was necessary to give the Agreement ordinary business efficacy.
13.1.3 it is reasonable and equitable;
13.1.4 so obvious it goes without saying;
13.1.5 it is capable of clear expression and reasonably certain in it operation; and
13.1.6 it is not in contradiction of any express terms of the Agreement."
9 It is alleged that the first defendant has accessed the plaintiff's computer server (the "Server") and transferred confidential files to a server owned by an agent of the defendants. The plaintiff pleads that the Server was accessed at a time when the second defendant was an employee and director of the plaintiff, and accordingly the second
(Page 8)
- defendant was in breach of his duties as a director, in breach of s 181 and s 182 of the Corporations Act 2001 (Cth)and in breach of his duty of confidence to the plaintiff pursuant to the Agreement. It is alleged that the first defendant was involved in those breaches.
10 It is also alleged that the defendants accessed the Server and caused instructions on the plaintiff's computer to be modified and further information sent to the defendants, and that the second defendant impaired the electronic communication of prospective customers of the business with the Server with the intention of disrupting the plaintiff's business. It is alleged that the first defendant was thereby in breach of the duties referred to above and the second defendant was involved in those breaches.
The defendants' submissions
11 The defendants' counsel submitted that there was no conduct pleaded in par 7 which constituted a ratification of the Agreement by the plaintiff and the plea was therefore defective. In addition, it was submitted that the plea that after the alleged ratification the contracting parties became the plaintiff, Rewell and the second defendant, is a plea of novation not of ratification.
12 It was submitted in relation to par 10, first, that the duties alleged were said to be implied as an incident of the employer and employee relationship at a time before the employer, the plaintiff, had been incorporated. Accordingly, the plea was, in effect, that duties were owed to a non-existent entity. Secondly, there is no plea of the basis upon which the terms alleged are to be implied and it is not clear from the material pleaded what that basis is said to be.
13 It was submitted on behalf of the defendants that there was no basis for the plea in par 11 or par 12 of the minute. The implied terms alleged could not arise on the facts pleaded and, in any event, were so vague as to be meaningless. In particular, counsel submitted that there was nothing to suggest that such implied terms were necessary to give business efficacy to the Agreement or that they was so obvious that they went without saying. Nor was it apparent how the assignment or the grant of the licence was to occur. In addition, the plea of an oral term in par 11 was not particularised. In addition, counsel submitted that as no relief was sought for breach of either of the alleged implied terms, the pleas were irrelevant and raised false issues.
(Page 9)
14 It was submitted that par 13.1 did not disclose any basis recognised in law for the implication of a term.
15 The defendants objected to par 14 and par 15 of the minute on the basis that the particulars of the System were insufficient to enable the defendants to form a view as to whether, as a matter of law, the alleged System attracted the protection of the Copyright Act.
16 Objection was also taken to par 20 on the basis of a lack of particulars of the allegations of the authority, request, and knowledge pleaded in that paragraph. Paragraph 4 of the prayer for relief was objected to on the grounds that it was not clear what "licence" was referred to therein.
The principles to be applied
17 The general principles to be applied on an application of this sort are well known. A court will not grant leave to amend a pleading into a form which is liable to be struck out: Hooker Corporation Ltd v Commonwealth (1986) 65 ACTR 32 at 38; Atkinson v Fitzwater [1987] 1 WLR 201 at 214 - 215. A plea will be struck out as disclosing no reasonable cause of action or defence (as the case may be) only if it is so obviously untenable that it cannot succeed, and great care must be exercised to ensure that a party is not improperly deprived of their opportunity to put their case at trial: General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 130. In that regard, Courts at first instance should be careful not to risk stifling the development of the law: Hospitals Contribution Fund of Australia v Hunt (1982) 44 ALR 365 at 373.
18 In determining whether a pleading is likely to prejudice, embarrass or delay the fair trial of the action, it is fundamental that a party is entitled to a statement of the opponent's case sufficiently clear to allow the party a fair opportunity to meet it: Dare v Pulham (1982) 148 CLR 658 at 664. A pleading may therefore be struck out where it is vague, ambiguous or pleaded at too great a level of generality so as to leave the other party in doubt as to how to respond to the pleading: Pancontinental Mining Ltd v Posgold Investments Pty Ltd (1994) 121 ALR 405 at 413; Banque Commerciale SA en Liquidation v Akhil Holdings Ltd (1990) 169 CLR 279 at 286 per Mason CJ and Gaudron J.
19 I would, however, reiterate what I said in Frank Jasper Pty Ltd v Deloitte Touche Tohmatsu (A Firm) [2006] WASC 24, namely, that the question of whether a pleading is likely to prejudice, embarrass or delay
(Page 10)
- the fair trial of the action in any particular case invariably involves matters of judgment and degree. The approach to be taken to such an objection to a pleading, or proposed pleading, must be directed to the attainment of the objectives set out in O 1 r 4B. Such an approach requires a degree of flexibility that may not always be consistent with the practices of earlier times. The question of whether a pleading is so defective that it should be struck out is not to be answered by any mechanical application of the rules of pleading. It is generally to be answered by whether or not the pleading serves the fundamental objective of pleadings and whether any significant deficiencies in it can adequately be overcome by the provision of particulars or by some other means. While it is necessary that a pleading set out with reasonable clarity and detail the case that the other party must meet, the focus must be on whether the pleading is sufficient for the fair and proper disposition of the case, not whether it complies meticulously with the rules of pleading.
Should the amendment be allowed?
20 In my view, the plea in par 7 of the minute is embarrassing. The effect of the plea appears to be that, upon ratification by the plaintiff, the Agreement between Rewell and the second defendant became a tripartite agreement between the plaintiff, Rewell and the second defendant. If by that it is meant that it took effect as an employment agreement between each of Rewell and the second defendant on the one hand and the plaintiff on the other, that does not clearly emerge from the plea. If it means something other than that, it is not apparent what agreement came into effect or how it came about.
21 It seems to me, in any event, that there may be a more fundamental difficulty with the plea. It appears that par 7 is intended to plead a pre-incorporation contract of the type contemplated by s 131 of the Corporations Act. The Agreement is said to have been made by Rewell and the second defendant "in anticipation of the incorporation of the Plaintiff" on the basis that the work they did pursuant to the Agreement would be for the benefit of the plaintiff and upon the incorporation of the plaintiff they would become its employees. It is pleaded in par 8 that the plaintiff would in due course pay Rewell and the second defendant for the work they did prior to the plaintiff's incorporation. In par 11 it is pleaded that Rewell and the second defendant would assign any copyright owned by them in the System to the plaintiff when the plaintiff became registered.
(Page 11)
22 It is not, therefore, apparent what is meant by the plea in par 7.2 that the plaintiff "ratified" the Agreement between Rewell and the second defendant. What appears to be intended is a plea that upon the incorporation of the plaintiff the benefit of the work done by Rewell and the second defendant under the Agreement was acquired by the plaintiff, rather than a plea that the plaintiff became a party to the Agreement between Rewell and the second defendant. It was not a case, therefore, of a person entering into a contract with a third party for the benefit of a company to be incorporated, so that upon incorporation and ratification the company assumed the obligations and liabilities of that person vis-a-vis the third party. Accordingly, it is difficult to see how s 131 of the Corporations Act has any application.
23 I accept the defendants' submissions that the plea in par 10 is embarrassing. The effect of that plea is that, prior to the plaintiff's incorporation, Rewell and the second defendant owed duties to the plaintiff as an incident of the relationship of employer and employee between each of them and the plaintiff. In my view, there could be no relationship of employer and employee prior to the plaintiff's incorporation.
24 In the first place, it does not appear to be contended by the plaintiff that ratification had a retrospective effect so that upon ratification by the plaintiff the contract was to be treated from the outset as having been made by the plaintiff. Paragraph 7.2 of the minute pleads that the Agreement was ratified by the plaintiff and "thereafter took effect as an agreement between the Plaintiff and Paul Rewell and the Second Defendant".
25 In any event, in my view ratification would not have such retrospective effect. The learned authors of "Ford's Principles of Company Law" (12th ed) point out (at [15.290]) that in the absence of a clear legislative statement there could hardly be retrospective formation of a contract from the time the agent purported to make it, given the non-existence of the company. There is no such legislative statement. Nor is there any indication of a legislative intention to make the ratified contract operative from the time the company was registered. I would respectfully agree.
26 While the position under the law of agency in relation to ratification is different, as Bryson JA observed in Aztech Science Pty Ltd v Atlanta Aerospace (Woy Woy) Pty Ltd & Anor [2005] NSWCA 319 at [29], in
(Page 12)
- relation to s 131, analogies drawn from agency law are imperfect as there is no relationship of agency.
27 It was submitted by counsel for the plaintiff that the pleading of the duties, and the breaches of them, referred to events after incorporation and there was therefore no difficulty with the plea. I do not agree. It seems to me that if that is what is intended to be pleaded, then the plea should make that clear. As it stands, the pleading appears to suggest that the duties came into existence with the Agreement, before the plaintiff was incorporated and before it had ratified the Agreement.
28 Counsel for the plaintiff submitted that the complaint about the adequacy of the plea in par 11 of the minute was a matter that could adequately be dealt with by a request for further and better particulars and was not a ground to strike out the plea. Counsel accepted, however, that the plea in par 11.1 that the express term "arises from the Agreement" could be better phrased. Counsel also accepted that no relief was sought in respect of the matters pleaded in par 12 and as it stood the plea was irrelevant. I understood that further matters were intended to be pleaded to rectify that.
29 In my view, the defendants' complaint about the lack of relevance of the pleas in par 11 and par 12 is made out. In the first place, as I understood counsel for the plaintiff to concede, it is deficient because there is no plea that there was in fact an assignment of the copyright to the plaintiff, or that Rewell and the second defendant in fact granted a licence to the plaintiff to use the System. It is relevant in that respect that any assignment would have to be in writing to be effective: s 196(3) of the Copyright Act. Secondly, there is nothing pleaded in the minute which would appear to make relevant the alleged agreements to assign to the plaintiff the copyright in the System, or to grant it a licence to use the System. Indeed, as the minute stands, it is not at all clear how any of the pleas relating to copyright in the System - being par 11 to par 15 of the minute - are said to be relevant to the plaintiff's claim. While various breaches of duty and of the Corporations Act are pleaded, there does not appear to be any allegation of a breach of copyright by the defendants, or a denial by the defendants of the plaintiff's entitlement to copyright in the System, or any other plea that would make the allegations as to copyright relevant to the plaintiff's claim. If the allegations in pars 16 to 22 of the minute are intended to plead a breach or breaches of copyright that would need to be made clear.
(Page 13)
30 Subject to that, I accept the defendants' submission that the objections to the form of par 14, par 15 and par 20 would normally, at least in the first instance, be a matter for further and better particulars rather than a basis to strike out those pleas. I also accept that the reference in the prayer for relief to "licence" should reasonably be taken to be a reference to the licence pleaded in par 12 as there is no other licence referred to. Any ambiguity or difficulty there might be in respect of the nature of the licence pleaded would normally be capable of being cured by a request for further and better particulars.
31 In light of the problems with par 7, par 10, and pars 11 to 15 of the minute, I consider that the appropriate course is simply to refuse leave to amend in terms of the minute and leave it to the plaintiff to bring in a new minute. In those circumstances, the particularisation of par 14, par 15 and par 20, and of the "licence", should be incorporated in any further minute to avoid unnecessary delay and cost being incurred in the action.
32 I would adjourn the application to amend the writ of summons pending the resolution of the position with the statement of claim.
33 I will hear the parties on the time within which the plaintiff is to bring in a new minute of amended statement of claim and on costs.
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