CATCHWORDS
PRACTICE AND PROCEDURE - whether pleading disclosed no reasonable cause of action - authority of court to strike out whole or part of pleading O 11 r 16 Federal Court Rules - authority of court to stay or dismiss proceedings - O 20 r 2(1) Federal Court Rules.
PRACTICE AND PROCEDURE - standing - whether applicants had standing in proceedings in respect of property that was acquired by or devolved on the applicants on or after the date of bankruptcy - property of bankrupt vests in trustee-in-bankruptcy, ss 58 and 166 Bankruptcy Act 1966 (Cth) - held that applicants had no standing by virtue of vesting of property in the trustee-in-bankruptcy.
Bankruptcy Act 1966 (Cth) ss 58 and 116
Trade Practices Act 1974 (Cth) s 52
Federal Court Rules O 20 r 2(1), O 11 r 16
Fuller v Beach Petroleum NZ 117 ALR 235
Re Keene (1922) 2 Ch 475
Dey v Victorian Railways Commissioners (1949) 78 CLR 62
General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125
Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87
Webster v Lampard (1993) 177 CLR 598
DARREN JOHN ASKEW and ANTHONY FRANCIS ASKEW & ORS v SEVENTH GRANITE PTY LTD & ORS
QG 47 of 1995
Olney J
Melbourne
1 September 1995
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION QG 47 of 1995
BETWEEN:
DARREN JOHN ASKEW and ANTHONY FRANCIS ASKEW
First Applicants
-and-
DELATON PTY LTD
Second Applicant
-and-
SEVENTH GRANITE PTY LTD
First Respondent
-and-
CHRISTOPHER WILSON (also known as
Christopher Askew and Christopher Cramp)
Second Respondent
-and-
ANDREW JAMES SPEIRS
Third Respondent
-and-
LISA JONES
Fourth Respondent
Coram: Olney J
Place: Melbourne
Date: 1 September 1995
MINUTE OF ORDER
THE COURT ORDERS THAT:
1. The proceeding be dismissed.
2. The applicants pay the respondents' costs of the proceeding including reserved costs.
NOTE: Settlement and entry of orders is dealt with in
Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION QG 47 of 1995
BETWEEN:
DARREN JOHN ASKEW and ANTHONY FRANCIS ASKEW
First Applicants
-and-
DELATON PTY LTD
Second Applicant
-and-
SEVENTH GRANITE PTY LTD
First Respondent
-and-
CHRISTOPHER WILSON (also known as
Christopher Askew and Christopher Cramp)
Second Respondent
-and-
ANDREW JAMES SPEIRS
Third Respondent
-and-
LISA JONES
Fourth Respondent
Coram: Olney J
Place: Melbourne
Date: 1 September 1995
REASONS FOR JUDGMENT
By notice of motion filed on 4 August 1995 the respondents seek an order that the proceeding be stayed or dismissed generally or alternatively that the amended statement of claim be struck out.
The Court's authority to stay or dismiss a proceeding generally is found in the Federal Court Rules O 20 r 2(1) and may be exercised if no reasonable cause of action is disclosed, the proceeding is frivolous or vexatious or is an abuse of the process of the Court. The respondents seek to rely upon each of those grounds.
Where a pleading discloses no reasonable cause of action or other case appropriate to the nature of the proceeding, or has a tendency to cause prejudice, embarrassment or delay, or is otherwise an abuse of process the Court may order that the whole or part of the pleading be struck out (O 11 r 16). The respondents seek to rely upon each of the grounds specified as alternatives to their primary claim to have the proceeding stayed or dismissed.
By an amended application filed on 4 May 1995 the applicants seek, inter alia, injunctive relief to prevent the respondents using what are said to be the applicants' trade secrets and confidential information and further to prevent the communication of same to others. In addition the applicants seek damages for breach of confidence and for contravention of the s 52 Trade Practices Act 1974 (Cth).
In their amended statement of claim the applicants plead that from in or about 1992 until 10 May 1994 the first applicants carried on in partnership the business of the manufacture, importation and distribution of deodorant products under the business name Naturale Cosmetics and that on 10 May 1994 the business and business name were transferred to the second applicant. It is said that on 21 July 1993 the second, third and fourth respondents entered into an agreement with the first applicants (the distribution agreement) whereby they agreed to become the distributors of the first applicants' products, and that in or about September 1993 they acquired the first respondent which thereafter became bound by the distribution agreement. The applicants plead that it was a term of the distribution agreement that the respondents keep confidential all information provided to them which would enable the manufacture, packaging, labelling and distribution of the first applicants' products. It is further said that the distribution agreement and the subsequent arrangement whereby the first respondent became bound by the agreement, was subject to implied terms, inter alia, that so long as the distribution agreement subsisted the respondents would not misuse any trade secrets or information confidential to the first applicants or disclose such secrets or information to any third party and that following the determination of the distribution agreement they would not use or disclose any such trade secrets or confidential information.
It is said that the second, third and fourth respondents acted as the first applicants' distributor pursuant to the distribution agreement until September 1993 and that thereafter until 24 May 1994 the first respondent acted as the first applicant's distributor, and that during those periods the first applicants provided to the respondents certain information referred to in the amended statement of claim and which is referred to for convenience as the trade secrets.
The applicants plead that the distribution agreement was terminated on 24 May 1994 and they assert that from 24 May 1994 until the commencement of this proceeding the respondents have used the trade secrets and confidential information in breach of the distribution agreement thereby causing the first applicants and the second applicant to suffer loss and damage.
The Trade Practices Act claim is based upon allegations that from in or about September 1993 until in or about January 1994 the second respondent on behalf of himself and the first respondent made certain representations concerning the future use of the trade secrets, the manufacture of the first applicants' products and the purchase of such products which neither the first respondent nor the second respondent had reasonable grounds for making. In the premises, it is said that the first and second respondents engaged in misleading and deceptive conduct contrary to s 52 of the Trade Practices Act and that the applicants in reliance on the representations continued to deal with the respondents and supplied the trade secrets to them, whereby they have suffered loss and damage.
The respondents deny all of the relevant facts pleaded by the applicants in support of their case. They say further that Darren John Askew (the firstnamed first applicant) became a bankrupt on 28 February 1992 and was discharged on 1 March 1995; and that Anthony Francis Askew (the secondnamed first respondent) became a bankrupt on 22 October 1991 and was discharged on 23 October 1994. These facts, pleaded in the amended defence, have been proved by affidavit evidence filed in support of the present motion and are not controversial.
The respondents say that, by reason of the bankruptcy of both first applicants during the whole of the period during which they claim to have carried on business in partnership, all of the assets of the business including the trade secrets, became and remain vested in their respective trustees in bankruptcy (which as it happens was in each case the Official Trustee). Furthermore, the purported transfer of the business to the second applicant on 10 May 1994 could not have been effectual to vest in the second applicant any property or rights attaching to the business, such property and rights having vested in the Official Trustee.
The respondents also assert that the applicants are estopped from pursuing the claims made in this proceeding by operation of the Anshun principle they having recently been engaged in other proceedings in the Magistrates' Court in relation to matters arising under the distribution agreement.
The respondents' primary submission is that the applicants have no standing to bring the present proceeding and in my opinion there is merit in that submission.
Section 58(1) of the Bankruptcy Act 1966 provides that where a debtor becomes a bankrupt the property of the bankrupt vests forthwith, and after-acquired property vests as soon as it is acquired, in the trustee in bankruptcy. The term "property" is defined in s 5 to mean:
... real or personal property of every description, whether situate in Australia or elsewhere, and includes any estate, interest or profit, whether present or future, vested or contingent, arising out of or incident to any such real or personal property.
After acquired property is defined as property that is acquired by, or devolves on, the bankrupt on or after the date of bankruptcy, being property that is divisible amongst the creditors of the bankrupt (s 58(6)). So far as presently relevant s 116(1) provides:
116(1) Subject to this Act:
(a) All property that belonged to, or was vested in, a bankrupt at the commencement of the bankruptcy, or has been acquired or is acquired by him, or has devolved or devolves on him, after the commencement of the bankruptcy and before his discharge;
(b) the capacity to exercise, and to take proceedings for exercising, all such powers in, over or in respect of property as might have been exercised by the bankrupt for his own benefit at the commencement of the bankruptcy or at any time after the commencement of the bankruptcy and before his discharge;
(c) ...
(d) ...
is property divisible amongst the creditors of the bankrupt.
Section 116(1) does not extend to certain property identified in s 116(2). The only provision of subsection (2) that might be relevant is paragraph (g) which excludes from the property divisible amongst the creditors of a bankrupt:
(g) any right of the bankrupt to recover damages or compensation:
(i) for personal injury or wrong done to the bankrupt, the spouse of the bankrupt or a member of the family of the bankrupt; or
(ii) in respect of the death of the spouse of the bankrupt or a member of the family of the bankrupt;
and any damages or compensation recovered by the bankrupt (whether before or after he became a bankrupt) in respect of such an injury or wrong or the death of such a person;
It is clear that s 116(2)(g) relates only to actions for damages and compensation for personal injury or death and can have no application to an action for damages for breach of contract, breach of confidence or under the Trade Practices Act. Such a conclusion is consistent with the reasoning adopted by the majority of the Full Court (Gummow and Whitlam JJ) in Fuller v Beach Petroleum NL 117 ALR 235.
That the trade secrets or intellectual property of a business are part of the goodwill and assets of the business cannot be seriously questioned and this even if the secrets have never been committed to writing (Re Keene (1922) 2 Ch 475). In this case it is said by the applicants that the business and business name of the partnership carried on by the first applicants from 1992 until 10 May 1994 were transferred to the second applicant on 10 May 1994. It is implicit in the applicants' pleading that the applicants assert that the trade secrets of the first applicants were part of the business transferred to the second applicant on 10 May 1994, and further that after 10 May 1994 those secrets were the property of the second applicant. If that be the case, and there seems to be no other construction to be placed on the amended statement of claim, there is substance in the respondents' submission that the applicants lack standing to bring this proceeding.
In the case of each of the first applicants there can be no question that any property rights which they may have had in respect of the trade secrets at the respective dates of their bankruptcies vested in their respective trustees in bankruptcy and that any trade secrets which came into existence after they became bankrupt thereupon vested in their trustees. It follows that the first applicants had no capacity on 10 May 1994 (at a time when each was a bankrupt) to transfer to the second applicant any property rights in the trade secrets or indeed in any other property. It must also follow that, whatever may have been acquired by the second applicant on 10 May 1994, no property in the first applicants' then existing trade secrets was acquired.
A rather more complex question arises in relation to the distribution agreement, the alleged breach of which is central to the applicants' case. If the property in the first applicants' business (including the trade secrets and confidential information) was vested in the first applicants' trustees in bankruptcy at the time the distribution agreement was entered into, it is a matter of some conjecture as to what obligations the respondents undertook vis-a-vis any trade secrets or confidential information disclosed to the respondents pursuant to the distribution agreement. But this is not a question which presently needs to be answered.
Apart from the matters already adverted to there are at least two other serious deficiencies in the amended statement of claim. First, no facts are pleaded which would identify the time when it is said the respective causes of action arose. This is an important issue due to the former status of the first applicants. Second, no facts are pleaded which could justify any claim by the second applicant either under the distribution agreement or under the Trade Practices Act.
The discretion conferred by O 20 r 2 has been the subject of judicial consideration over a considerable period of time. In Dey v Victorian Railways Commissioners (1949) 78 CLR 62, in relation to a similar type of application Dixon J said (at p 91):
The application is really made to the inherent jurisdiction of the court to stop the abuse of its process when it is employed for groundless claims. The principles upon which that jurisdiction is exercisable are well settled. A case must be very clear indeed to justify the summary intervention of the court to prevent a plaintiff submitting his case for determination in the appointed manner by the court with or without a jury. The fact that a transaction is intricate may not disentitle the court to examine a cause of action alleged to grow out of it for the purpose of seeing whether the proceeding amounts to an abuse of process or is vexatious. But once it appears that there is a real question to be determined whether of fact or law and that the rights of the parties depend upon it, then it is not competent for the court to dismiss the action as frivolous and vexatious and an abuse of process.
The same issue was considered by Barwick CJ in General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at p 129:
There is no need for me to discuss in any
detail the various decisions, some of which were given in cases in which the
inherent jurisdiction of a court was invoked and others in cases in which
counterpart rules to Order 26, r. 18, were the suggested source of authority to
deal summarily with the claim in question.
It is sufficient for me to say that these cases
uniformly adhere to the view that the plaintiff ought not to be denied access
to the customary tribunal which deals with actions of the kind he brings,
unless his lack of a cause of action - if that be the ground on which the court
is invited, as in this case, to exercise its powers of summary dismissal - is
clearly demonstrated. The test to be
applied has been variously expressed;
"so obviously untenable that it cannot possibly succeed"; "manifestly groundless"; "so
manifestly faulty that it does not admit of argument"; "discloses a case which the Court is
satisfied cannot succeed";
"under no possibility can there be a good cause of
action"; "be manifest that to
allow them" (the pleadings) "to stand would involve useless expense".
At times the test has been put as high as saying that the case must be so plain and obvious that the court can say at once that the statement of claim, even if proved, cannot succeed; or "so manifest on the view of the pleadings, merely reading through them, that it is a case that does not admit of reasonable argument"; "so to speak apparent at a glance".
As I have said, some of these expressions occur in cases in which the inherent jurisdiction was invoked and others in cases founded on statutory rules of court but although the material available to the court in either type of case may be different the need for exceptional caution in exercising the power whether it be inherent or under statutory rules is the same.
Similar comments were made by the High Court (Mason, Murphy, Wilson, Deane and Dawson JJ) in Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87, at p 99 where their Honours said:
The power to order summary or final judgment is one that should be exercised with great care and should never be exercised unless it is clear that there is no real question to be tried.
More recently the question was considered by the High Court in Webster v Lampard (1993) 177 CLR 598. At p 602 Mason CJ, Deane and Dawson JJ referred to the judgments to which reference has been made above and continued (at p 603):
Nowhere is that need for exceptional caution more important than in a case where the ultimate outcome turns upon the resolution of some disputed issue or issues of fact. In such a case, it is essential that "great care ... be exercised to ensure that under the guise of achieving expeditious finality a plaintiff is not improperly deprived of his opportunity for the trial of his case by the appointed tribunal".
Notwithstanding the consistent admonition of the High Court to exercise caution, there are cases in which it is appropriate to exercise the power to summarily dismiss a proceeding. This case is such a case. The law is clear and there are no disputed facts relevant to the issue.
To the extent that the first applicants seek to enforce rights relating to the trade secrets I am satisfied that they have no standing to do so by virtue of the vesting of that property in the Official Trustee. To the extent that the first applicants seek to sue for breach of contract or seek relief under the Trade Practices Act, the pleading does not identify when it is that the causes of action arose. Obviously, a cause of action which arose before or during bankruptcy is not a matter capable of being litigated by the former bankrupt. In the light of the undisputed facts relating to the bankruptcy of the first applicants and the failure to plead facts which would entitle the first applicants to relief, I am of the view that so far as the first applicants are concerned there is no real question to be tried. Similarly, so far as the second applicant is concerned, no facts are pleaded which would entitle it to any relief. No reasonable cause of action on the part of the second applicant is disclosed.
In my opinion the appropriate course is to dismiss the proceeding. The applicants should pay the respondents' costs of the proceeding including any reserved costs.
As a result of the conclusion that I have reached, it is unnecessary to address the further issue raised on the respondents' behalf relating to the question of estoppel. As to that no opinion is expressed.
I certify that this and the preceding 11 pages are a true copy of the Reasons for Judgment of the Honourable Justice Olney
Associate:
Dated:
Heard: 17 August 1995
Place: Melbourne
Judgment: 1 September 1995
Appearances:
Mr J.M. Selimi (instructed by Mulcahy Mendelson & Round) appeared for the respondents (for the motion).
Mr R.J. McInnes (instructed by A.F. Askew & Co) appeared for the applicants (in opposition to the motion).
