Federal Court of Australia
Falkenhagen v West  FCA 575
QUD 508 of 2019
Date of judgment:
PATENTS – consideration of an application for leave to amend the statement of claim – consideration of a corresponding application to strike out the existing statement of claim – consideration of the adequacy of the pleading of an agreement to develop an invention entitled “Hollow Borer Auger”
Competition and Consumer Act 2010 (Cth), Schedule 2, s 236
Corporations Act 2001 (Cth), ss 131, 1071B
Federal Court of Australia Act 1976 (Cth), ss 37M, 37N and 37P
Patents Act 1990 (Cth), ss 3, 13, 14, 18, 29, 29A, 81, 113, 154, 187, 188, 189 and 191A
BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266
Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153
Byrne v Australian Airlines Ltd (1995) 185 CLR 410
Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41
National Practice Area:
Patents and associated statutes
Number of paragraphs:
20 May 2021
Solicitor for the Applicant:
Arnell & Cooper Lawyers Pty Ltd
Counsel for the Respondents:
Mr M Doyle
Solicitor for the Respondents:
B & G Law
POLEMASTER PTY LTD ACN 621 808 106
DATE OF ORDER:
THE COURT ORDERS THAT:
1. The application for leave to amend the statement of claim (and originating application) in the form of the documents described as Exhibit CPB-2 to the affidavit of Christopher Phillip Blishen sworn 16 April 2021 as further amended by the proposed further changes to paragraphs 8(a), 25, 29 and 32(d) of Exhibit CPB-2, is refused.
2. The applicant is directed under section 37P(3)(a) of the Federal Court of Australia Act 1976 (Cth) (the “Act”) to consider the reasons for judgment published in support of these orders with a view to formulating a further proposed amended statement of claim and filing and serving an affidavit by his solicitor exhibiting such a document for the further consideration of the Court under sections 37M, 37N and 37P of the Act.
3. The trial of the proceeding will be the subject of a separate hearing and determination of issues going to the formation of the agreement, its express and implied terms, the conduct of the respondents said to constitute breach, the character of the breach (if any), repudiation and a discharge, and any other conduct going to a contended liability on the part of the respondents arising out of the claims for relief sought by the applicant in the principal proceeding.
4. There will be no present order as to the statement of claim filed by the applicant on 19 August 2019 as the Court notes that the applicant concedes that he no longer proposes to rely upon the originating application and statement of claim as filed but seeks to rely upon an amended statement of claim which will now be the subject of consideration as contemplated by Order 2.
5. The applicant pay the costs of the respondents of and incidental to the application.
6. Pursuant to s 23 and s 37P of the Federal Court of Australia Act 1976 (Cth), rule 1.32 and rule 1.36 of the Federal Court Rules 2011, these orders and the reasons for judgment in support of these orders are made and published from Chambers.
1 These proceedings are concerned with an interlocutory application filed by the applicant in the principal proceeding (sought to be amended in the form of a document included in Exhibit CPB2 to the affidavit of Mr Christopher Blishen, the solicitor for the applicant, sworn 16 April 2021), Mr Falkenhagen, for leave to file and serve an amended originating application and an amended statement of claim in the principal proceeding.
2 The first and second respondents to the principal proceeding, Mr West and Polemaster Pty Ltd (“Polemaster”) seek an order that the statement of claim and associated relief sought by the originating application be struck out. That application is focused upon the statement of claim as filed. However, at the hearing of both applications on 20 May 2021, the respondents addressed concerns about the proposed amended statement of claim.
3 Counsel for Mr Falkenhagen accepts that the applicant no longer seeks to rely upon the originating application and statement of claim as filed.
4 Those documents were filed on 19 August 2019. The respondents filed a defence on 19 September 2019 and Mr Falkenhagen filed an amended reply on 8 October 2019.
5 The applicant foreshadowed an application for leave to amend the statement of claim in the form of a document which is Exhibit CPB1 to the affidavit of Mr Blishen sworn 3 February 2021. That document was the subject of correspondence between the parties being Exhibit CPB2 to that affidavit. Mr Blishen filed a further affidavit dated 16 April 2021 to which is exhibited a further proposed amended statement of claim in the form of Exhibit CPB2 to that affidavit. That affidavit was also the subject of correspondence between the parties. All of that material has been considered by the Court. On the morning of the hearing of the application, the applicant provided the respondents with a further version of the amended statement of claim and a copy of that document was handed up to the Court on the morning of the hearing on 20 May 2021. That further version seems to take up changes which are more conveniently set out on separate pages reflecting proposed changes to paras 8(a), 25, 29 and 32(d) of the amended statement of claim of 16 April 2021 (which is the document described as Exhibit CPB2 to the affidavit of 16 April 2021).
6 Thus, in summary, the Court is considering the proposed amended statement of claim of 16 April 2021 (CPB2) as amended by the proposed further changes to the four paragraphs mentioned above as sought on the day of the hearing.
7 It is now convenient to examine the formulation of the proposed amended statement of claim.
8 Fundamentally, the cause of action upon which the applicant seeks to rely is a claim for a range of relief based upon contended breaches by Mr West of an oral agreement made in September 2017 and contended breaches by Polemaster having, it is said, ratified and adopted obligations entered into by Mr West on behalf of Polemaster. When the obligations were entered into by Mr West, Polemaster was an entity yet to be incorporated. The statement of claim asserts facts which engage matters arising under the Patents Act 1990 (Cth) (the “Act”) in terms of remedies sought directing the Commissioner to take certain steps in relation to entries on the Register and claims based upon conduct of the respondents said to engage contraventions of s 236 of the Australian Consumer Law, Schedule 2 to the Competition and Consumer Act 2010 (Cth).
9 The respondents criticise the proposed amended statement of claim on grounds that the pleading incorporates matters of fact which are not relevant to the causes of action pleaded; the subject matter of the oral agreement is not clear; the pleading asserts terms of the oral agreement which are express terms and others which are “implicit” which seems to suggest that the agreement is comprised of “implied” terms as well as “express” terms; the relationship between pleaded conduct and whether that conduct is said to be a breach of either an express or an implied term is not made clear; the pleading refers to documents which are not properly identified, such as references to a “Power of Attorney” and a “Deed of Assignment”; and other matters.
10 In the context of the proposed amended statement of claim, it should be noted that a considerable body of affidavit evidence has been filed by the parties. In that sense, the pleading is not being construed or considered simply at a moment in time after the close of pleadings or as a document to which the respondents must file a defence on the footing that they are to be clearly told, by the pleading, of the facts giving rise to the claims they have to answer. Much correspondence has been exchanged and many affidavits have been filed. In the applicant’s written submissions, seven affidavits are relied upon. It is not necessary to list each affidavit in these reasons. Affidavits have also been filed by the respondents in relation to factual matters, such as the affidavit of Mr West sworn 29 October 2019 and the affidavits of Mr Guy sworn 15 October 2019 and 19 May 2021, the solicitor for the respondents.
11 Accordingly, the proposed amended statement of claim is not being considered in a vacuum.
12 Nevertheless, the pleading must coherently frame the material facts which, if proved, would give rise to a right to the relief sought both in the proposed amended originating application and the proposed amended statement of claim.
13 Before turning to the proposed amended statement of claim it may be useful to note these aspects of the Act.
Some aspects of the Act
14 Subject to the Act, a patent gives the patentee the exclusive rights, during the term of the patent, to exploit the invention and to authorise others to exploit the invention: s 13(1). The term “exploit” is given a wide definition in the “Dictionary” at Schedule 1 to the Act, s 3. The exclusive rights conferred by s 13(1) are personal property and capable of assignment and devolution by law: s 13(2). An invention is a “patentable invention”, for the purposes of a standard patent, if the invention, so far as claimed in any claim of the patent, meets the requirements of s 18(1)(a) to (d) of the Act. An assignment of a patent must be in writing signed by or on behalf of the assignor and assignee: s 14(1). A patent may be assigned entirely, or assigned “for a place in, or part of, the patent area”: s 14(2).
15 A patent for an invention may be granted to the inventor, or a person who would, on the grant of a patent for the invention, be entitled to have the patent assigned to that person, or who derives title to the invention from the inventor (or a person entitled to have the patent assigned to him or her), or the legal representative of a deceased person falling into those categories.
16 A person may apply for a patent for an invention by filing a patent request. The application may be either a provisional application or a complete application: s 29. An application made in accordance with the requirements of the Patent Cooperation Treaty, otherwise called a PCT application, may be made under s 29A of the Act supported by the Patent Regulations 1991 (Cth). Where a patent for an invention (referred to as the “main invention”) has been applied for or granted and the applicant or patentee or relevant person applies for a further patent for an improvement in the main invention, the Commissioner may grant a “patent of addition” for the improvement or modification to the main invention: s 81.
17 Where, before a patent is granted, a person would, if the patent were then granted, be entitled under an assignment or agreement, or by operation of law, to the patent or an interest in it, or an undivided share in the patent or in such an interest, the Commissioner may, on a request made by the person in accordance with the Regulations, direct that the application proceed in the name of the person, or in the name of the person and the applicant, as the case requires: s 113(1).
18 Where the Commissioner gives such a direction, the person is taken to be the applicant, or joint applicant as the case requires and the patent request is to be taken to have been amended so as to request the grant of a patent to the person either alone or as joint patentee, as the case requires: s 113(2).
19 A Register of Patents is to be kept containing particulars of standard patents, innovation patents and other prescribed particulars: s 186(1), s 187. Notices of any kind of trust relating to a patent must not be registered: s 188. A patentee may, subject only to any rights appearing in the Register to be vested in another person, deal with the patent as the absolute owner of it and give good discharges for any consideration for any dealing: s 189(1). The Commissioner has power to rectify omissions, entries wrongly existing or without sufficient cause, errors or defects in the Register: s 191A.
20 The Federal Court has jurisdiction with respect to matters arising under the Act: s 154. The Federal Court, of course, is seized of jurisdiction in respect of the entire controversy.
The proposed amended statement of claim
21 As to the proposed amended statement of claim (“ASOC”), these things should be noted.
22 At para 4 of the original statement of claim (“OSOC”), the applicant asserted that he “possesses intellectual property rights in the invention of the Hollow Borer Auger” referred to as “the invention”. Ordinarily, the “invention” described merely by reference to its title, would necessarily require a more comprehensive description. However, the respondents were able to plead to that matter by denying the claim on the footing that the intellectual property of the applicant in the invention of the Hollow Borer Auger (the “Auger”) was on 28 September 2017 assigned to Polemaster pursuant to a written “Deed of Assignment of IP”. The material suggests that the respondents seem to understand what the invention is.
23 The new ASOC, para 4, is comprehensible, asserting intellectual property rights in the “invention” of the Auger in the applicant as “sole inventor”.
24 ASOC, para 5, asserts that the invention was (along with the rights to develop and deploy the invention) the subject of a “provisional Patent PK 5711” which was “assigned to” the applicant in America (which presumably means the United States of America), Australia and the United Kingdom. That patent seems to form no part of the proceeding (other than possibly context) and is confusing as the patent is said to have been “assigned to” the applicant. It is not clear by whom, or who was the person or entity asserting a right to apply for the patent.
25 ASOC, para 5, should not stand.
26 ASOC, para 6, refers to the applicant having made an application to the Commissioner for the grant of a “patent of addition” for an “improvement” to the invention. It is not clear what patent application is the foundation patent application for the “main invention” (s 81 of the Act) to which the improvement application is an “addition”.
27 ASOC, para 6, should not stand.
28 ASOC, para 7, pleads that during September 2017 the applicant and Mr West “had discussions regarding a business venture for further development and deployment of the invention” and “thereupon” entered into an agreement. The terms of the agreement, that is, the express terms are said to be oral: ASOC, para 8. The agreement was reached between the applicant and Mr West in circumstances where Mr West was acting both in his own capacity and for and on behalf of a company to be formed: ASOC, para 8.
29 The applicant pleads at ASOC, para 8, that he and Mr West agreed to the following terms.
30 First, Mr West would attend to the incorporation of a company (which became Polemaster) “as a vehicle for the exploitation of the intellectual property rights in the invention”: ASOC, para 8(aa).
31 Second, the applicant, by his patent attorney “TJIP”, would assign to the company “the sole rights to the patent maintained on the [R]egister with IP Australia” [emphasis added] (described as “International Application Number PCT/AU2016/050229”) thereafter described as the “patent application”: ASOC, para 8(a). However, on the hearing of the application the applicant proposed a further amendment to ASOC, para 8(a), so as to assert that the applicant, by TJIP, would assign to the company to be formed:
… the sole rights and interests in the intellectual property for the invention already filed with IP Australia as Provisional Patent Application 2015901126 28 March 2015 and under International Application Number PCT/AU2016/050229 filed 24 March 2016;
32 Third, in consideration for the “assignment” (which presumably means the assignment of the sole rights and interests in the intellectual property for the invention already filed (that is, as filed) with IP Australia as described), Mr West and the company (ultimately Polemaster) would transfer or cause to be issued to the applicant a 30% shareholding in the company (which presumably means 30% of the issued shares in the company): ASOC, para 8(b).
33 Fourth, in further consideration of the assignment, Mr West “would pay the sum of $1,500,000.00 to the applicant”: ASOC, para 8(c).
34 Fifth, the company would “operate the business development, deployment and operations of the invention”: ASOC, para 8(d).
35 Sixth, Mr West “would finance the business development, deployment and operations of the invention by the company until it made a profit”: ASOC, para 8(e).
36 Seventh, the applicant and Mr West would share in the profits made by the company in the ratio 30% and 70% respectively: ASOC, para 8(f).
37 The respondents contend that the new ASOC, para 8(aa), taken together with the new para 8(a) is confusing. Is the agreed term that the applicant would assign into the company the sole right to exploit the intellectual property rights in the invention including an assignment of the nominated patent applications (described at  of these reasons), or is the subject matter of the agreement the vesting of the nominated patent applications in the company (to be formed). The terms at para 8(aa) and para 8(a) suggest that all intellectual property rights in the invention (as described in the patent applications), including the patent applications, were to be vested, transferred or assigned into the company to be formed. However, it may be that what is contended is that the applicant would assign the sole rights and interests in the intellectual property consisting of the two assigned patent applications. In other words, an assignment of the patents.
38 To the extent that there is ambiguity about this matter, the applicant needs to make clear in the ASOC the scope of the assignment or transfer which is the subject matter of the agreement. This is especially so as the terms of the agreement are oral terms.
39 The notion of an agreement made in September 2017 is not unfamiliar to the respondents. They say that in September 2017 Mr West and the applicant entered into an “Auger Sale Agreement” by which Mr West would incorporate, at his cost, a company to be named Polemaster; the applicant would assign the “Auger IP Rights” (that is “all of the intellectual property rights relating to the Auger”) to Polemaster; Mr West would cause 10% of the share capital in Polemaster to be issued to the applicant; and Mr West would provide Polemaster with sufficient funds to progress patent applications (including the national phase of applications in nominated countries in accordance with any PCT application) and fund the development of a working prototype of the Auger.
40 The respondents say that the agreement was partly oral and formed partly by conduct and occurred over two or three meetings at the applicant’s workshop at Innisfail. Although the respondents are broadly familiar with the scope of the controversy about the contended agreement, the applicant needs to make clear the matters mentioned at  and  of these reasons.
41 The terms pleaded at ASOC, para 8, must necessarily be the contended express oral terms of the agreement.
42 At ASOC, para 8A, the applicant says that “implicitly” it was a “requirement” of the agreement pleaded at ASOC, para 8, that the “promises” referred to at paras 8(aa), 8(a), 8(b), 8(c), 8(d) and 8(e) (that is, all but 8(f)) would:
(a) be mutually conditional and interdependent;
(b) be performed:
i. contemporaneously; and
ii. within a reasonable period of the agreement being formed [that is, September 2017].
43 The applicant also says that “each of these requirements [as quoted at  of these reasons] would be essential to the agreement” made between the applicant and Mr West (with Mr West acting on behalf of a company yet to be formed) as pleaded at ASOC, para 8.
44 The respondents criticise ASOC, para 8A, on the footing that an “implicit requirement of the agreement” as formulated at para 8A(a) and (b) together with the “essentiality” pleading, is not a coherent pleading. There is force in this criticism. If the matters at para 8A are “terms” of the agreement at ASOC, para 8, they are presumably “implied terms” of the oral agreement in addition to the oral express terms pleaded at ASOC, para 8. Such terms, in some circumstances, might be regarded as “inferred” terms which is a concept different in character to terms usually characterised as implied terms.
45 In these proceedings, the oral agreement seems to have been formed partly by oral express terms and partly by conduct. If the terms at ASOC, para 8A, are implied terms, that can usually only arise (leaving aside terms implied by statute) as, first, implications contained in the express words of the agreement (in this case, oral terms or conduct in response to things said giving rise to a term); second, implications from the nature of the conduct itself as expressed in the terms of the contract; third, implications from usage (such as mercantile contracts); and fourth, implications from considerations of business efficacy.
46 As to the first, a term might be implied from the text or words forming some actual statement: see Hospital Products Ltd v United States Surgical Corporation. (1984) 156 CLR 41 at 121; Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 at -.
47 As to the second, some contracts (leases, sale of land, contracts of employment) have particular terms implied as a matter of law due to the very nature of the contracts or because they form part of a recognised class of contracts.
48 As to the third, these are terms implied by custom (usage). A term implied by custom is a term implied “in fact”.
49 As to the fourth, terms may be implied to give business efficacy to an agreement. Such terms are generally implied “in fact” not as a matter of law. However, a term of this kind cannot be implied unless it is necessary “to give such business efficacy to the transaction as must have been intended at all events by both parties who are businessmen” or “to make the agreement work or to avoid an unworkable situation”. If the contract is workable, a term will not be implied into an agreement, even if it would improve the efficacy of the contract: see Heydon on Contract, JD Heydon, Lawbook Co, 2019 at [10.740] and the authorities at footnotes 254 and 255.
50 For a term to be implied into an agreement, “the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that “it goes without saying”; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract”: Lord Simon of Glaisdale, speaking for the majority of the Privy Council in BP Refinery (Westernport) Pty Ltd v Shire of Hastings, reported in the Commonwealth Law Reports at (1977) 180 CLR 266 at 282-283.
51 As to the matter of implied terms generally, see Heydon on Contract, Ch 10, Implied Terms.
52 The author observes at [10.700], however, that the Australian authorities (as discussed earlier by the author) appear to have committed to a “sharp bifurcation” between “formal contracts” in relation to which all the elements of the BP Refinery tests must be satisfied, and “informal contracts”, in relation to which those tests are relevant but not decisive. In the case of “informal contracts”, what is decisive is whether “the implication of the term is necessary for the reasonable or effective operation of the contracts in the circumstances of the case”: Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 442. However, see generally the discussion at [10.680] – [10.700] and the discussion of each of the BP Refinery tests at [10.710] – [10.830].
53 As to the “implicit requirements” pleaded at ASOC, para 8A, the applicant pleads at para 8B that the matters at para 8A were implicitly “part of the agreement” because the terms are:
(a) Reasonable and equitable;
(b) Necessary to give business efficacy to the agreement;
(c) So obvious as to go without saying;
(d) Capable of clear expression; and
(e) Not contrary to any express requirement of the agreement;
(f) And further, or alternatively, in manifestation or furtherance of the duty of each of the Applicant and the First and Second Respondents to cooperate in the performance of the agreement by each party.
54 That being so, it is reasonably clear that the applicant is seeking to assert that the terms at ASOC, para 8A, are “implied terms” of the ASOC, para 8, oral agreement. However, ASOC, para 8A, ought to properly plead the terms as implied terms.
55 The respondents also say that on the face of ASOC, para 8 (the contended express terms of the oral agreement), the para 8A “implicit requirements” cannot be “implied terms” as they are inconsistent with the terms of the oral agreement and render the oral agreement unworkable. That is said to follow because the terms at paras 8(aa) to 8(e) inclusive cannot be performed “contemporaneously” as at least the terms at paras 8(d) and 8 (e) can only occur after (and in an ongoing way) the incorporation of the company, after the formation of the agreement. It is not entirely clear whether it is said that an implied term arises that within a reasonable period of having reached agreement, the company would be incorporated by Mr West and something in the nature of a settlement or performance event would occur with share transfers, assignments, settlement or performance payments occurring and the assumption of operations of the business of developing and exploiting the Auger invention and patent application(s) by the company taking place.
56 The applicant ought to regularise the “implied term pleading” and make clear whether the implied terms sit coherently with the express terms of the oral agreement.
57 The next section of the ASOC is headed “Facts”.
58 These matters are pleaded.
59 On 20 September 2017, Mr West is said to have incorporated Polemaster (and “registered himself” as the holder of all issued shares and the sole director): ASOC, para 9.
60 On 21 September 2017, Mr West paid TJIP $42,150.00 towards the cost of filing particular patent applications (national phase filings) and (it seems) “for assignment to the applicant”: ASOC, para 10. This paragraph is entirely unclear. However, Mr West understands the content of the payment: see West affidavit, 29 October 2019, para 6, Exhibit DW1. Nevertheless, the pleading should stand on its own feet coherently explaining the payment, if it is to be relied upon.
61 On 26 September 2017, Mr West was told this in an email from TJIP: “The Australian patent application has been made, so the next step is to record the assignment to the company”: ASOC, para 11.
62 On 27 September 2017, the applicant signed an assignment of the patent rights to Polemaster “hereinafter referred to as the ‘valid assignment’ and the applicant then lodged the valid assignment with TJIP and provided [Polemaster] with a copy”: ASOC, para 13.
63 At ASOC, para 14, the “valid assignment” was “authority” for the intellectual property rights in the invention (disclosed in PCT/AU2016/050229) to be assigned as “property of” Polemaster, as pleaded in ASOC, para 8(a) (which seems to now be a response to ASOC, para 8(a), as formulated at  of these reasons). ASOC, paras 13 and 14, suggest that the subject matter of the oral agreement is the intellectual property rights in the invention (as the invention is disclosed and described in the patent application).
64 Thus, by reason of ASOC, paras 13 and 14, a valid assignment came into existence on 27 September 2017 as authority for the assignment of the intellectual property rights in the invention to Polemaster as its property.
65 The “Instrument” (although not pleaded) seems to be an “Assignment” endorsed with “Atty Docket No 4278-009-US”, signed by Mr Falkenhagen and dated “27-9-17”. That document, to be signed by Mr Falkenhagen, was sought by TJIP to enable the “US patent rights” to be progressed: see TJIP email of 27 September 2017 and attachments. Mr Falkenhagen signed the Instrument and returned it to TJIP. The Instrument effecting the “valid assignment” ought to be pleaded and made clear.
66 However, at ASOC, para 15, the applicant pleads that the “valid assignment” was to be “held” by TJIP (although it is not clear in what capacity the document was to be so held; perhaps as a stakeholder or simply as the agent for the applicant) “for the reason” that “no delivery of the assignment and Power of Attorney to [Mr West or Polemaster] would occur until the terms of the agreement” (set out in 8(b) and 8(c)) “were satisfied”, in particular, by paying the applicant $1,500,000.00 and transferring or causing 30% of the shares in Polemaster to be issued to the applicant.
67 Thus, the applicant seems to be pleading that notwithstanding that a valid assignment was entered into, the assignment document was to be held (in effect, either by Mr Falkenhagen or his agent TJIP) until performance occurred of the terms of the oral agreement but, in particular, the payment and share issue terms.
68 At ASOC, para 16, the applicant pleads that on 27 September 2017, Mr West was told by TJIP that it was holding “the assignment for now, to send with the Power of Attorney for Polemaster in due course”.
69 The references in ASOC, para 15, to a “Power of Attorney” may be a reference to a Power of Attorney signed by the applicant on 27 September 2017 (which seems to be an attachment to the TJIP email of 27 September 2017). The Power of Attorney mentioned in ASOC, para 16, seems to be a Power of Attorney by Mr West for Polemaster given in favour of a United States attorney to progress the United States patent application. In any event, the pleading ought to identify, define and make clear the references to a “Power of Attorney”.
70 At ASOC, para 17, the applicant pleads having secured on 28 September 2017 new patent filings in seven nominated countries.
71 At ASC, para 18, the applicant pleads a payment by Mr West to a particular company for parts for the Auger.
72 At ASOC, para 19, the applicant pleads that Mr West was told by TJIP that it had received a formal filing receipt for the Australian national phase of PCT/AU2016/050229 recorded as Australian National Patent Application No 2016240396 filed on 24 March 2016.
73 At ASOC, para 20, the applicant pleads that Mr West was told by TJIP, by email, on 22 February 2018 that TJIP would not take steps to change the recorded “ownership of the patents” until TJIP received instructions from the applicant that “everything is sorted” and that TJIP could take instructions from Mr West and proceed so as to avoid the patents failing for reasons of incorrect ownership information before the United States Patent and Trade Mark Office.
74 The criticism the respondents make of ASOC, paras 10, 11, 12, 16, 19 and 20, is that some of the facts pleaded do not bear any relation to obligations to be discharged by the respondents and nor are they said to be facts relied upon as any part of the case concerning breach of the oral agreement. Perhaps they are contextual and part of the chronological narrative. As to others, the respondents say that paragraphs pleading statements from emails, as a fact, is misconceived. They contend that if a material fact is to be asserted it should be pleaded as a material fact rather than simply pleading that Mr West received an email from TJIP which said something.
75 It is not clear from the pleading what is to be made of some of the factual steps along the way. If it is said that pursuant to the oral agreement the respondents did something or received something or failed to do something that may be a material fact in the cause of action. The applicant will need to look again at these paragraphs and determine precisely the material facts upon which they rely as part of a coherent pleading of the causes of action asserted which, if made good, give rise to the remedy sought.
76 ASOC, paras 21, 23, 25, 26, 28, 29, 30, 31 and 32, are said to be conduct on the part of the respondents in breach of the September 2017 agreement. It is convenient to turn to those paragraphs and their relationship with the paragraphs of the ASOC pleading breach. The pleaded conduct rising out of the above paragraphs is this:
(1) On 5 March 2018, Mr West caused a change in agent information to be recorded with IP Australia so as to remove TJIP and appoint HopgoodGanim: ASOC, paras 21 and 22.
(2) No advice was given to the applicant as to that change prior to 5 March 2018: ASOC, para 23.
(3) Without notice to the applicant, the respondents on 6 March 2018, by HopgoodGanim, made a request of IP Australia for an assignment of Australian Patent Application No 2016240396 to be registered, assigning the application to Polemaster: ASOC, para 25. ASOC, para 25, is sought to be further amended to plead that the assignment had the effect of “transferring” the Australian Patent Application (No 2016240396) from the applicant, as recorded on the Register, to Polemaster.
(4) A document entitled “Deed of Assignment of IP” (the “Deed”) was included in the request submitted to IP Australia by HopgoodGanim. It is not a document “authorised by the applicant” and nor is the document “authority to register” the request to assign the patent application to Polemaster: ASOC, para 26. The particulars of lack of authority are that: the “only authority” given by the applicant (and of which the applicant had knowledge) for an assignment of Australian Patent Application No 2016240396 to Polemaster is the document described as the “valid assignment” (at ASOC, paras 13 and 14); the very existence of the Deed was unknown to the applicant; the applicant did not authorise any dealings in the “patent” by way of assignment to Polemaster other than by the “valid assignment”; and, nor did the applicant authorise the use of any patent attorney in place of TJIP.
I will return to a particular issue in relation to the Deed shortly.
(5) On 21 September 2018, Mr West asserted to the applicant’s lawyers that the United States Patent Application No 15/562/464 (the “US Patent Application”) had been assigned to Polemaster: ASOC, para 28.
(6) On 10 October 2018, without notice to the applicant, a United States firm of patent lawyers completed the assignment of the US Patent Application to Polemaster: ASOC, para 29. That paragraph is sought to be further amended to plead that the United States patent lawyers, on behalf of the respondents, made a request to the United States Patent and Trade Mark Office for the assignment to Polemaster of the US Patent Application to be recorded on the Register.
(7) The “Deed of Assignment of IP” was included in the material put to the United States Patent and Trade Mark Office, bearing the date “28 September 2017”, in support of the request to assign the US Patent Application to Polemaster in circumstances where the Deed was not “authorised” by the applicant and nor was the Deed “authority” (on behalf of the applicant) to register the request for assignment: ASOC, para 30. The same particulars as those set out at (4) are relied upon in relation to this paragraph of the ASOC.
(8) On 25 October 2018, Mr West’s solicitors asserted to the applicant’s solicitors that the Auger invention was owned by “our client” and that all rights and interests in the Auger patent worldwide had been assigned to Polemaster: ASOC, para 31.
(9) The act of causing an assignment of the applicant’s patent rights to Polemaster for the US Patent Application and the Australian Patent Application No 2016240396 was: (a) conduct of Mr West in breach of the agreement pleaded at ASOC, paras 8 and 8A; (b) conduct without the authority of the applicant; (c) conduct undertaken without using the “valid assignment”; (d) conduct occurring in circumstances where Mr West used the Deed to secure the recordal of Polemaster in the Register for the US Patent Application and Register for the Australian Patent Application No 2016240396 thus causing a “false entry” to be made in the particulars in the Register: ASOC, para 32.
77 These nine pleaded matters are described as “conduct and breaches of the agreement” at ASOC, para 32C.
78 Fundamentally, those paragraphs are concerned with steps taken by Mr West to cause changes to be made to the appointment and “recordal of agent” of the “owner” with IP Australia concerning the relevant patent applications and the United States patent application, in the name of Polemaster, using the Deed rather than the “valid assignment” which was to be held, it is said, pending performance of, in particular, the payment and share issue terms of the oral agreement. ASOC, para 32, focuses upon the steps taken by the respondents to cause the assignment of the applicant’s “patent rights” in the United States and Australia to be recorded in the relevant national Register in favour of Polemaster.
79 By ASOC, para 32A, the applicant pleads that each respondent engaged in conduct “in fundamental breach of the agreement” [emphasis added].
80 That is said to be so because the respondents: (a) failed to pay the agreed or any amount “in exchange for” the applicant’s assignment of the intellectual property rights (as described in the proposed amended ASOC, para 8(a)); (b) failed to cause the 30% shareholding to issue to the applicant “in exchange for” the applicant’s assignment of the intellectual property rights; (c) unilaterally appropriated the applicant’s intellectual property; (d) failed to progress national filings in five countries; (e) failed to develop a working prototype of the Auger.
81 As to the obligations adopted by Polemaster, the applicant pleads at ASOC, para 32AA, that having regard to the matters pleaded at paras 9, 11, 16 and 20, Polemaster by “some or all of the conduct” in paras 10, 18 and 21, “ratified” the agreement (that is, the agreement at para 8 containing the contended implied terms at para 8A), for the purposes of s 131 of the Corporations Act 2001 (Cth).
82 As mentioned earlier, the conduct at para 10 is the payment by Mr West of the TJIP account on 21 September 2017; the para 18 conduct is the payment for parts for the Auger by Mr West; and the para 21 conduct is Mr West’s conduct of causing a change to be made to the agent information by which HopgoodGanim became the agent with IP Australia. Paragraphs 9, 11, 16 and 20 are also set out earlier in these reasons. Section 131 of the Corporations Act provides that if a person purports to enter into a contract on behalf of a company before it is registered, the company becomes bound by obligations, and is entitled to the benefit of the contract, if the company is registered and it ratifies the contract within a reasonable time after the contract is entered into.
83 The underlying question is what material facts give rise to conduct capable of being characterised as the company ratifying the contract.
84 At ASOC, para 32B, the applicant pleads that the respondents by the commencement of the proceedings had “renounced” the agreement by “manifesting” unnecessary and unreasonable delay, and a continuing inability or refusal to perform the agreement substantially according to its terms.
85 At ASOC, para 32C, the applicant pleads that if the requirements of paras 8 and 8A were not “essential”, the respondents’ conduct described at  of these reasons, was “sufficiently serious” and occurred in “such circumstances” as to entitle the applicant to terminate the agreement. Six factors are identified which are said to link the nominated conduct breaches, the seriousness of those breaches and the relevant “circumstances”. They are: (a) the failure of the respondents to perform the promises in paras 8(b) (the shares), 8(c) (the $1,500,000.00 payment), 8(d) (the development of the business of the invention), and 8(e) (the financing of the development of the invention by Polemaster until the company makes a profit); (b) the circumstance that the promises at para 8(aa) to 8(e) constituted the whole of the consideration in exchange for the intellectual property rights; (c) the character of the respondents’ “conduct and breaches” described at  of these reasons said to be “unilateral, surreptitious and high-handed”; (d) the circumstance that the joint endeavour or arrangement constituted by the agreement was based upon “mutual cooperation” between the parties; (e) the circumstance of the respondents failing to progress the patent application in the five nominated countries; and (f) the failure of the respondents to develop a working prototype of the Auger.
86 Although the applicant pleads ratification of the agreement at ASOC, para 32B, the applicant pleads, alternatively, a failure to ratify at ASOC, para 32D.
87 At ASOC, para 32E, the applicant pleads his acceptance of the respondents’ renunciation or repudiation of the agreement thereby bringing the agreement to an end.
88 In terms of the remedies, the applicant pleads that since the commencement of the proceeding, the respondents have caused 10% of the issued shares in Polemaster to be allocated or transferred to him, without his authority. He pleads, in effect, that no “proper instrument of transfer” could have been lodged if not approved by him: s 1071B(2), Corporations Act.
89 By ASOC, para 33, the applicant pleads that the assignment of the US patent application and the Australian patent application were caused, in each case, to be registered through the use of the Deed (said to be unknown to the applicant and unauthorised by him). The applicant pleads that each registration is “void or voidable” and he seeks an order under s 192(1)(b) or (c) of the Act directing the Commissioner to rectify the Register both as to the national application and the PCT filing.
90 So far as any remedy concerns orders causing steps to be taken by the respondents to restore the applicant to the position of registered owner of the United States patent on the Register maintained by the United States Patent and Trade Mark Office, according to the domestic legislation of the United States taking into account the domestic adoption of particular treaty obligations, the respondents are amenable to the Court’s jurisdiction inter-parties and orders, (should the causes of action relied upon be made good), directing the respondents to take particular steps that may be necessary according to the relevant evidence.
91 The applicant claims damages (framed in a number of ways) for loss suffered “but for” the conduct pleaded in the nine paragraphs described at  of these reasons and the conduct at paras 32A, 32B, 32C and 32D. That conduct is said to give rise to costs in rectifying the Register as claimed and “loss of income from franchise” of $144,000,000 or alternatively in the case of loss of income from sales of Augers of $120,000,000.
92 In summary, the breach case is this:
(1) causing the assignments of the patent applications to be recorded in the name of Polemaster: para 32;
(2) a “fundamental breach” amounting to repudiation of the agreement by failing to pay; failing to issue 30% of the shares; appropriating the intellectual property; not progressing patent applications in five countries; and not developing a working prototype: para 32A;
(3) a manifest refusal to perform: para 32B;
(4) conduct constituted by the nine pleaded matters described at  of these reasons giving rise to conduct and breaches entitling termination: para 32C.
93 In addition, the conduct at  of these reasons and 32A, 32B, 32C and 32D is said to be unconscionable, misleading and/or deceptive giving rise to a claim for loss and damage under s 236 of the ACL. Presumably, ss 18 and 20 of the ACL are said to be engaged.
94 The fundamental criticism made by the respondents concerning the claims of breach and the paragraphs setting out the conduct said to constitute breach (whether essential, fundamental or a ground of termination) is an apparent inconsistency between an acceptance, on the one hand, that the applicant brought into existence a “valid assignment” “of the patent rights” which enabled an assignment to be effected of those rights to Polemaster, and, on the other hand, those paragraphs of the ASOC that identify the Deed (although not properly pleaded as to terms or content) which was relied upon by the respondents before the United States and Australian patent offices to secure an entry in each national Register of Polemaster as the owner, by assignment, of the rights in each patent application.
95 The applicant’s essential answer to the apparent inconsistency between a “valid assignment” by the applicant upon which the respondents say they were and are entitled to rely in taking steps to cause each national patent office to record Polemaster as owner by assignment, and the Deed, upon which they relied (as well) is that the two positions are said to be consistent. The applicant says that there was “only” one valid instrument, that is, the “valid assignment” (not presently pleaded properly, however, as to the Instrument, its terms or content), and that assignment, it seems (ASOC, para 15), was delivered into the hands of TJIP to be “held” by the firm pending performance of, in particular, the payment term and the share allocation term. It seems to be contended that use of that Instrument by Mr West or Polemaster to give effect to assignments within each relevant patent office prior to performance of the two particular terms of the agreement, is a breach of the agreement and use of a different document, the Deed, to achieve the same result is also a breach of the agreement.
96 The pleading does not make clear whether it was an implied term of the agreement that any assignment document signed by the applicant to give expression to his obligation to assign was, as a matter of agreement, to be held by the applicant or his agent, or otherwise not used by the respondents until Mr West’s alleged promises as to, in particular, payment and share allocations, were performed. Nor is it clear whether any of the other promises of the respondents (terms) as pleaded were to be performed before any use could be made of the “valid assignment” held by TJIP.
97 As to the Deed, its provenance has been the subject of affidavit evidence. Mr Falkenhagen in an affidavit dated 26 July 2019 describes the circumstances on 27 September 2017 in which he signed the assignment document which he describes as the “valid assignment”: paras 13 and 14. He describes signing and dating that document and sending a copy to TJIP. He says that he retained the original so that no delivery to either of the respondents could occur until, in particular, payment of the alleged agreed amount had occurred and a 30% shareholding had been allocated to him: para 15. At para 18, he says that in October or November 2017, Mr West came to a mechanical workshop in Innisfail where the applicant was present and discussed what appeared to be two copies of a single page document he was holding. Mr West asked the applicant to sign the page “as a sign of faith”. The applicant says that Mr West said: “Don’t worry about the date I just want a signature to show your goodwill”. The applicant says that he then signed two single page documents co-signed by Mr West and witnessed by Mr Timothy Higgins, “without a date affixed”. The two pages are at Exhibit EAF-6 to that affidavit. Each page has a footer: “Deed of Assignment of IP – Eric Falkenhagen and Polemaster Pty Ltd”.
98 By letter dated 25 October 2018, Mr Carey of O’Connor Law, the solicitors for the respondents, wrote to the applicant’s solicitor asserting that the intellectual property for the Auger was owned by Polemaster by assignment based on a document described as “Deed of Assignment of IP” (all six pages of which are enclosed in the letter). As to a copy, see Exhibit CPB-2 to the affidavit of Mr Blishen sworn 19 August 2019. The undated signature page on that document is in the same terms as Exhibit EAF-6. On 10 October 2018, a United States attorney, Dikla Borochov, took steps to secure an assignment of the US patent to Polemaster and lodged a number of documents for that purpose including a copy of the Deed. This version is endorsed with the date “28/9/17”: Blishen affidavit, 19 August 2019, Exhibit CPB-7.
99 The short point seems to be that Mr Falkenhagen contends that he did not elect to enter into a “Deed of Assignment” of his intellectual property in terms of the Deed at CPB-2 nor the Deed at CPB-7 and nor did he embrace such a document by causing a date to be inserted. If this is the factual contention at least as it emerges in the affidavits, the ASOC needs to clearly plead the relevant matters including the Deed and facts material to its existence, terms and role in the conduct of the respondents and the materiality of that conduct in relation to questions of breach.
100 As to the damages, I do not propose to examine those paragraphs of the ASOC as there will be a separate hearing as to that part of the proceeding going to the formation of the agreement, its express and (what will be) the implied terms, conduct, breach, the character of the breach, repudiation and discharge, or alternatively, termination, and a separate hearing as to loss and damage.
101 I propose to refuse leave to amend in terms of the document being Exhibit CPB-2 to Mr Blishen’s affidavit of 16 April 2021 as amended by the proposed further amended paras 8(a), 25, 29 and 32(d) handed up on 20 May 2021. However, the applicant will be given an opportunity (and a direction under s 37P(a)) to consider these reasons for refusing leave as sought, with a view to formulating, within 21 days, a further proposed amended statement of claim which takes account of the matters referred to in these reasons. The pleadings need to be regularised as soon as possible so that any further procedural steps can occur and a hearing date allocated as soon as possible.
102 There is no utility in presently striking out the statement of claim as filed as the applicant has conceded that he does not rely upon it any longer. What is needed is an amended statement of claim in a proper form which addresses these various matters and enables Mr Falkenhagen’s proceeding to move towards trial.
103 The applicant will be ordered to pay the costs of the respondents of the present application.