FEDERAL COURT OF AUSTRALIA
Chapcon Building Services Pty Ltd v Spectrum Homes Qld Pty Ltd [2023] FCA 873
ORDERS
DATE OF ORDER: |
THE COURT ORDERS THAT:
1. Summary judgment be entered for the Third Respondent and the claim against the Third Respondent is dismissed, with costs reserved.
2. The Applicant provide security for costs in the amount of $130,000 within 28 days by either paying the amount into Court or providing an irrevocable bank guarantee in a form acceptable to the First Respondent.
3. Pursuant to r 19.01(1)(b) of the Federal Court Rules 2011 (Cth), the proceeding against the First and Second Respondents is stayed until the security provided for by order 2 is given by the Applicant.
4. The First and Second Respondents have liberty to restore the proceeding before the Court on 3 days’ notice for the purpose of seeking the dismissal of the proceeding in the event that the security is not paid by the time prescribed in order 2.
5. The First and Second Respondents each have liberty to apply, on 7 days’ notice, to vary the amount of security for costs required to be provided in accordance with order 2.
6. The Applicant pay the First and Second Respondents’ costs of and incidental to their security for costs application.
THE COURT NOTES THAT:
1. The Applicant and the Third Respondent may file and serve any submissions as to the appropriate costs order (limited to three pages) and any affidavit material, such submissions and affidavit material to be filed by no later than 4 pm on 2 August 2023.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
DOWNES J:
1 Chapcon Building Services Pty Ltd (Chapcon) is a company which is primarily involved in the construction industry. It alleges that it acquired certain assets from liquidators of Newstart Homes (SE Qld) Pty Ltd (NHSQ) which included the “copyright in the NHSQ Plans”.
2 The amended statement of claim identifies and defines the NHSQ Plans as being four plans listed at Annexure A of that pleading.
3 Its claims in this proceeding against the third respondent (Mr Wiggett) pertain only to the NHSQ Plans. This was confirmed by [3] and [6] of Chapcon’s Outline of Argument on the summary judgment application. That is so notwithstanding that the amended statement of claim is replete with references to other plans.
4 The first respondent (Spectrum Homes) is a competitor of Chapcon, and has been since it commenced operations in late 2016. The case against Spectrum Homes relates to what are described as the Spectrum Plans, being plans which are listed in Annexure B to the amended statement of claim.
5 Last Friday, I heard and determined two interlocutory applications, and made orders in relation to both.
6 The first application was brought by Mr Wiggett and was a summary judgment application or, alternatively, a strike out application. For the reasons which follow, I ordered that summary judgment be entered for Mr Wiggett and dismissed the claim against him. Had I not done so, I would have struck out the pleading insofar as it related to him. That is because the amended statement of claim failed to plead a reasonable cause of action against him, and suffered from numerous deficiencies which did not appear to be capable of remedy (as will be evident from the reasons given below). I note that the counsel who appeared for Chapcon in these applications did not settle the amended statement of claim.
7 The second application was brought by Spectrum Homes and the second respondent (Mr Reeves), seeking security for their costs. The orders which I made required Chapcon to provide security in an amount of $130,000, which was less than the amount sought in the application, because I was persuaded by counsel for Chapcon that the amount sought was not justified, at least at this early stage of the proceedings. No reasons were sought for the making of the orders on the application brought by Spectrum Homes and Mr Reeves but, in any event, they will be apparent from the transcript. It is relevant to note that the only evidence adduced by Chapcon to demonstrate that it would have the ability to meet a costs order was a bank statement showing transactions over a two day period, including an account balance of more than $1 million as at 30 June 2023. However, no evidence was adduced of Chapcon’s other assets (if any) or any details of its debts, including income tax and GST, and any financing obligations (of which at least one was apparent from the bank statement itself).
8 I turn then to my reasons for entering summary judgment in favour of Mr Wiggett, and dismissing the claim against him.
Relevant principles
9 Mr Wiggett applied for summary judgment pursuant to s 31A(2)(b) of the Federal Court of Australia Act 1976 (Cth) on the basis that Chapcon has no reasonable prospect of successfully prosecuting the proceeding brought against him, or, alternatively, r 26.01(1)(a), (b), or (c) of the Federal Court Rules 2011 (Cth) on the basis that the claims set out in the amended statement of claim dated 20 April 2023 have no reasonable prospects of success, are vexatious, or no reasonable cause of action is disclosed.
10 The relevant principles on such an application are referred to in my decision of McCardle v Johnson (No 2) [2022] FCA 168 at [49]–[52].
Background
11 The following background facts are extracted from the uncontested evidence contained in the affidavit of Mr Wiggett which is relied upon for the purposes of his application. This evidence is of particular relevance to [5(c)], [10], [18], [52] and the particulars to [169] of the amended statement of claim.
12 Maraton Capital Pty Ltd (Maraton) was engaged as a consultant to a group of companies which included NHSQ. Mr Wiggett, a chartered accountant, is the sole director and shareholder of Maraton, and caused Maraton to be engaged after signing a heads of agreement in June 2015. Mr Wiggett is a financial turnaround expert. At the time of Maraton’s engagement, the group was in a precarious financial position and Mr Wiggett became involved (through Maraton) at the direction of the National Australia Bank.
13 Mr Wiggett was never employed by NHSQ and nor was he ever its chief operating officer and chief financial officer (contrary to the allegations in the amended statement of claim).
14 At all times during Maraton’s engagement, Mr Wiggett was based in Melbourne, solely working on strategic and financial solutions. He was not involved in the operational side of the group of companies, including NHSQ. Further, neither he nor Maraton had direct access to or personal involvement with the tendering or home design activities of NHSQ; NHSQ’s assets, plans or designs; or NHSQ’s client names or contract information, or documents relating to these matters (NHSQ documents), and nor were these document in his (or Maraton’s) possession or control.
15 The engagement of Maraton was terminated on or about 2 August 2016, and liquidators were appointed to the group of companies on 17 October 2016. Mr Wiggett, through Maraton, had some limited involvement with the group of companies between 2 August 2016 and 17 October 2016, but had no operational involvement with NHSQ, or access to the NHSQ documents. Mr Wiggett was not involved in the handover of the company information of NHSQ or its assets to the liquidators.
16 Mr Wiggett then became a director of Spectrum Homes, which is a company which he and Mr Reeves formed on 17 October 2016.
17 Initially, Mr Wiggett’s role was to provide administrative and financial services, with Mr Reeves, a registered builder, attending to the contracting and building side of the company. Mr Wiggett was not involved in the activities of Spectrum Homes such as its tendering or client names or contract information, and remained based in Melbourne.
18 During 2017, Mr Wiggett became involved in the operational side of the business, being the development and creation of new smaller home designs, being designs which are not the subject of Chapcon’s claims against him. Mr Wiggett also became involved in “façade rendering” of three of the plans referred to in the amended statement of claim, which I interpret to mean that he was involved in digital rendering. However, these plans (a subset of a group of plans described as Acreage Plans) had been created by the fourth respondent (Mr Melo) on the instructions of Mr Reeves, and Mr Wiggett caused Mr Melo’s invoices to be paid by Spectrum Homes in relation to that work. Mr Wiggett met Mr Melo for the first time after he had created the Acreage Plans, and his communications with Mr Melo were limited to the design of the new smaller home designs. Mr Wiggett had no reason to believe or suspect that Mr Melo had reproduced or copied a substantial part of the Grange 38 Modified Plan and the Homestead 37 Modified Plan (which are two of the NHSQ Plans and are discussed further below), and had, and has, no reason to believe or suspect that Mr Reeves would have given instructions to Mr Melo to copy or reproduce the NHSQ Plans.
19 Mr Wiggett ceased to be involved with, and a director of, Spectrum Homes on 5 October 2018 and Maraton also ceased to be a shareholder. All documents relating to Spectrum Homes were handed over to Mr Reeves and his associated company.
Ownership of copyright in the NHSQ Plans
20 The central allegations against Mr Wiggett are found at [169] and [170] of the amended statement of claim.
21 In [169], it is alleged that Mr Reeves, Mr Wiggett and Mr Melo “caused, authorised, directed or procured [Spectrum Homes] to produce the Spectrum Plans which reproduce or substantially reproduce the NHSQ Plans and to build or cause to be built residential homes which substantially reproduce the NHSQ Plans in a material form as particularised above”.
22 In [170], it is then alleged that, in the premises, Mr Reeves and/or Mr Wiggett and/or Mr Melo “has infringed the copyright of the Applicant in the NHSQ Plans or authorised or directed or procured or participated in the said infringements”.
23 However, the NHSQ Plans (as defined) are not referred to or identified in either the Asset Sale Agreement (as defined) between Chapcon and NHSQ dated 9 November 2016, or the Melo Deed (as defined) between Mr Melo and NHSQ dated 6 December 2016, or the Deed of Assignment (as defined) between Chapcon and NHSQ dated 15 December 2016, being the documents which are pleaded at [19]–[24] of the amended statement of claim to support the pleaded conclusion at [25] that Chapcon owns the copyright in the NHSQ Plans. Because the NHSQ Plans are not referred to in these documents, more would be needed to establish copyright ownership at any trial, but what that evidence might be is not known (if it exists) and, despite request of counsel at the hearing, could not be identified satisfactorily.
24 To add to the uncertainty as to whether Chapcon in fact owns any copyright which might subsist in the NHSQ Plans, a solicitors’ letter of demand dated 2 August 2017 was sent to Spectrum Homes and copied to, amongst others, Mr Wiggett, on behalf of Newstart Homes Australia Pty Ltd. That letter asserted that Newstart Homes Australia was the owner of the copyright in “drawings and plans that were drafted by [NHSQ], which were subsequently sold and assigned exclusively” to it. The allegations were expanded upon in another solicitors’ letter dated 3 October 2017, and made direct reference to the “Homestead 37” Plan (being a plan which is referred to in the amended statement of claim as being the predecessor to the Homestead 37 Modified Plan).
25 The sole director of both Newstart Homes Australia and Chapcon is the same person, and the website of Newstart Homes Australia (not Chapcon) was advertising the Grange 38 Plan and the Homestead 37 Plan as at June 2023.
26 The ownership by Chapcon of the asserted copyright in the NHSQ Plans was challenged by Mr Wiggett, both by the evidence relied upon to support the summary judgment application (filed on 21 June 2023, more than a month ago) and by the comprehensive written submissions provided by Mr Wiggett’s counsel prior to the hearing. It is apparent therefore that Chapcon would not be able to rely upon the presumption in s 126(b) of the Copyright Act 1968 (Cth) at any trial.
27 Yet Chapcon elected not to provide any evidence, even by way of outline, of the kind which it would adduce at trial to show that there is a proper basis for it to assert that it is the owner of the copyright in the NHSQ Plans. That it elected not to do so is a deficiency in its defence of the summary judgment application as it tends to indicate that no other evidence is available or would be able to be adduced at trial.
28 For these reasons, the evidence adduced by Mr Wiggett raises a serious doubt about whether Chapcon is the owner of any copyright which might subsist in the NHSQ Plans and thus provides strong support for the conclusion reached below that Chapcon has no reasonable prospect of success in its claims against Mr Wiggett.
NHSQ Plans and the Spectrum Plans
29 Of the list in Annexure A which makes up the NHSQ Plans, no material fact is pleaded as part of any cause of action brought against Mr Wiggett in relation to the Logan 31 (modified for the Whaleys) which is addressed at [60]–[91] of the pleading, and no material fact is pleaded as part of any cause of action brought against Mr Wiggett in relation to the Milan 29 (modified for the Firths) which is addressed at [92]–[120] of the pleading.
30 The other two plans in the list in Annexure A are the Grange 38 Modified Plan and the Homestead 37 Modified Plan.
31 Paragraphs 145 to 151 of the amended statement of claim purport to plead a case that Spectrum Homes has infringed Chapcon’s copyright “in the Grange 38 and/or Grande 38 modified Plans”. It is pleaded in [152] that Mr Wiggett and Mr Reeves authorised the acts described in [150] and [151]. Relevant extracts of the amended statement of claim are annexed to these reasons.
32 However, Chapcon has not pleaded that it owns copyright in the Grange 38 Plan. And on the assumption that the reference to the “Grande 38 modified Plans” is intended to be a reference to the Grange 38 Modified Plan (being one of the NHSQ Plans), Mr Wiggett has never seen it, and, by his affidavit, denies that he authorised Spectrum Homes to engage in the pleaded conduct which is alleged to infringe the copyright in that plan. Mr Wiggett’s evidence which refutes the allegations made against him was not challenged or contested, and there is no reason not to accept it.
33 That Mr Wiggett was a director of Spectrum Homes is not enough, merely by that position alone, to establish the case pleaded against him in [152]: Streetworx Pty Ltd v Artcraft Urban Group Pty Ltd (2014) 110 IPR 82; [2014] FCA 1366 at [393] (Beach J). Further, Chapcon has not pleaded when the conduct in [150] occurred and so there is a real prospect that Mr Wiggett (who ceased to be a director nearly five years ago) was not a director at the relevant time even if it did occur (although apparently not even Chapcon knows when it occurred). And it is not clear in what way, and the basis upon which, Mr Wiggett is said to have had knowledge of the alleged infringement by Spectrum Homes by way of its acts set out in [150] and [151], or why Mr Wiggett was in a position to authorise any infringement of copyright by Spectrum Homes or prevent any such infringement, because no material facts are pleaded and no particulars are provided.
34 The same fundamental problems arise in relation to the allegations in [153] to [160] of the amended statement of claim, which relates to the Homestead 37 Modified Plan (which Mr Wiggett has never seen) and [161] to [168] of the amended statement of claim which also relates to the Grange 38 Modified Plan. Mr Wiggett’s evidence in relation to these plans, and which refute the allegations made against him, was, once again, not challenged or contested, and there is no reason not to accept it.
35 As to the allegations in [169] and [170] of the amended statement of claim, which are made “[i]n the premises” (being, presumably, a reference back to the premises pleaded in [152], [160] and [168]), they do not salvage the position and, as they rely upon the earlier pleas addressed above, are deficient for the same reasons as [152], [160] and [168] are deficient.
36 For these reasons, Chapcon has no reasonable prospect of success in its claims against Mr Wiggett. Further, no reasonable cause of action has been pleaded against Mr Wiggett.
Abuse of process
37 When counsel for Chapcon was asked why the claims against Mr Wiggett would not be regarded as speculative, the response included the following:
The applicant can’t point to at the moment any specific details that show that Mr Wiggett authorised, within that meaning in the Copyright Act, the infringements alleged regarding the various plans. But, in my submission, that’s not surprising, because they can only be revealed through internal company documents of the first respondent. And, indeed, that’s the process that should be undertaken, being preliminary limited discovery with consequent amendment and reducing of that case to particulars in the statement of claim.
…
[T]here’s nothing that my client can do at the moment to provide any further particulars about the acts that comprise the authorisation.
(emphasis added.)
38 These submissions demonstrate that the failure to plead material facts to sustain the plea that Mr Wiggett “caused, authorised, directed or procured” Spectrum Homes to do the pleaded things ([169]) or “authorised” the conduct of Spectrum Homes ([152], [160] and [168]) is no accident. This means that, in truth, Chapcon does not know whether Mr Wiggett did the things which its amended statement of claim pleads that he did, but plans to use this Court’s processes to find out and then, if it can, flesh out the allegations against him.
39 To commence the proceeding against Mr Wiggett in these circumstances is both vexatious and an abuse of process, and provides another reason in and of itself to summarily dismiss the claims against Mr Wiggett.
Relief claimed against Mr Wiggett
40 Although damage is claimed to have been suffered by Chapcon because of Mr Wiggett’s conduct, and damages are sought against him, Mr Wiggett’s evidence has established the matters set out in s 115(3) of the Copyright Act. This has the consequence that Chapcon has no reasonable prospect of obtaining an award of damages against Mr Wiggett, and (by reason of s 115(3)) it can only claim from him an account of profits.
41 However, no allegation is made that Mr Wiggett derived a profit from the alleged conduct (as to this, see [173]), and so Chapcon has no reasonable prospect of obtaining an account of profits either (despite claiming that in its prayer for relief).
42 As Mr Wiggett is no longer a director of Spectrum Homes, and his evidence is that he is not otherwise involved with its business and no longer has any documents in his possession or control which relate to its business, Chapcon also has no reasonable prospect of obtaining an injunction against him or for delivery up.
43 Nor would there be any utility in the declarations sought by Chapcon being made in proceedings to which Mr Wiggett is a party.
44 These matters provide yet a further reason to conclude that Chapcon has no reasonable prospect of success in its claims against Mr Wiggett.
I certify that the preceding forty-four (44) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Downes. |
Associate:
ANNEXURE
SCHEDULE OF PARTIES
QUD 104 of 2023 | |
ROBERT MELO |
