JUDGMENT No. O37, 3 7 PRACTICE AND PROCEDURE - security for costs - cross-claimant - application of s.56 Federal Court of Australia Act and s.533 Companies (Western Australia) Code ~ width of issues raised on cross-claim - relationship to issues in claim. Federal Court Rules 0.28 Designs Act 1986 Trade Practices Act 1974 s.52 Federal Court of Australia Act s.56 Judiciary Act 1903 s.79 Companies (Western Australia) Code s.533 Copyright Act 1968 s.77 Bell Wholesale Co. Pty Ltd v Gates Export Corporation (1984) 52 ALR 176 Sent v Jet Corporation of Australia Pty Ltd (1984) 54 ALR 237 Fencott & Associates v Eretta Pty Ltd tonrep. French J., 31.3.87) Buckley v Bennell Design and Construction Pty Ltd (1974) 1 ACLR Macrae Knitting Mills Limited v Lowes Limited (1936) 55 CLR 725 Laundry Coin-Wash Nominees Pty Ltd v Dunlop 01 1c Ltd and Others (1985) ATPR 40-584 TREVOR ALAN LEWIS and SHARYN PATRICIA LEWIS V W.D. & V.J. HAMBLEY PTY LTD, MAL JONES & CO. PTY LTD and WARREN DUDLEY HAMBLEY NO. WAG 79 OF 1987 FRENCH J. PERTH 13 NOVEMBER 1987 IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION ee eee No. WAG 79 of 1987 BETWEEN: TREVOR ALAN LEWIS and SHARYN PATRICIA LEWIS Applicants and W.D. & V.J. HAMBLEY PTY LTD First Respondent MAL JONES & COQ. PTY LTD Second Respondent WARREN DUDLEY HAMBLEY Third Respondent MINUTE OF ORDER JUDGE MAKING ORDER: FRENCH J. DATE OF ORDER: 13 NOVEMBER 1987 WHERE MADE: PERTH THE COURT ORDERS THAT: 1. Upon the undertaking of the first respondent and the third respondent that the first respondent will not dispose of any of its capital assets, be they assets of the trust or otherwise, pending the hearing and 2. determination of this action, the motion will be dismissed. There will be liberty to apply for release from that undertaking. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION No. WAG 79 of 1987 BETWEEN: TREVOR ALAN LEWIS and SHARYN PATRICIA LEWIS Applicants and W.D. & V.J. HAMBLEY PTY LTD First Respondent MAL JONES & CO. PTY LTD Second Respondent WARREN DUDLEY HAMBLEY Third Respondent CORAM: FRENCH J. 13 NOVEMBER 1987 REASONS FOR JUDGMENT (Security for Costs of Cross-Claim) This is a motion that security for costs be provided by a corporate respondent. 2. The applicants in these proceedings seek injunctive relief, damages and an account of profits for alleged infringement by the respondents of their monopoly in a design registered under the Designs Act 1986 and for contravention of s.52 of the Trade Practices Act 1974. The claim arises out of the promotion and sale by the respondents of a device known as the Warrie Crutching Frame. The applicants say that the device falls within the scope of a monopoly conferred upon them by a_e registered design under Australian Design Registration No. 96898. The first and third respondents have alleged in their defence that the applicants' design registration is invalid on the grounds that:- (i) it lacks novelty and originality; (ii) it is an obvious imitation or adaptation of a prior design registered in the name of the third respondent; (1ii) the rights attaching to the prior registered design were assigned by the third respondent to the first respondent. By way of cross-claim therefore, the first respondent seeks a declaration that the applicants' design registration is invalid and rectification of the register to expunge it therefrom. 3. It also alleges that it 1s the owner of copyright in drawings depicting the Warrie back aid and that their copyright has been infringed by the applicants. Claims for various forms of relief including damages, account of profits and interest are sought. The first respondent is a company with an issued share capital of $2.00. It was incorporated in March 1983. It is the trustee of the W.D. & V.J. Hambley Family Trust and as such, has a right of indemnity against the assets of the trust in respect of any liability it may incur in connection with its operations as trustee. The balance sheet of the company as at 30 June 1987 shows current assets of $83,222, which include $34,449 by way of trade debtors. Current liabilities amount to $130,833 and beneficiary loan accounts to $71,421. Fixed assets amount to $103,245 and after adding intangibles, being goodwill and "design and registration costs", there is a net asset value of $10. According to the first respondent, it enjoys a healthy turnover with gross sales amounting to $309,424 for the months of July to October 1987 and this is said to reflect considerable growth in the company's activities, its gross income for the year ended 30 June 1987 having totalled only $406,080. 4. The motion for security relies in the alternative upon s.56 of the Federal Court of Australia Act, 0.28 of the Federal Court Rules and s.533 of the Companies (Western Australia) Code, the latter being applicable in this Court by virtue of s.79 of the Judiciary Act 1903 - Bell Wholesale Co. Pty Ltd v Gates Export Corporation (1984) 52 ALR 176, 179, Sent v Jet Corporation of Australia Pty Ltd (1984) 54 ALR 237, 251. While s.56 of the Federal Court of Australia Act and s.533 of the Companies (Western Australia) Code empower the Court to order that "a plaintiff" give security for costs, I accept that they do, as a matter of construction, extend to the case of a cross-claimant. That extension is expressly provided for in 0.28 whereby references in that Order to an applicant extend to "any person who makes a claim for relief in any proceeding". As to the relationships between the general power conferred by s.56 and 0. 28 on the one hand, and s.533 of the Code on the other, I have previously expressed the view and adhere to it, that the fact of the existence of the special power and the policy that it expresses may be treated as considerations relevant to any concurrent exercise of the general power. The practical consequence in most cases will be that, within the range of application of the special power, the general power should be exercised along like lines - Fencott & Associates v Eretta Pty Ltd (Unrep. French J., 31.3.87). 5. The policy of s.533 is the same as its predecessor, s.363 of the Companies Act 1961, and was set out by Sir Laurence Street in Buckley v Bennell Design and Construction Pty Ltd (1974) 1 ACLR 301 at 303:- "It reflects the concern of the legislature that, in permitting the incorporation of a limited liability entity, it was necessary to ensure that persons who might have dealings, whether voluntary or involuntary, with such an entity should have a measure of protection against the consequences of limited liability. In cases of contract the other party to the dealing would be on notice of the limited liability of the company and, the transaction being voluntary, he could be presumed to be competent to look after his own interests in that regard. Where, however, a company commences litigation against another party, that other party could find himself involuntarily prejudiced by the limited liability character of the plaintiff who had commenced proceedings against him. To protect the other party from this consequence of limited liability, there has always in companies legislation been a provision along the lines of s.363 of the New South Wales Act. In administering the policy laid down by provisions of that nature, the courts have been concerned to achieve a balance between ensuring that adequate and fair protection is provided to the other party, and avoiding injustice to impecunious companies by unnecessarily shutting them out or prejudicing them in the conduct of litigation." Consistently with that policy it would not, in my opinion, be appropriate to order security against a cross-claimant where the cross-claim is really no more than an expression of a defence to the applicant's cause of action. It is well established that the validity of a registered design may be put in issue by a defendant as part of its defence 6. to an infringement action - Macrae Knitting MIlls Limited v Lowes Limited (1936) 55 CLR 725, especially at 728-729 per Dixon J. Insofar as the cross-claim seeks a declaration of the invalidity asserted in the defence and consequential rectification of the register, 1t does not, for present purposes, add materially to the issues raised by the defence. In the present case, of course, the first respondent goes further. It has launched a counter-attack which is not merely formal, but substantial, and raises a distinct legal cause of action against the applicants. That cause of action however, is not without difficulty arising out of the provisions of s.77 of the Copyright Act 1968. The first respondent is trustee of a family trust and holds its assets for the benefit of the beneficiaries. Having regard to the difficulties that would face the applicant in trying to recover costs if they were successful in defending the cross-claim in respect of the copyright infringement, the first respondent can be regarded as if it were without assets to meet the liability - Laundry Coin-Wash Nominees Pty Ltd v Dunlop Olympic Ltd and Others (1985) ATPR 40-584. I do have regard to the fact that the first respondent an@ its director, Mr W.D. Hambley, are prepared to _ give 7. undertakings that the first respondent will not dispose of its capital assets pending the hearing and determination of this action. I also take into account the fact that the copyright cross-claim as presently pleaded, proceeds on a fairly narrow factual basis and is closely related to the factual issues raised by the design infringement claim. In my opinion, and having regard to these circumstances, 1t 1S not an appropriate case for the making of an order for security. That is not to say that as the case progresses to a hearing, circumstances may not change and require a reconsideration of that view. It will therefore be open to the applicants to re-apply for security at some later time if the circumstances are appropriate for such an order. The order I will make therefore is that, upon the undertaking of the first respondent and the third respondent that the first respondent will not dispose of any of its capital assets, be they assets of the trust or otherwise, pending the hearing and determination of this action, the motion will be dismissed. There will be liberty to apply for release from that undertaking. 8. I certify that the preceding seven (7) pages are a true copy of the Reasons for Judgment of his Honour Justice French. Associate: Deere WRT (3 Neweunhb&d \98? Date: Counsel for the Applicants: Mr C. Pullin Solicitors for the Applicants: Haynes Robinson Counsel for the Respondents: Mr R. McCormack Solicitors for the Respondents: Corser & Corser Date of Hearing: 12 November 1987 Date of Judgment: 13 November 1987