FEDERAL COURT OF AUSTRALIA Checked‑Out Pty Ltd v Eagle Eye Inspections Pty Ltd of NSW [1999] FCA 552 CHECKED‑OUT PTY LTD v EAGLE EYE INSPECTIONS PTY LTD OF NSW AND JOSEPH WILLIAMS AND WAYNE COOK AND TIMOTHY BOLLINS AND PETER ADAMS SOLICITORS AND G H HEALEY AND McCANN SOLICITORS AND MARK KELADA SOLICITORS AND QUINNS SOLICITORS AND NOYCE LAWYERS AND GRECH PARTNERS SOLICITORS AND GUY AND ASSOCIATES SOLICITORS N 169 OF 1999 LEHANE J 28 APRIL 1999 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 169 OF 1999 BETWEEN: CHECKED‑OUT PTY LTD (ACN 071 965 798) Applicant AND: EAGLE EYE INSPECTIONS PTY LTD OF NSW (ACN 084 722 234) First Respondent JOSEPH WILLIAMS Second Respondent WAYNE COOK Third Respondent TIMOTHY BOLLINS Fourth Respondent PETER ADAMS SOLICITORS Fifth Respondent G H HEALEY AND McCANN SOLICITORS Sixth Respondent MARK KELADA SOLICITORS Seventh Respondent QUINNS SOLICITORS Eighth Respondent NOYCE LAWYERS Ninth Respondent GRECH PARTNERS SOLICITORS Tenth Respondent GUY AND ASSOCIATES SOLICITORS Eleventh Respondent JUDGE: LEHANE J DATE OF ORDER: 28 APRIL 1999 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. Judgment be reserved. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 169 OF 1999 BETWEEN: CHECKED‑OUT PTY LTD (ACN 071 965 798) Applicant AND: EAGLE EYE INSPECTIONS PTY LTD OF NSW (ACN 084 722 234) First Respondent JOSEPH WILLIAMS Second Respondent WAYNE COOK Third Respondent TIMOTHY BOLLINS Fourth Respondent PETER ADAMS SOLICITORS Fifth Respondent G H HEALEY AND McCANN SOLICITORS Sixth Respondent MARK KELADA SOLICITORS Seventh Respondent QUINNS SOLICITORS Eighth Respondent NOYCE LAWYERS Ninth Respondent GRECH PARTNERS SOLICITORS Tenth Respondent GUY AND ASSOCIATES SOLICITORS Eleventh Respondent JUDGE: LEHANE J DATE: 28 APRIL 1999 PLACE: SYDNEY EX TEMPORE REASONS FOR JUDGMENT 1 The first, second, third, fourth, fifth, seventh, eighth, ninth and tenth respondents seek, by notices of motion (one filed by the first, second, third and fourth respondents, the other by the others first listed) orders striking out the statement of claim or particular paragraphs of it. The statement of claim, which was filed on 26 February 1999 was lodged on behalf of the applicant company by Mr Hardcastle, a former director of the company, who by leave appeared for it on the motions. 2 Mr Hardcastle drew the statement of claim. It is a layman's document which he has sought to draft in plain English. It is not a lawyer's document. It is appropriate that some regard be paid to that circumstance, but it is necessary also that the statement of claim comply substantially with the requirements of the rules and sufficiently state material facts which would, if established, make out the causes of action which are alleged. 3 The second, third and fourth respondents are alleged to be former employees of the applicant. The first respondent is a company in which, apparently, the second, third and fourth respondents are interested. The other respondents are solicitors. All of them, other than the sixth and the eleventh, were represented on the motions. The claims against the first four respondents in the statement of claim are based, clearly enough, on alleged breaches of copyright, probably also on alleged breaches of other duties owed by the second, third and fourth respondents as former employees of the applicant and perhaps, by way of derivative liability, by the first respondent as well. 4 The claims, which are stated rather generally, are to the effect that the applicant owns a software package and other items comprising, it is said, a unique method of producing building inspection reports (inspecting buildings, and supporting the results, is the applicant's business). The effect of the statement of claim appears to be that the second, third and fourth respondents have made unauthorised use of that property, breaching copyright in it and perhaps at the same time breaching other obligations owed to the applicant in respect of it. There are also allegations of fraudulently concealing unauthorised use of company assets, including the property to which I have referred, and the receipt of money by the second, third and fourth respondents for that unauthorised use. It is not said what that unauthorised use was. There is a claim of conspiracy against the second, third and fourth respondents. There are various allegations as to statements of intention by, particularly, the second respondent before and after he left the employ of the applicant, intended presumably to be relevant to concealment (if that itself is relevant) of his breaches of duty. 5 The essence of the applicant's complaint is that its former employees embarked on a course of establishing themselves through their company, the first respondent, in competition with the applicant and, in the course of doing that, breached various duties which they owed to the applicant. 6 The essence of the claim against the other respondents is that they were involved in breaches of duty by the first four respondents, particularly infringement of copyright. The claims against them are to the effect that they were made aware of the applicant's claim that the first four respondents were infringing the applicant's copyright and that nevertheless, knowing of the alleged infringements, proceeded to deal with the first respondent, the dealings involving the unauthorised use by the first respondent of the applicant's copyright material. The assertion appears to be that that conduct makes the 5th to 11th respondents liable derivatively in respect of breach of copyright and possibly, though this is by no means clear, in respect of other alleged breaches of duty as well. There are also apparently unrelated allegations against the fifth respondent to the effect that the fifth respondent is indebted to the applicant for fees or charges incurred for building inspections previously made by the applicant. 7 The substance of the respondents' motions is that the pleading does not allege the material facts necessary to make out any of the causes of action to which I have referred or for that matter any other cause of action. Making every appropriate allowance for the circumstances in which the statement of claim was prepared, and acknowledging that the preparation of such a statement of claim is not an entirely straightforward task even for somebody with legal training, I am bound to hold that the respondents are correct. The proposition may be illustrated by reference to the claims against the first four respondents, particularly the claims against the second, third, and fourth respondents for breach of copyright. 8 The material facts necessary to be pleaded, in respect of breach of copyright, may be stated in this way. Facts must be pleaded which indicate the existence of copyright in something identifiable which is a proper subject of copyright, for example, a literary or artistic work. Those of course are only examples. One would therefore ordinarily expect to see an allegation of the way in which the particular work came into existence, of its authorship and, for the purpose of establishing ownership, of the circumstances in which the work was created: for example, whether the author was an employee of the applicant acting in the ordinary course of employment; or, it may be, an assignment from the author to the applicant. But what is required is an allegation of facts giving rise to the existence of copyright in an identifiable subject and supporting the conclusion, to which that part of the claim is directed, that the applicant is the owner of the copyright. 9 No such facts are pleaded here. What is pleaded is simply the conclusion that the applicant is the owner of a software package coding system and associated items, which are said to comprise a unique method of producing building inspection reports with a distinct advantage over the competition. I have said enough I think to indicate why in my view that is simply to plead to a conclusion, not the material facts. Of course it is then necessary to plead the facts on the basis of which infringement is alleged, that is, the doing by a respondent of an act which the owner of the copyright is exclusively entitled under the Copyright Act 1968 to do: but, again, no such facts are pleaded in this statement of claim. 10 There is a similar difficulty with the pleading of unauthorised use of company assets and the fraudulent concealment of that use. Again what is pleaded is merely a conclusion, and here, particularly, there is a difficulty because an allegation of fraud is required by O 11 r 10 of the Federal Court Rules, to be pleaded with specificity. What is required, assuming it could properly be pleaded, is a statement of what precisely which of the second, third, and fourth respondents, did, and when they did it, what the assets concerned were and what the circumstances were which are said to give rise to the conclusion that there was fraudulent concealment. It is not a question of pleading evidence; that of course is not required, indeed would be inappropriate. But what is required is the pleading of the facts, which will subsequently be proved by evidence. 11 Similarly, the allegation of conspiracy is simply an allegation by way of conclusory statement. What is required to be pleaded is the circumstances which it is said gives rise to the cause of action based on the conspiracy, that is to say what, for example, was the agreement reached between which parties and what was it that they agreed would be the subject of future action by them for a common purpose and what that common purpose was. That purpose, perhaps, is sufficiently pleaded, or almost so: the purpose pleaded appears to be to cause the cessation of the applicant's business, but it may be that greater specificity would be at least desirable there also. 12 The statement of claim then includes a series of allegations about particular statements said to have been made by the second respondent. It is by no means clear to what cause of action those statements are intended to relate, or how they are intended to do so. I could continue, but I think it is probably unnecessary to do so because what I have already said is sufficient to indicate the difficulties I see with a great deal, perhaps virtually all, of the statement of claim so far as it seeks to plead a case against the first four respondents. 13 If one turns then to the allegations against the 5th to 11th respondents, perhaps the primary difficulty there is that the causes of action alleged against them appear to be purely derivative ones. Those allegations at best can stand only if the principal allegations stand. But, once again, in my view the pleader has not, even making appropriate allowances, sufficiently turned his mind to what exactly it is that the respondents concerned allegedly have done which makes those respondents liable in respect of the breach of copyright alleged against the first four respondents. Particularly, it is necessary to allege with some precision exactly what information was imparted to the respondents and when and how that information was imparted, so as to provide a basis for an allegation of knowledge of particular circumstances on the part of respondents or of an allegation that, in the circumstances pleaded, they ought to have known particular matters. 14 It may be, though it is not clear, that the allegations against the solicitors are intended also to raise questions of their liability by way of accessory liability for other breaches of duty, perhaps breaches of duty of fidelity owed by the second, third and fourth respondents; but, if so, the material facts giving rise to the claim that the solicitors are so liable must be pleaded with some particularity. 15 The case is not one, in my view, where it is apparent on the face of the statement of claim that the case which the applicant seeks to make against any of the respondents is manifestly hopeless. There can on this occasion be no question, I think, of striking out, except with liberty to replead. I think, however, that the problems I have indicated are sufficiently pervasive to require an order that the statement of claim be struck out in whole, but with liberty to the applicant to file and serve an amended statement of claim. 16 [Argument ensued as to the appropriate orders]. 17 I shall consider which are the appropriate orders to be made, and I expect to announce my decision during the next few days. I certify that the preceding seventeen (17) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lehane. Associate: Dated: 4 May 1999 Counsel for the First, Second, Third and Fourth Respondents: Mr J S Drummond Solicitor for the First, Second, Third and Fourth Respondents: Bateman Battersby Counsel for the Fifth, Seventh, Eighth, Ninth and Tenth Respondents: Mr P B Walsh Solicitor for the Fifth, Seventh, Eighth, Ninth and Tenth Respondents: Noyce Lawyers Date of Hearing: 28 April 1999 Date of Judgment: 28 April 1999