FEDERAL COURT OF AUSTRALIA Technical Innovation Corp Pty Ltd v Australian Technological Innovation Corp Pty Ltd [1999] FCA 1288 TRADE PRACTICES - application for interlocutory injunction restraining respondent from acting on basis that a licence agreement is terminated - licence agreement contains term that if net proceeds of sale of licensed product does not exceed $1,000,000 within 3 years agreement will be terminated - agreed that the $1,000,000 requirement will not be achieved within the 3 year period - whether a serious question to be tried - licence is for use of intellectual property rights relating to production of a fungus and for sale of the fungus - licensee alleges misrepresentations by licensor relating to successful testing of product, acceptance of results by potential buyers, distribution and annual sales - licensee claims reliance on misrepresentations - whether undue delay in commencement of proceeding - balance of convenience where applicants claim that their investment and efforts will be lost if interlocutory relief not granted and proffer undertakings as to damages - Trade Practices Acts 1974 (Cth) ss 52, 87 Trade Practices Act 1974 (Cth) ss 2, 87 University Co-op Bookshop Ltd v University of New South Wales [1997] FCA 510, distinguished Telstra Corporation Ltd v First Netcom Pty Ltd (1999) 78 FCR 132, distinguished TECHNICAL INNOVATION CORPORATION PTY LTD & ORS v AUSTRALIAN TECHNOLOGICAL INNOVATION CORPORATION PTY LTD & ORS N 766 OF 1999 TAMBERLIN J 15 SEPTEMBER 1999 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 766 OF 1999 BETWEEN: THE TECHNICAL INNOVATION CORPORATION PTY LIMITED ACN 075 322 486 FIRST APPLICANT THE BIOACT CORPORATION PTY LIMITED ACN 076 210 761 SECOND APPLICANT BIOACT (PHILIPPINES) PTY LIMITED ACN 076 830 870 THIRD APPLICANT AND: AUSTRALIAN TECHNOLOGICAL INNOVATION CORPORATION PTY LTD ACN 003 527 642 FIRST RESPONDENT GRAEME MAXWELL PHILIP SECOND RESPONDENT JUDGE: TAMBERLIN J DATE: 15 SEPTEMBER 1999 PLACE: SYDNEY REASONS FOR JUDGMENT 1 The applicants seek an interlocutory injunction which in substance restrains the first respondent from acting on the basis that a Licence Agreement dated 16 September 1996 ("the agreement"), between the first applicant ("TIC") and the first respondent ("ATIC") has terminated. 2 Clause 4 of that agreement provides: "4. If net proceeds of sale of licensed product does not exceed one million dollars (A$1M) within three (3) years of the execution of this Agreement, then the Agreement will be terminated and property specified in Schedule 3 returned to ATIC." 3 It is common ground that the requirement of $1,000,000 net sale proceeds will not be achieved within the three year period which expires tomorrow on 16 September 1999. The applicants seek damages on the basis that the first respondent ATIC engaged in misleading and deceptive conduct in breach of s 52 of the Trade Practices Act 1974 (Cth) ("the TPA"), during the course of negotiations leading up to execution of the agreement. The applicants also seek declarations and other relief under s 87 of the TPA. 4 Under the agreement, ATIC granted to TIC an exclusive licence for an initial term of ten years with a right to renew for a further sixteen years, to use intellectual property rights relating to the production and sale of strains of a fungus ("the product"). The product is designed to attack and kill parasitic nematodes, which can damage the ability of plants, such as bananas or tomatoes, to bear fruit. The exclusive licence does not extend to certain specified African countries. 5 The Statement of Claim alleges a series of specific false representations by ATIC as to successful testing of the product in the Philippines; acceptance of the results by banana plantation owners in that country; and as to the distribution of the product and the amount of annual sales. The applicants claim that they relied on false representations in entering the agreement and that they have suffered loss as a consequence, that loss including an amount in the order of $1,300,000 in developing a commercial production facility and preparing the product for sale. 6 Interlocutory relief is resisted on two grounds. The first is that it is said there is no serious question to be tried. The second is that the balance of convenience favours the respondents. 7 In support of the first ground the respondents submit that the proceeding is bound to fail on the present state of the evidence. They say that the material presently in evidence demonstrates that the applicants did not rely on any representation. In addition, the making of the representations and their falsity are in issue. 8 Reliance, of course, is a question of fact. In order to establish at this early stage of proceedings that there is no serious question on reliance, the evidentiary threshold is high. The respondents point to material which they say shows conclusively that TIC relied on its own "due diligence" and investigations and that it was aware of the problems with respect to the product and its marketing in the Philippines. Documents in evidence indicate that the applicants entertained reservations and saw problems with respect to the product and its production, marketing and sale. They had made their own assessments of the proposal and fully appreciated the need to make further investigations prior to September 1996, but "on the whole" they decided to proceed with the agreement. 9 I am satisfied that there is a serious question to be tried. This is a case which will depend on the credibility of the witnesses called for the applicants and the Court's assessment of their likely course of conduct if the claimed misrepresentations had not been made. Such an evaluation depends on the state of mind of the witnesses seen in the light of the overall factual matrix in the context of which the agreement was entered into. This can involve a fine assessment of fact as to the conduct of the applicants. At this early stage without the benefit of preliminary procedures such as discovery, inspection, interrogatories and the furnishing of material and subpoenas, together with the absence of cross-examination, the question of reliance is far from clear. I am satisfied that there is a serious question to be tried on the issue of reliance. For similar reasons I am satisfied that it has been shown that there is a serious question whether the representations were causative of the detriment claimed by the applicants. 10 The respondents also submit that there has been undue delay in commencement of proceedings to such an extent that the applicants are disentitled to relief. I do not accept this. The proceedings were commenced on 9 August 1999. The delay is said to begin from 12 November 1997 when the respondents are said to have made clear to the applicants that the agreement would end on 16 September 1999. After that date the position is that the applicants took steps to endeavour to resolve the dispute commercially and when this attempt failed the proceedings were instituted. Furthermore, the existence of prejudice as a consequence of the delay again raises contested issues and the present evidence is far from establishing that significant prejudice to the respondents arises as a result of the delay. 11 In aid of the submission on delay the respondents refer to the decision of Branson J in University Co-op Bookshop Ltd v University of New South Wales [1997] FCA 510. However, her Honour's decision was made having regard to "the particular circumstances" of that case. Those circumstances differed from those in the present case in two important respects. First, her Honour was not satisfied that there was a serious question to be tried. In addition, prejudice was established because Heads of Agreement had been signed for operation of the bookshop by a third party, staff had been engaged, and orders for purchase of books had been placed. 12 As to the balance of convenience, although there is likely to be hardship on both sides, in my opinion, it favours the applicants and the status quo should be preserved. If interlocutory relief is not granted the agreement will terminate and the respondents will be free to deal with the product. The applicants' investment and efforts in relation to the product will be lost. On the other hand, if relief is granted, the respondents fear that they will suffer financial loss in losing royalties and in the destruction of a sound commercial relationship with a South African licensee, and further that the applicants will seek to damage the relationship with the South African licensee. Other detailed matters are referred to but these are largely matters of conjecture and speculation. 13 The respondents also submit that damages are an adequate remedy. In my view, they are not. If the respondents proceed to enter fresh licence agreements or otherwise dispose of the intellectual property rights in the product, the applicants lose invested time and funds, in addition to any future benefits under the agreement. Such losses are not compensable by damages alone. 14 It is also submitted that the applicants are in breach of the licence agreement with the consequence that they are disentitled to equitable relief. However, the occurrence, nature and circumstances surrounding the alleged breaches are in dispute and the resolution of this issue can only properly take place after a full hearing. This case bears no resemblance to the circumstances in Telstra Corporation Ltd v First Netcom Pty Ltd (1999) 78 FCR 132 where there had been a failure by Netcom to pay outstanding accounts. There are real factual and legal issues in the present case to be resolved on this contention having regard to the present state of the evidence. 15 The applicants have proffered undertakings as to damages. The respondents contend that the applicants have not demonstrated any ability to satisfy such undertakings if they are called into operation. On the material before me there appears to be force in this submission. However, counsel for the applicants indicated that if interlocutory relief were to be granted then funds could be obtained up to the extent of $100,000 which could be used as security to back the undertaking as to damages. 16 In these circumstances, if the applicants are prepared to give the usual undertaking as to damages and to back that undertaking with satisfactory security, in an amount of $50,000, I am satisfied that interlocutory relief should be granted. 17 I should add that there is also outstanding an application for security for costs which I have decided to deal with at a subsequent stage. In determining the adequacy of the undertaking as to damages on the application for interlocutory relief, I have had regard to the evidence filed in relation to security for costs. 18 Accordingly, on the giving of an undertaking as to damages by the applicants satisfactorily secured as to $50,000, I propose to grant relief restraining the respondents from taking any steps to dispose of, deal with, or assert control over the licensed product which is not consistent with the terms of the agreement until further order. The costs of this application should be costs in the cause. I direct the applicants to formulate Short Minutes to give effect to these reasons. I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Tamberlin. Associate: Dated: 15 September 1999 Counsel for the Applicant: D Studdy Solicitor for the Applicant: Goldrick Farrell Millan Counsel for the Respondent: C Hodgekiss and E K Glover Solicitor for the Respondent: A R Connolly & Co Date of Hearing: 10 September 1999 Date of Judgment: 15 September 1999