FEDERAL COURT OF AUSTRALIA Quanta Software International Pty Ltd v Quanta Systems Ltd [2003] FCA 1007 QUANTA SOFTWARE INTERNATIONAL PTY LTD v QUANTA SYSTEMS LTD N 1193 OF 2003 WHITLAM J 3 SEPTEMBER 2003 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 1193 OF 2003 BETWEEN: QUANTA SOFTWARE INTERNATIONAL PTY LTD APPLICANT AND: QUANTA SYSTEMS LTD RESPONDENT JUDGE: WHITLAM J DATE OF ORDER: 3 SEPTEMBER 2003 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The orders made on 27 August 2003 are discharged forthwith. 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 1193 OF 2003 BETWEEN: QUANTA SOFTWARE INTERNATIONAL PTY LTD APPLICANT AND: QUANTA SYSTEMS LTD RESPONDENT JUDGE: WHITLAM J DATE: 3 SEPTEMBER 2003 PLACE: SYDNEY REASONS FOR JUDGMENT 1 This proceeding was commenced on 27 August 2003. It is an action for infringement of copyright in a computer software system known as "EUNICE". The applicant claims an exclusive licence to distribute that system in Australia pursuant to an agreement dated 2 February 1991 with the respondent, the owner of the copyright in the system. 2 On 27 August 2003 the applicant sought urgent relief on an ex parte basis, and the duty Judge granted injunctions until further order restraining the respondent from reproducing, selling or distributing the EUNICE software. His Honour stood the application over until today. The applicant now seeks a continuation of the orders made ex parte. The respondent opposes continuation of those orders. The respondent also applies to have those orders discharged on the basis of the well known principles stated by Isaacs J in Thomas A. Edison Limited v Bullock (1912) 15 CLR 679 at 681-682. 3 The evidence relied on at the ex parte hearing consisted of affidavits made by Erroll Williams, Bruce Davies and Stephen Kerrigan. Broadly speaking, those affidavits set out, in a rather sketchy fashion, the basis of a claim resting primarily on what was said and done by Grant Lester, an employee of the respondent. Mr Davies annexed to his affidavit a series of emails commencing in June 2003 and running through to August 2003 from Mr Lester addressed, first, to Tim McMahon and, then to himself. Mr Davies is the Chief Executive Officer of a company called Trilogy CSI Pty Ltd ("Trilogy CSI") which he says acts as the agent for the applicant in the marketing, billing and support of EUNICE software. It is not necessary to describe the contents of those emails except to say that they indicate that Mr Lester was seeking to have Trilogy CSI distribute the EUNICE software in Australia or at least an adaptation of it. In a letter dated 7 August 2003 which is annexed to Mr Williams' affidavit, Mr Lester proposed that Trilogy CSI take up the role of reseller of the EUNICE software in Australia. A key paragraph in that letter from Mr Lester and one singled out by Mr Williams in his affidavit is as follows: "Errol Williams had also raised the matter of a marketing rights agreement at our meeting. Quanta Systems understand that the original marketing rights agreement for the Eunice product is no longer in effect. This agreement was extinguished when the Trilogy Australia Group and Trilogy NZ Group executed agreements extinguishing all agreements and arrangements between Trilogy Australia, Trilogy NZ and all related parties in 1993. This has previously been confirmed to Quanta Systems by Grant Friis." 4 In light of that statement, Mr Williams annexed to his affidavit not just the licence agreement entered into in 1991 between the applicant and the respondent but also a copy of a document entitled "Settlement Deed" dated 24 December 1993. Mr Williams said in the same paragraph in which he annexed that document: "I say that there is nothing in that Deed to support the allegation made by Lester that the Applicant's licence in the EUNICE software has been extinguished, and say also that Grant Friis, a former general manager of the Applicant, died in March 2000 and neitherhad the authority to agree to the extinguishment of the said Deed, nor from my many years of experience of having Friis report to me, would he have purported to have done so without first seeking my approval which he did not do." 5 The reference to the "Deed" in that paragraph should plainly be to the licence agreement, and I think it can be read in that way. (I interpolate to say that it is not completely clear what Mr Williams' role in the scheme of things was or is. Mr Williams purports to be a consultant to the applicant and also to be the representative in Australia of the applicant's owner. He also says that he is the representative in Australia of the owner of Trilogy CSI.) 6 Mr Williams, having annexed the copies of the licence agreement and the deed of settlement and having made the assertion about the effect of the deed, then moved on to the question of the ownership of the copyright in the software system. He referred to earlier proceedings in this Court before Wilcox J in which that topic had been agitated. It was agreed that the judgment in the proceedings to which reference was made is Quanta Software International Pty ltd v Computer Management Services Pty Ltd [2001] FCA 1459. Mr Williams said in his affidavit that the Court found that the respondent in that proceeding, Computer Management Services Pty Ltd ("CMS"), infringed the copyright of the applicant in the EUNICE software in similar circumstances to that which is presently alleged by the applicant against the respondent. 7 I have been handed a copy of the judgment of Wilcox J in that proceeding. The proceeding was an action between the present applicant and one of the EUNICE software dealers. One of the contested issues in that proceeding was whether the present respondent, which is a New Zealand company, was the owner of the copyright under New Zealand law. The applicant in that proceeding, who is also the applicant in the present proceeding, succeeded in establishing by way of admission that it was the owner of the copyright. The admission was made in clause 16.1 of an agreement made on 12 November 1992 between the applicant and CMS. Accordingly the issue of the ownership was not resolved other than by admission in those proceedings. It is not entirely clear why it should be that Mr Williams would have made any reference to that proceeding at all. 8 In any event, the evidence such as it is of infringement consists of Mr Williams' statement that Mr Lester, at a meeting on 30 July 2003, said that the software had been sold to a number of customers in Australia. Mr Kerrigan's affidavit does not take the matter much further except by way of bolstering the case that the software Mr Lester was selling or says he sold was plainly an adaptation of the original software system licensed to the applicant. 9 In support of the respondent's application today for discharge of the orders is an affidavit made by the respondent's solicitor, Jane Owen, sworn on 2 September 2003. Ms Owen in her affidavit states that she was instructed in the matter by New Zealand lawyers on 29 August 2003 and attaches copies of company searches made of the applicant. Those searches reveal that: · the applicant is an Australian proprietary company limited by shares; · as of 22 April 1994, a strike-off action was in progress against the applicant; · the applicant has one director being Stephen Roger Cable and that Mr Friis was a director of the applicant from 11 February 1991 to 12 January 2001; · the applicant has paid up issued share capital of $6; · of the six shares issued in the applicant four shares are beneficially held by a company called "Trilogy Corporation Pty Ltd", one is held by Michael Eric Harvey and the remaining share is held by Michael Creed. 10 Also attached to the affidavit of Ms Owen is a company search of Trilogy Corporation Pty Ltd ("Trilogy Corporation") which shows, amongst other things, that Mr Friis was also a director of that company from 14 July 1987 to 20 March 2000. Ms Owen says in her affidavit: "Assuming that the Applicant has given the usual undertakings as to damages, given that it has paid up share capital of only $6.00, I am instructed by the Respondent and do believe that the Respondent holds a real and grave concern that the Applicant will not be able to satisfy financially any demand made under such an undertaking to recover the Respondent's damages suffered in the event that the Applicant is ultimately unsuccessful in obtaining a permanent injunction in terms of [the injunctions already granted]." 11 Also tendered in support of the present application for discharge were copies of correspondence flowing between the applicant and the respondent. The first two letters are dated 27 May 1992 and 10 June 1992 respectively and relate to a dispute over maintenance payments pursuant to the licence agreement. The third letter, dated 1 December 1994, is possibly more significant. Mr Friis, writing as managing director of the applicant to the respondent, states that the applicant is not liable for any maintenance payments under the licence for two reasons, the second of which is as follows: "A settlement agreement was reached dated 24th December, 1993 which encompasses all associate and related companies of both organisations and as such, this would clearly come within the ambit of that agreement." For completeness I should add that the respondent also tendered a copy of a notice to produce served on the applicant and the material in answer to it. 12 Ms Baird, counsel for the respondent, stated that the bases on which the claim will be defended are that the licence was terminated in 1993 (or at the latest 1994) pursuant to the deed of settlement or, in the alternative, that the applicant is estopped in any event from relying on any such agreement. 13 The respondent's case for the discharge of the ex parte orders is that the applicant did not make full and frank disclosure when it obtained those orders in at least three respects: (i) by not bringing the Court's attention to correspondence which supports the respondent's contention that the exclusive copyright licence had been determined; (ii) by not disclosing whether or not the applicant had complied with obligations under that licence, that is, assuming on the contrary that the licence remained on foot; and (iii) by mischaracterizing the judgment of Wilcox J in the earlier proceedings. The respondent also relied on the applicant's failure to bring to the Court's attention the fact that the paid up capital of the applicant was $6. It is frankly acknowledged by the applicant that the undertaking as to damages given at the time of the making of the orders would be useless standing by itself. 14 At the hearing today the applicant read the affidavit of Stephen Cable, a director of the applicant and also an employee of Trilogy Corporation, the majority shareholder of the applicant. Annexed to Mr Cable's affidavit is a letter to the Court from Carlo Zaccarioto, the sole director of Trilogy Corporation, which states that Trilogy Corporation has unconditionally guaranteed the undertaking as to damages given by the applicant. Also annexed is a bank statement of Trilogy Corporation. 15 The duty that lies upon an applicant in making an ex parte application which, if granted, will have the effect of bringing to an end some commercial activity of the respondent is a very grave one. Much of what is put by way of argument by the respondent in relation to the effect of the deed of settlement may or may not be true. Nonetheless, it seems to me that the affidavit of Mr Williams and the material annexed to it represents so much as could be said about whether the deed of settlement determined the licence agreement. Nor do I think that the mischaracterization of the judgment of Wilcox J necessarily represents a breach of the obligation of disclosure upon the applicant. The significance placed on the proceedings before Wilcox J may have been misplaced, but ultimately it cannot be said that the applicant misled the Court or failed to bring to the Court's attention something which it was bound to do. 16 However, in my opinion the financial situation of the applicant was something which plainly should have been brought to the Court's attention. The respondent acknowledges this is some sense by its attempt to cobble together an arrangement to provide effective support for the undertaking as to damages. That arrangement has not been formally entered into yet. Even if it had been, that would not necessarily answer the objection taken to the failure to make such a disclosure when the ex parte orders were obtained. In the circumstances therefore, I am persuaded that the respondent is entitled to have the orders made on 27 August 2003 discharged forthwith. I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Whitlam J. Associate: Dated: 23 September 2003 Solicitor for the Applicant: Terence Lockyer Lee & Associates Counsel for the Respondent: J R Baird Solicitor for the Respondent: Griffith Hack Lawyers Date of Hearing: 3 September 2003 Date of Judgment: 3 September 2003