FEDERAL COURT OF AUSTRALIA National Institute for Truth Verification v Computer Voice Stress Analyser Pty Ltd [2007] FCA 736 PRACTICE AND PROCEDURE – security for costs – foreign corporation – no evidence of assets in jurisdiction – application for security for costs – delay in bringing application – no unfair prejudice – protracted mediation – security for costs awarded Trade Practices Act 1974 (Cth) s 52(1) Federal Court of Australia Act 1976 (Cth) NATIONAL INSTITUTE FOR TRUTH VERIFICATION v COMPUTER VOICE STRESS ANALYSER PTY LTD (ACN 091 710 842), INTERNATIONAL TRUTH VERIFICATION SYSTEMS PTY LTD (ACN 092 923 610), METRO SECURITY SERVICES PTY LTD (ACN 091 710 833), RYAN WORLDWIDE PRODUCTIONS PTY LTD (ACN 103 762 796), SECUREFORCE INTERNATIONAL PTY LTD (ACN 009 266 675) AND JOHN WAYNE RYAN WAD 231 OF 2005 FRENCH J 15 MAY 2007 PERTH IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY WAD 231 OF 2005 BETWEEN: NATIONAL INSTITUTE FOR TRUTH VERIFICATION Applicant AND: COMPUTER VOICE STRESS ANALYSER PTY LTD (ACN 091 710 842) First Respondent INTERNATIONAL TRUTH VERIFICATION SYSTEMS PTY LTD (ACN 092 923 610) Second Respondent METRO SECURITY SERVICES PTY LTD (ACN 091 710 833) Third Respondent RYAN WORLDWIDE PRODUCTIONS PTY LTD (ACN 103 762 796) Fourth Respondent SECUREFORCE INTERNATIONAL PTY LTD (ACN 009 266 675) Fifth Respondent JOHN WAYNE RYAN Sixth Respondent JUDGE: FRENCH J DATE OF ORDER: 15 MAY 2007 WHERE MADE: PERTH THE COURT ORDERS THAT: 1. The applicant do on or before 12 June 2007 provide security for the respondents' costs of the proceedings in the sum of $80,0000 by way of a bank guarantee to be lodged with the Court in a form acceptable to the Registrar or in such other form as may be agreed between the parties. 2. In the event that the security is not provided by 12 June 2007 in accordance with this Order the application is to be stayed on and from 13 June 2007. 3. The applicant pay the respondents' costs of the motion. 4. There is liberty to apply. 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 WAD 231 OF 2005 BETWEEN: NATIONAL INSTITUTE FOR TRUTH VERIFICATION Applicant AND: COMPUTER VOICE STRESS ANALYSER PTY LTD (ACN 091 710 842) First Respondent INTERNATIONAL TRUTH VERIFICATION SYSTEMS PTY LTD (ACN 092 923 610) Second Respondent METRO SECURITY SERVICES PTY LTD (ACN 091 710 833) Third Respondent RYAN WORLDWIDE PRODUCTIONS PTY LTD (ACN 103 762 796) Fourth Respondent SECUREFORCE INTERNATIONAL PTY LTD (ACN 009 266 675) Fifth Respondent JOHN WAYNE RYAN Sixth Respondent JUDGE: FRENCH J DATE: 15 MAY 2007 PLACE: PERTH REASONS FOR JUDGMENT ON MOTION FOR SECURITY FOR COSTS 1 These proceedings were commenced on 26 August 2005. A statement of claim was filed on 29 August 2005. The applicant, National Institute for Truth Verification, describes itself in the statement of claim as "… a body corporate with limited liability incorporated pursuant to the laws of Florida, a State of the United States of America". It conducts the business of designing, manufacturing and selling "truth verification instruments" including the "Computer Voice Stress Analyser" (CVSA) and in providing training and consulting services associated with its use. The companies which it sues are each incorporated in Western Australia. The sixth respondent, John Wayne Ryan, is a director of each of the first to fifth respondents and is said to have been knowingly concerned in relevant decisions made by them. 2 The applicant says it is the owner of copyright in a computer program (CVSA program) which enables a computer utilising it, to measure, analyse and record changes in the register of frequencies of human speech input fed into the computer as an aid to the assessment of the speaker's belief in the truth or falsity of his or her statement. Documents, referred to as CVSA Documents, and including designs, plans, specifications, training manuals and associated materials have been prepared in relation to the program. The applicant claims that the CVSA program and the CVSA Documents are each original literary works of which it is the author or in which it owns copyright. 3 The applicant says that it appointed the second respondent, International Truth Verification Systems Pty Ltd, in December 2002 as its agent in Australia for a period of four years with exclusive rights to sell the CVSA in Australia, New Zealand and New Guinea. It pleads various express terms of the Sales Agency Agreement. On 17 December 2002 the applicant granted the second respondent limited rights to use the CVSA program under a document entitled "End-User License Agreement for NITV Software". The applicant says that in the following year it granted to the second respondent the additional rights to act within Australia, New Zealand and New Guinea as an instructor in the use of the CVSA. 4 The applicant alleges that at some time between the execution of the Sales Agency Agreement and August 2004 the second and sixth respondents, without its permission, reproduced, decompiled and/or adapted the CVSA program or a substantial part of it in the course of creating an identical or substantially similar program for use as a truth verification instrument known as the "Global Voice Stress Analyser" (GVSA). It alleges reproduction, adaptation and sale of the GVSA by the second and sixth respondents and that the sixth respondent did these things in his own capacity and as director and agent of the first to fifth respondents. 5 The applicant says that the respondents have infringed its copyright in the CVSA program and the CVSA Documents. It also alleges, as against the second and sixth respondents, breaches of obligations of confidence imposed on them by the Sales Agency Agreement and, alternatively, in equity. The other respondents are said to have knowingly participated in, and aided and abetted, the second and sixth respondents' conduct. Precisely how they have done this does not emerge with clarity from the statement of claim. By their conduct in selling the GVSA and adapted versions of the CVSA Documents by means of internet websites and advertising in printed publications, the second and sixth respondents are said to have made representations that they were associated with, or had the sponsorship or approval of the applicant, that the GVSA was manufactured with the licence or other approval of the applicant and that the second and sixth respondents' businesses were the business of the applicant. They are also said to have represented that the second respondent or one of the other respondents owned the copyright or was otherwise authorised and entitled to use the copyright in the GVSA. Their conduct is said to have been misleading or deceptive or likely to mislead or deceive in contravention of s 52(1) of the Trade Practices Act 1974 (Cth) (TPA). The first, third, fourth and fifth respondents are said to have been accessorily involved in the contraventions of the TPA. The applicant claims to have suffered loss and damage by reason of the various infringements and contraventions. 6 On 1 September 2005 I made an Anton Piller order which included an undertaking by the applicant's solicitors that they would hold the sum of $50,000 in their trust account as security for the applicant's undertaking as to damages. 7 A motion for contempt for breach of the Anton Piller order was filed by the applicant on 21 September 2005 against the second and sixth respondents. Interlocutory directions were made in relation to the contempt motion and the filing of pleadings in the primary proceedings on 7 October 2005. Defences were filed in October 2005. 8 On 2 December 2005 directions were made relating to the provision of source codes to potential expert witnesses and for conferences of expert witnesses and associated orders. On 8 December 2005 directions were given relating to the use of expert evidence prepared in these proceedings, in civil proceedings in the United States. The matter was referred to mediation. 9 The mediation process continued through 2006. In October 2006 the matter came on for directions and was adjourned to November 2006 at which time the parties were to prepare programming orders to trial. A consent order was filed vacating the directions hearing of 2 November 2006 to 19 December 2006. The mediation process continued before a Registrar of the Court into February 2007. On 12 March 2007 I adjourned the directions hearing to 26 March 2007 and ordered the respondents to file and serve any motion for security for costs by 20 March 2007. I also foreshadowed again the need for programming orders to take the matter to trial. 10 A motion for security was filed by the respondents on 20 March 2007 and directions subsequently given for the filing of responsive material including affidavits and for judgment on the papers today. At this time the only material relating to the motion is the affidavit of the respondents' solicitor in support of it together with his outline of submissions. The applicant's solicitor wrote to the Court yesterday acknowledging that the applicant was to have filed any affidavit and submissions in opposition by 16 April 2007. In that letter the applicant's solicitors sought an extension of time for filing their responsive material. Part of the delay in finalising submissions and an affidavit related to difficulties obtaining instructions from attorneys in the United States of America who represent the applicant. The applicant's solicitor, however, acknowledged that most of the delay stemmed from a range of other commitments he had had since late March 2007. These were referred to in the letter. In my opinion, the applicant has had ample time to respond to the respondents' motion and I should proceed to deal forthwith with that motion. 11 The respondents' motion seeks security for costs in the sum of $179,077.12. Mr Mallon's affidavit of 20 March 2007 supports the motion by providing his own estimate of the costs. He has prepared a draft bill of costs which is annexed to his affidavit. Although headed "Estimated Future Costs" the draft bill appears to provide for items already done including the drafting and filing of the defence and costs associated with the mediation process. The estimate of costs up to and including first day of trial together with disbursements is $109.692.50. Trial costs involving the use of senior counsel are estimated at an additional $69,384.62. The estimated length of trial is seven days. The estimate does not appear inherently improbable and I accept it as a reasonable estimate of costs, albeit it does not appear to be limited to future costs. 12 According to the evidence of Mr Mallon, the solicitor for the respondents, he wrote to the applicant's solicitors on 14 March 2007 raising the respondents' concern that the applicant did not have any known assets within the jurisdiction. He did not receive any response to that letter. He has not discovered anything within the respondents' correspondence which would suggest that the applicant has any assets in Australia. 13 On 20 March 2007 Mr Mallon conducted a search for the applicant through Australian commercial business directories, Australian government business directories and the Australian trade mark register. There were no matches resulting from these searches to suggest that the applicant has any business in Australia. Mr Mallon is unaware of any evidence or matters which would suggest that the applicant has any assets within Australia. 14 In submissions in support of the motion for security, the respondents' solicitors observe that although the current proceedings were commenced late in 2005 the matter was referred to mediation by orders made on 8 December 2005 and the parties have effectively been in mediation since that time. The matter has not yet progressed very far in terms of procedural steps required to bring it to trial. Discovery has not yet occurred. The evidence is likely to be complex and voluminous. 15 In my opinion it is appropriate that security for costs be provided by the applicant. It has not answered the respondents' concerns in correspondence to it about its ability to meet costs orders against it in the event that it is unsuccessful in the proceedings. The nature of the pleadings indicate that the proceedings are likely to involve a degree of complexity, both as to the technical issues underlying the assertion of copyright and of infringement and as to the factual questions governing the relationship between the parties. 16 Orders requiring the provision of security for costs involve a balancing of the legitimate interests of the applicant, to pursue its claimed entitlement to remedies against wrongs allegedly done to it and the legitimate interests of the respondents that they not be exposed to irrecoverable loss by reason of proceedings which cause them to incur substantial expense but are ultimately unsuccessful against them. It is because the award of security involves a balancing of contending legitimate interests that the amount of the security to be provided is generally not the full amount of estimated costs. 17 In the present case there is nothing to indicate that the action is not brought in good faith. Nor is there any basis upon which the Court can, at this stage, make any judgment about the merits of the action although the grounds upon which causes of action are raised against the first, third, fourth and fifth respondents, do not appear with great clarity from the pleadings. It cannot be said that the action does not have reasonable prospects of success. That is to say, nothing before the Court indicates that the application is amenable to a strike out or summary challenge under s 31A of the Federal Court of Australia 1976 Act (Cth). It is relevant that the motion for security was filed nearly 19 months after proceedings were commenced. On the other hand, a substantial amount of that period has been spent in a protracted mediation process. There is, in my opinion, no unfair prejudice suffered by the applicant in making an order for security at this time. 18 There is nothing to suggest that the applicant is in a position of impecuniosity attributable to any conduct on the part of the respondents. Indeed it would seem inherently unlikely that such a contention could be advanced given that the causes of action are concerned with the conduct of the respondents in Australia, New Zealand and New Guinea. The applicant's principal market would appear to be in its home territory of the United States. 19 Nor does it appear that the applicant is likely to be incapable of continuing with the proceedings if an order for security is made. It has shown itself capable of providing security for the purposes of the Anton Piller orders. It has been able to instruct solicitors in Australia to conduct the proceedings on its behalf and presumably to meet their costs. 20 In all the circumstances I propose to order that the applicant provide security for the costs of the proceedings in the amount of $80,000. Conclusion 21 For the preceding reasons, the applicant will be ordered to provide security by way of bank guarantee or in some other form acceptable to the Registrar in the sum of $80,000 on or before 12 June 2007. If security has not been provided by that date, the proceedings will be thereafter stayed. The applicant will be required to pay the costs of this motion. I certify that the preceding twenty-two (22) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice French. Associate: Dated: 15 May 2007 Counsel for the Applicant: Mr T Coyle Solicitor for the Applicant: Lavan Legal Counsel for the Respondent: Mr PGS Mallon Solicitor for the Respondent: Mallon & Co Lawyers Pty Ltd Date of Written Submissions: 23 March 2007 and 14 May 2007 Date of Judgment: 15 May 2007