Affinity Computing Ltd v Independent Systems Integrators Pty Ltd [1999] NSWSC 1246

New South Wales Supreme Court CITATION : Affinity Computing Ltd v Independent Systems Integrators Pty Ltd [1999] NSWSC 1246 revised - 26/06/2000 CURRENT JURISDICTION : Equity FILE NUMBER(S) : 4854/99 HEARING DATE(S) : 13 and 14 December 1999 JUDGMENT DATE : 14 December 1999

Affinity Computing Ltd (P) PARTIES : Independent Systems Integrators Pty Ltd (D1) Long Grass Systems Pty Ltd (D2) JUDGMENT OF : Hamilton J

COUNSEL : D Francis, Solicitor (P) R Dalgleish (D1 & 2)) SOLICITORS : Watkins Tapsell (P) Hickson Wisewoulds (D1 & 2) CATCHWORDS : CORPORATIONS [188] - Receivers, manaagers and controllers - Appointment - By Court - Interlocutory application - Relevant considerations - Drastic consequences of appointment. Bond Brewing Holdings Limited v National Australia Bank Limited (1990) 169 CLR 271 CASES CITED : Global Funds Management (NSW) Limited v Burns Philip Trustee Co Limited (in prov liq) (1990) 3 ACSR 183 Tate v Barry (1927) 28 SR (NSW) 380 DECISION : Upon the defendant undertaking to the Court to give access to relevant accounting records to a supervising accountant application for appointment of interim receiver refused.

THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

HAMILTON J

TUESDAY, 14 DECEMBER 1999 4850/99 AFFINITY COMPUTING LIMITED v INDEPENDENT SYSTEMS INTEGRATORS PTY LIMITED & ANOR

JUDGMENT (on application for appointment of receiver)

HIS HONOUR: 1 In this matter the plaintiff was before the Court yesterday seeking ex parte relief by way of injunction and the appointment of a receiver. It alleges that it was a member of a partnership along with the two defendants in respect of the development and exploitation of the computer software known as 2BDB2, or, more accurately, certain development, enhancement and updates of that software, the copyright for the original software actually being vested in the Macquarie Bank Limited. 2 Throughout the time that the matter has been before me the first defendant has been represented by Mr Dalgleish of counsel. Initially, however, his appearance was in support of a motion brought under Pt 11 r 8 of the Rules on the basis that no appearance was entered. The two defendants are companies incorporated in Australia and have both been served in Australia with the plaintiff's summons. Mr Dalgleish comparatively early abandoned any suggestion that the Court did not have jurisdiction in the matter and rather indicated that he would move for relief under Pt 11 r 8(1)(h), under paragraph (h) of r 1, on the basis that this Court, albeit it had jurisdiction, was forum non conveniens. He still at that stage did not appear, for fear of some admission that would arise from an unconditional appearance. 3 The matter was stood over from yesterday to today and overnight Mr Dalgleish's solicitor received instructions also from the second defendant. Furthermore, during the course of an adjournment in the hearing today, Mr Dalgleish announced that his clients had abandoned the stance of not appearing and gave to the Court, on behalf of his instructing solicitor, an undertaking that an unconditional appearance would be filed for the defendants by tomorrow. The application, which up to that time had continued, not just technically, but, in reality, to be an ex parte application, thereupon became a contested application for interlocutory relief. 4 It seemed clear to me that, upon the material laid before the Court by Mr Francis, solicitor, who was appearing as counsel for the plaintiff, a sufficient case had been made out, bearing in mind the balance of convenience for injunctive relief to be granted restraining the alienation of any interest which the first defendant has in the software known as 2BDB2, and this was not seriously contested at any stage on behalf of the defendants, at least if the relief were to be granted only until February 2000. 5 Mr Francis also pressed for the appointment of a receiver, citing cases such Tate v Barry (1927) 28 SR (NSW) 380. Mr Dalgleish opposed the appointment of an interim receiver, on the basis of the commercial harm which it was likely to cause. Such harm has often been adverted to in the Courts. It was adverted to in Tate v Barry itself by Long Innes J and was also adverted to in the litigation in Bond Brewing Holdings Limited v National Australia Bank Limited (1990) 169 CLR 271 at 277. It was also adverted to in this Court by Rolfe J in Global Funds Management (NSW) Limited v Burns Philip Trustee Co Limited (in prov liq) (1990) 3 ACSR 183 at 187. 6 The undertaking first offered on behalf of the first defendant was not initially, in my view, ample enough to give adequate protection and receive serious consideration in view of the appointment of receiver. However, later in the day, the undertaking to the court proffered on behalf of the first defendant was amplified. The undertaking as finally offered was in the following form: "3 The first defendant undertakes to the Court that up to and including 17 February 2000 at the expense of the plaintiff Hugh Charles Thomas chartered accountant ("the accountant") will be given full access by the first defendant to the financial accounting and other records of the first defendant relating to the use and commercial exploitation of 2BDB2 for the purpose of producing an account of the profits and/or losses made by the first defendant in respect of 2BDB2 from 4 November 1998 until 13 January 2000 and shall serve a copy of those accounts on the solicitors for the plaintiff and for the defendants on 15 January 2000 with an update to 13 February 2000 to be served on 15 February 2000. Full disclosure of its records will be made by the first defendant to the accountant but the accounts provided by the accountant are not to disclose the name of the customers of the first defendant, nor any other confidential information which in the opinion of the accountant is commercially sensitive. The accountant is not to disclose to the solicitors for the plaintiff or any person on behalf of the plaintiff the identity of the said customers." The amplification included the identification of the relevant accountant as Hugh Charles Thomas, the "A" List liquidator nominated on the plaintiff's behalf as its desired receiver, rather than accountants associated with, or suggested by, the defendants, and in various other ways. 7 In my view, at the moment, the first defendant has a right under an agreement that it had with Macquarie Bank Limited dated 27 August 1999 to sell 2BDB2 by way of sublicensing agreements. The evidence does not show that any such agreement has been entered into as yet, but Mr Dalgleish has informed the Court that his clients intend to commence attempting to sell such sublicences in the United States of America during January 2000. In my view, it was appropriate, in addition to the undertaking by the first defendant not to dispose of its property in 2BDB2, to provide some arrangement to establish and supervise any income or profits that are made out of sublicensing arrangements. 8 The situation in this matter is still fluid and the litigation has not progressed very far, so that the contending cases of the parties as to the existence or non-existence and dissolution or non-dissolution of a partnership and the question of whether or not the plaintiff has any proprietary interest in 2BDB2 or not are not as yet entirely clear. Equally, it is not yet entirely clear whether the sale by way of sublicensing of 2BDB2 is going to be successful and whether or not substantial sums of money are going to come in as a result. 9 In those circumstances, I have thought it better to put in place a regime up to and including 17 February 2000 only, so that the parties may come back before the Court on that day with a clean slate as to what future interlocutory relief there ought to be. I have directed the proceedings to continue on pleadings, and the statement of claim and defence should by then be available to define more clearly the outlines of the combat. 10 One of the bases on which Mr Francis had urged upon the appointment of a receiver was that the receiver would prima facie be remunerated out of the income stream from the property rather than the expense of the supervisory arrangement being borne solely by the plaintiff. I am of the view that it is appropriate that it be borne by the plaintiff, as is implicit in the offer of the undertaking made by the defendant, up to February when the situation should be clearer, but I am not to be taken, by what I have done, as indicating that the plaintiff alone should necessarily bear the expense of any supervisory regime after that time. 11 Objection was taken on behalf of the defendants to there being any form of restraint on the ground that the plaintiff is a United Kingdom company, with no apparent substance either in Australia or in the UK. That situation was covered by the willingness of Mr and Mrs McLennan, the principals of the plaintiff company, to give personally the undertaking as to damages to support the restraints that have now been put in place. 12 I have indicated that, provided the first defendant was prepared to give to the Court undertaking (3) as set out in [6], I should refuse to appoint a receiver at this stage. That undertaking was duly given to the Court by counsel for the first defendant. Now that that undertaking and the undertaking as to damages have been given, I make orders in accordance with the Short Minutes initialled by me and placed with the papers. …oOo…