New South Wales Supreme Court CITATION : FRENCH V. CHAPPLE & ORS. [2000] NSWSC 1240 CURRENT JURISDICTION: Equity Division FILE NUMBER(S) : SC 4576/00 HEARING DATE(S) : 22 December 2000 JUDGMENT DATE : 22 December 2000 Andrew French - plaintiff Brett Anthony Chapple - 1st defendant Evalena Pty. Ltd. - 2nd defendant Yuki Ishida - 3rd defendant PARTIES : ASIC - 4th defendant Steve Nicols - 5th defendant Roger James Poignand - 6th defendant EHA Media Pty. Ltd. - 7th defendant Escalator Handrail Advertising International Pty. Ltd. - 8th defendant Escalator Handrail Advertising Austrlia & New Zealand Pty. Ltd. - 9th defendant JUDGMENT OF : Hodgson CJinEq at 1 COUNSEL : Mr. W. Marler with Ms. Morris for applicants Dubler for respondent SOLICITORS : Greg Judd & Associates for applicants The Law Partnership for respondent CATCHWORDS : PRACTICE - Injunctions - Ex parte application - Duty of candour - Whether plaintiff should disclose as to ability to honour undertaking as to damages. CASES CITED : Brink's Mat Ltd. v. Elcombe (1988) 1 WLR 1350 Lock International PLC v. Beswick (1989) 1 WLR 1279 DECISION : See end or judgment IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORAM: HODGSON, CJ in Eq. Thursday 21st December 2000 NO. 4576 OF 2000 FRENCH V. CHAPPLE & ORS. JUDGMENT 1 I am dealing with an amended notice of motion filed on behalf of the first, sixth, seventh and eighth defendants seeking principally the vacation of Orders 3 and 4 in the short minutes of orders made on 10 November 2000. The amended notice of motion proposes some substituted orders, and it also seeks provision of security in respect of the plaintiff's undertaking as to damages. 2 The first ground on which discharge of Orders 3 and 4 is sought is non-disclosure, or lack of candour, on the part of the plaintiff at the time of obtaining interlocutory relief. 3 Mr Marler submitted that the evidence showed that the plaintiff was not in a real sense able to honour his undertaking as to damages, and that accordingly the plaintiff's financial position should have been frankly disclosed at the time of the application for ex parte relief and subsequently interlocutory relief. Mr Marler was unable to refer to any authority directly on that point, but he did refer me to Brinks Mat Ltd. v. Elcombe (1998) 1 WLR 1350 at 1357 and Lock International PLC v. Beswick (1989) 1 WLR 1268 at 1279. 4 There might, in my opinion, be cases where a plaintiff seeking ex parte relief, or even defended interlocutory relief, should as a matter of candour disclose problems about the plaintiff's ability to honour an undertaking as to damages. However, I do not believe that this is something that needs to be done generally, and I am not satisfied that this is a case where disclosure by this plaintiff of his financial position was required as a matter of candour. It is true that the plaintiff has very substantial liabilities, and it is true that there is not satisfactory evidence as to the value of the plaintiff's assets, but the material presently available suggests that those assets are substantial and are significantly in excess of liabilities. 5 Mr Marler also submitted that, quite apart from the question of lack of candour, the ability of the plaintiff to satisfy an undertaking as to damages went heavily to the balance of convenience in this case, and also supported the claim for security for the undertaking as to damages. I will return to those matters. 6 In relation to lack of candour, Mr Marler also relied on non-disclosure of a document addressed to the plaintiff, concerning documents which the plaintiff signed and which the plaintiff now says he did not understand. Mr Marler complains that, not only did the plaintiff not disclose that letter but also, having been notified that the defendant was relying on the letter, the plaintiff has provided no explanation of why this letter, bearing the plaintiff's signature, was not disclosed at the time of the interlocutory application. 7 In a case involving the complexity of this case, I do not think the failure to refer to this letter, and the subsequent failure to say anything when the letter was put into evidence by the other party, supports an inference that there was a lack of candour which would justify immediate discharge of the injunctions. 8 On the question of balance of convenience, Mr Marler submitted that the balance of convenience strongly favoured his clients being able to advance dealings with the subject patents, and that the plaintiff would not be harmed in any real sense. He submitted that the defendants' prima facie position was strong. He submitted that the plaintiff had not acted consistently with being the beneficiary of interlocutory relief, being guilty of delays in complying with orders for pleading, an affidavit in reply, and also in production of documents. 9 Mr Dubler for the plaintiff submitted that the plaintiff had an extremely strong case in relation to the setting aside of a sale involving the patents by the eighth defendant to the seventh defendant. He submitted that the plaintiff had an extremely strong case to the effect that the first defendant as chargee or mortgagee was not entitled to exercise the rights under the charge, because he was not entitled to demand repayment of the loan. In that regard he referred me to clause 16 of the loan agreement dated 20 June 1996, and clause 5 of the deed of charge dated 20 June 1996. 10 He submitted that the total assets involved, worth very many millions of dollars, were the result of the plaintiff's invention and many years of work involving the plaintiff, and that the mortgage merely secured around $200,000, which on the first defendant's case was a loan by the first and third defendants. He submitted that to permit dealings with the patents and the associated property could cause prejudice to the plaintiff. If the patents were transferred to the seventh defendant there could be great problems in undoing that, especially if the transfers took place in foreign countries. If negotiations were carried out by the defendants, and the plaintiff ultimately succeeded in the proceedings, then the result would be confusion and damage to the commercialisation of the patents. 11 Mr Dubler also submitted that the existing orders had been extended by consent on four occasions. 12 Dealing first with the last matter, it does seem clear that the consent was on the basis that variations to the orders were being negotiated and, as I understand it, this is the first time there has been an opportunity for a serious contest as to the form of the orders as they are to remain until the hearing of the case. In those circumstances I do not think there is very much weight to be given to that particular point of Mr Dubler. 13 In my opinion there is a strong case that the transfer to the seventh defendant will not be treated as giving the seventh defendant an absolute beneficial interest in the relevant property. Even though a valuation of the property was obtained, and the consideration was greater than the valuation, it seems to me that the transaction can be seen as being in substance a transfer in which a mortgagee was acting on both sides of the transaction, and there is a reasonably strong case that the seventh defendant would not be treated as having a beneficial interest in the property freed from the equity of redemption. 14 On the question of whether the first defendant, or alternatively the first and third defendant as mortgagees, were entitled to exercise remedies as mortgagees, there is some force in Mr Dubler's submission; but it seems to me that under clause 4 of the deed of charge there are a number of clauses in respect of which a breach by the mortgagor could be alleged which would justify the mortgagee exercising its remedies. If the mortgagee is entitled to exercise remedies, then its powers would extend to carrying on the business in question and entering into transactions appropriate to yield funds from which the mortgage debt could be paid. It may be the case that the mortgage debt is small in comparison to the total value of the property, but unless and until the mortgage is repaid it seems to me the mortgagee would, if there has been a default, have that right. 15 The other matter on which the plaintiff relies is an allegation that he did not understand that a mortgage or charge was given at all. At present, while I could not say there is no question to be tried on that matter, there does not appear to be a particularly strong case for the plaintiff on that point. 16 Turning to the question of balance of convenience, it does seem to me to be in the interest of both parties that work continue to commercialise these patents. It seems that it is not practicable for both parties to have a hand in that process at this stage, because of the degree of the disputes between them. At present, it seems to me that the balance would favour, in substance, the first defendant and, if this is still relevant, the third defendant, as mortgagees continuing to purport to exercise the rights of mortgagees, and in that capacity continue with actions to commercialise the patents, so long as this does not bring about any result which could damage the property interests of the plaintiff, if the plaintiff is ultimately successful in the proceedings. 17 At present I am not persuaded that the relevant defendants should be able to complete the registration of the patents in the name of the seventh defendant. As submitted by Mr Dubler, I think that could bring about a situation which could be difficult to reverse, particularly in relation to foreign patents. However, I think the relevant defendant should be at liberty to negotiate and enter into licences for the use of the patents, provided they are granted to independent third parties on an arm's length basis. 18 As I see it, the first and third defendants, substantially as mortgagees in possession, would have authority to enter into such licences. I think it appropriate that the relevant defendants be at liberty to negotiate funding arrangements, but not enter into any binding transaction without the consent of the plaintiff, or at least without giving at least some notice to the plaintiff. 19 As a result of discussion which I have had with Counsel, I propose to not vacate Orders 3 and 4 but make them subject to certain things that the relevant defendants will be able to do, and also to make it clear that, where order 3(c) talks about dealing with the patents, that is only dealing with the title to patents, not demonstrating the patents or displaying them or anything of that nature - plainly that would not be intended to be restrained by Order 3(c). 20 In my opinion, if those orders are qualified in the way I have indicated, the security for the undertaking as to damages which is sought would not be required. I think there would be an adequate balance of convenience just maintaining the undertaking for damages without security. 21 There was some question of whether there should be an undertaking by the plaintiff or an order against the plaintiff from interfering with the operations of the defendants which will be permitted by the orders I propose. I have made it clear in my judgment that in my opinion the commercialisation of the patents at the moment should be in the hands of the relevant defendants, and the plaintiff should not interfere with this. However, beyond that indication, I do not propose to obtain any undertaking or to impose any injunction on the plaintiff. There will be liberty to apply to the court, and that could be exercised if the defendants take the view that the plaintiff is interfering in their efforts to advance the commercialisation of the patents. 22 I will make an order that costs be costs in the proceedings, but I will give leave to either party to apply to vary that costs order if they feel strongly about it. 23 I vary Order 3(c) of the orders made on 10 November 2000 by inserting after the words "deal with" the words "the title to". 24 I order that the first and seventh defendants by themselves or their servants or their agents be at liberty to negotiate and, after giving seven days notice to the plaintiff, enter into licences for the use of the patents, provided those licences are licences granted to independent third parties and are all negotiated on an arm's length basis. 25 I order that the first and seventh defendants by themselves, their servants or their agents be at liberty to negotiate funding arrangements of the type referred to in the affidavit of Brett Anthony Chapple sworn on 17 November 2000, but not to enter into any binding transaction of that kind. 26 I order that actions taken pursuant to that liberty will not be a breach of Orders 3 and 4 made on 10 November 2000, and also that any action taken with the prior written consent of the plaintiff will not be a breach of those orders. 27 I order that the costs of this application be costs in the proceedings, but I reserve liberty to any party to seek a revision of that costs order if they are so advised. 28 Liberty to apply will now be on two days notice. ********* Last Modified: 12/29/2000 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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