Re James Earl Winner and Donna C Winner v Ammar Holdings Pty Ltd; James Earl Winner and Donna C Winner [1992] FCA 149 (8 April 1992)

FEDERAL COURT OF AUSTRALIA

Re: JAMES EARL WINNER and DONNA C WINNER
And: AMMAR HOLDINGS PTY LTD; JAMES EARL WINNER and DONNA C WINNER
No. G847 of 1991
FED No. 249
Practice and Procedure - Contract

COURT

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Hill J.(1)

CATCHWORDS

Practice and Procedure - application for interlocutory injunction for infringement of patent - balance of convenience - relevance of undertaking to set aside profits - relevance of respondent's financial instability.

Contract - whether unilateral mistake in giving undertaking not to infringe patent.

Taylor v Johnson [1983] HCA 5; (1983) 151 CLR 422

NV Phillips Gloeilampenfabrieken v Ultralite International Pty Ltd [1991] FCA 346; (1991) AIPC 90-828

HEARING

SYDNEY
8:4:1992

Counsel and Solicitors D.J. Catterns and S.J. Goddard
for Applicants: instructed by Williams Niblett

Counsel and Solicitors J.J. Garnsey QC and R. McCormack

for Respondent: instructed by Parker and Parker

ORDER

1. The matter be stood over until a date to be set by agreement
between counsel.

2. The applicants bring in short minutes of order on that date
to give effect to the judgment of the court.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

DECISION

The applicants, Mr and Mrs Winner, are the registered proprietors of an Australian letters patent number 599863 for an invention entitled "steering wheel lock". The steering lock manufactured in accordance with the patent is known as the "Super Club" steering wheel lock.

2. The respondent, Ammar Holdings Pty Limited, distributes and sells automobile steering locks known as the "Patriot" steering wheel lock. For the purposes of the interlocutory proceedings only, the respondent admits that the Patriot lock infringes the applicants' patent. However, the respondent claims that the applicants' patent is not valid.

3. The applicants seek, by way of interlocutory relief, an injunction restraining the respondent from importing, selling, offering for sale or distributing the Patriot steering wheel lock.

4. The feature, which is claimed to give the applicants' patent the character of originality and novelty, is the existence of ratchet teeth on what the patent refers to as "an elongated sleeve member" which telescopes into a "sleeve member" so that the steering wheel lock can be extended without the need of a key, thus enabling it to be easily put into the locked position, but cannot be telescoped or contracted back without being unlocked. As the patent specifications recite in a statement of background information, other steering wheel locks are not easily and conveniently mounted on a steering wheel. With these other locks it is necessary to use a key device, not only to contract the steering wheel lock but also to extend it into position.

5. In addition to the claim against the respondent for infringement, there is a further count in the applicants' amended statement of claim. It is alleged that, as a result of an exchange of correspondence between the solicitors for the parties on 30 July 1991 and 21 August 1991, an agreement was reached between the applicants and the respondent whereby the respondent undertook forthwith to cease all importation, distribution, offering for sale and sale of the Patriot device during the term of the Super Club patent. It is alleged that in breach of that agreement, the respondent has continued to import, distribute, offer for sale and sell Patriot steering wheel locks. The application for interlocutory relief, therefore, depends not only upon the claim for infringement but also upon the claim for breach of contract.

6. In its defence and cross-claim, the respondent admits the agreement reached between the parties but alleges that they entered into it in reliance upon an expressed or implied representation by the applicants that the Super Club patent was, at all material times, valid; that that representation was false and made by the applicants, or on their behalf, with the knowledge that there were substantial grounds upon which the validity of the Super Club patent could be challenged, and/or that the applicants were recklessly indifferent as to whether the Super Club patent was valid. It is also alleged that the applicants, in obtaining the grant of the Super Club patent, failed to disclose material matters going to the validity of the patent, to the Commissioner of Patents. It is said that in the result the agreement reached between the parties was void and unenforceable, and the respondent was entitled to rescind or avoid the obligations imposed upon it. In its defence, the respondent relies upon s.52 of the Trade Practices Act 1974, as well as the Fair Trading Act 1987 (NSW). The respondent also cross-claims for damages and seeks a declaration that the Super Club patent is invalid.

7. At the outset of the proceedings, counsel for the applicants frankly conceded that there were substantial issues to be tried going to the validity of the patent. The final hearing of that matter will require consideration in some detail of the prior art. Issues will arise, both as to novelty and obviousness, of the kind recently discussed by me in Flexello Castors and Wheels v Fallshaw Holdings Pty Limited (unreported, 18 December 1991), a case presently on appeal to the full court of this court. It is also alleged by the respondent, that there was prior use and prior disclosure, the latter by virtue, inter alia, of a display or demonstration of an automobile steering lock then known as "Lock 4" at the 1985 Sydney Motor Show, and anticipation, which was said to be admitted in the actual body of the application for patent itself, by reference to the prior art.

8. The evidence before me shows that the respondent clearly has an arguable case on the issue of validity, although, of course, at this stage I have not examined the voluminous literature to which reference is made by the respondent in its particulars of objection. The hearing of that matter might be expected to involve many days of expert evidence.

9. The applicants' claim is at its strongest in its reliance upon the agreement between the parties pleaded and it is to this that I now turn.

10. On 30 July 1991, Williams Niblett, solicitors for the applicants, wrote to the respondent company, claiming that the applicants were the registered proprietors of the patent. The letter alleged that the respondent had commenced manufacturing or having manufactured for it, importing and selling the Patriot steering lock, and that this constituted an infringement of the patent. The letter demanded written undertakings, inter alia, to cease manufacture, importation, distribution or sale of the Patriot steering lock. It threatened that in the event that the undertakings were not given, proceedings would be commenced.

11. Freehill Hollingdale and Page, solicitors then acting for the respondent, thereafter sought a copy of the relevant patent for perusal. That firm requested that proceedings not be commenced until sufficient time had elapsed to enable the terms of the patent to be discussed. Thereafter, it seems that Freehill Hollingdale and Page investigated the question of the patent, at least to some extent, and gave advice to the respondent. That advice was that the patent was valid. Some advice was also sought, as will be seen, from a patent attorney.

12. There were apparently telephone conversations between the solicitors for the parties. The substance of those conversations appears in a fax from Williams Niblett to Freehill Hollingdale and Page dated 20 August 1991. Marked, "Without Prejudice", the fax read as follows:

"I refer to our telephone conversation last
night.
I confirm that your client is proposing that the
dispute be settled on the basis of the following
undertaking effective immediately:
That your client will forthwith, by
itself, its servants and agents and any
associate (as that term is defined in the
Corporations Act 1989) cease all further
manufacture, importation, distribution,
offering for sale or sale of the Patriot
motor vehicle steering wheel lock
(referred to in our letter dated 30 July
1991) during the term of Australian Patent
No 599863.
We are currently obtaining instructions from our
client in connection with the proposed
settlement and hope to be in a position to
contact you again in the near future."

13. On the next day, Williams Niblett faxed again to Freehill Hollingdale and Page the following message:

"I have been instructed by my clients to accept
the undertaking referred to in our fax dated 20
August 1991 in settlement of the complaint the
subject of our letter dated 30 July 1991 to your
client."

14. It is clear that by 21 August 1991, there was a binding agreement entered into between the parties. Indeed, that there was an agreement entered into is admitted by the respondent.

15. On 30 August 1991, Williams Niblett sent the following fax to Freehill Hollingdale and Page, arising out of a telephone discussion, apparently on 27 August 1991:

"We refer to the writer's telephone conversation
with you on 27 August 1991.
We confirm that your client is being shipped
another container-load of the Patriot motor
vehicle steering wheel lock (approximately 2,500
units) by the manufacturer in Taiwan.
In the absence of receiving further word from
you, we have sought our clients' instructions.
We are instructed that, in light of the
undertaking already given by your client, the
steering wheel locks in question should
immediately be shipped out of the country by
your client, and should not be distributed,
offered for sale or sold in Australia.
Please immediately confirm that your client will
comply with its prior undertaking in this
regard."

16. Freehill Hollingdale and Page, on 3 September 1991, sent a "Without Prejudice" letter by facsimile referring to the previous facsimile transmission and subsequent discussions. It said:

"We confirm our instructions that our client has
been informed that a container-load of the
relevant steering wheel locks has been sent, by
our client's Taiwanese agents to our client.
Naturally, in light of our client's undertaking,
our client will not import these products
without your client's permission.
The container-load contains 2,660 items. The
cost to our client of these items is $22.00 each
and it seeks to sell them in Australia for
between $26.00 - $29.00.
Our client is willing to offer a royalty of
$1.00 per unit which represents between 20-25%
of our client's profit.
Please let us have your urgent instructions."

17. On 9 September 1991, Williams Niblett sent a fax to Freehill Hollingdale and Page, also marked "Without Prejudice", advising them that its clients were not agreeable to the licence proposed in the fax and insisting upon compliance with the existing undertaking. The firm sought confirmation that the clients of Freehill Hollingdale and Page would comply with the undertaking, and that the container-load of the products in question would not be imported into Australia.

18. No response was forthcoming to that facsimile, nor was it followed up by the solicitors for the applicants.

19. The Patriot lock is manufactured in Taiwan by a company called Glorious and Great Enterprise Co Limited of Taiwan. The respondent first learned of the existence of the product through an advertisement in approximately mid-December 1990. It reached an arrangement with the Taiwanese company on 28 January 1991, to import the lock into Australia and distribute it. That arrangement took the form of a distributorship agreement, imposing, inter alia, an obligation upon the respondent to sell 70,000 Patriot locks in a year. The respondent believed that the Patriot lock was protected in Australia by both patent and design registrations in the name of a Mr Wang, believed to be a director of the Taiwanese company. There is reference on the packaging of the Patriot lock to patent and design protection and indeed Mr Wang appears to be the registered proprietor of an Australian petty patent number 609372 as well as the proprietor of Australian registered design number 110200. The existence of a patent is referred to in the distributorship agreement entered into between the respondent and the Taiwanese company.

20. Following receipt of the demand from Williams Niblett of 30 July 1991, Mr Rosenberg, a director of the respondent, caused inquiries to be made in Taiwan on the question of whether the applicants had a lawful right to restrain the respondent from dealing in the Patriot lock. Mr Rosenberg says that between that date and 21 August 1991 he was unable to obtain an answer to his enquiries. He was told by Mr Wang that Mr Wang and the Taiwanese company had instructed a patent attorney in Perth to examine the issue, but that their advice was not concluded or available. He was aware of other action that had been taken by the applicants against other importer/distributors and believed, so he said, that the applicants' patent was a good one. Although Mr Rosenberg says that his belief was based on the assertions in the applicants' letter of 30 July 1991, it became clear in oral evidence that that belief either came directly from or was certainly considerably bolstered by the advice obtained from Freehill Hollingdale and Page that the applicants' patent was valid.

21. Mr Rosenberg's enquiries continued after the agreement was reached in August 1991. The ultimate advice he received led Mr Rosenberg to the view that there was a significant body of evidence pointing to the invalidity of the applicants' patent.

22. The respondent, having imported the container-load of steering wheel locks into Australia, proceeded to sell them. It did not advise the applicants or their solicitors.

23. Not only did the respondent sell that initial container-load, it then ordered more. An order was placed on or about 20 November 1991 for a container-load of a heavy-duty version of the Patriot lock, marketed under the name Super Patriot, there being 2,940 locks in that container.

24. On 16 December 1991, Williams Niblett wrote to the respondent advising that they had recently become aware that it had recommenced importing, distributing, and selling the Patriot motor vehicle steering lock. That firm alleged that this was a blatant breach of the previous agreement, as well as infringing the applicants' patent, and demanded that the original undertakings be honoured. No reply being apparently received, the present proceedings commenced on 24 December 1991.

25. On 1 January 1992, Sperling Enterprises Pty Limited was appointed the distributor in Australia of the applicants' steering lock in place of a former distributor. There is no evidence before the court as to the reasons for the change of distributorship. It is, of course, possible that the reason why nothing happened between September and December 1991 on the part of the applicants was to be found in the circumstance that a new distributor was being appointed.

26. There is no dispute between the parties as to the appropriate test to be applied in determining whether interlocutory injunctive relief should be granted. The applicants must show that there is an arguable issue to be tried and that the balance of convenience favours the grant of the injunction. As has often been said, these two matters are not independent of each other and the stronger the applicants' case on the merits, the less they may need to show in order to succeed on the issue of the balance of convenience. Equally, the stronger the respondent's case on the merits, the more the applicants may need to show that the balance of convenience favours the grant of the injunction. In the end, however, the court seeks to do justice as between the parties pending the final determination of the proceedings.

27. The applicants' case in chief on the merits is strong. There is an admitted agreement reached in settlement of threatened litigation between the parties that the respondent would not do the very act which it now admits it has done. However, the respondent, as already indicated, claims that that contract should be set aside or was otherwise invalidated.

28. The respondent's reliance upon the Trade Practices Act or the Fair Trading Act will require it to show at the hearing that there was misleading conduct on the part of the applicants in trade or commerce consisting of a misrepresentation made by the applicants as to the validity of the patent and reliance by the respondent on that misrepresentation.

29. It is obvious from the terms of the correspondence that there was no direct representation of the validity of the patent. There was, of course, a representation that there was a patent registered and that that patent had been infringed. No doubt the applicants will argue that at best the correspondence represents a statement of opinion and, provided that opinion was honestly held and was reasonably able to be held, there could be no misleading or deceptive conduct. But even assuming that there were a misrepresentation spelled out of the correspondence, it would be necessary for the respondent to show that it relied upon that misrepresentation. That is an arguable issue and it is inappropriate for me to pass upon it in interlocutory proceedings. Suffice it to say, however, that the respondent will have considerable difficulty in showing the necessary reliance given that it took independent advice from its solicitors and that that advice was that the patent was valid.

30. The respondent put its case additionally upon the grounds that the contract was infected by unilateral mistake. The respondent relies upon the decision of the High Court in Taylor v Johnson [1983] HCA 5; (1983) 151 CLR 422. In that case, a written contract provided for the sale of two adjoining parcels of land, each of about 5 acres, for a total price of $15,000. The vendor, at the time she executed the contract, believed that it provided for a price of $15,000 per acre. The purchasers sought an order for specific performance which the vendor resisted. The proposition of law invoked by the High Court to resolve the dispute between the parties was stated in the joint judgment of Mason A.C.J, Murphy and Deane JJ. (at 435) in the following terms:

"It is that a party who has entered into a
written contract under a serious mistake about
its contents in relation to a fundamental term
will be entitled in equity to an order
rescinding the contract if the other party is
aware that circumstances exist which indicate
that the first party is entering the contract
under some serious mistake or misapprehension
about either the content or subject matter of
that term and deliberately sets out to ensure
that the first party does not become aware of
the existence of his mistake or
misapprehension."

31. On the facts of that case, the proper inference to be drawn from the evidence was that the purchaser believed that the vendor was under a serious mistake or misapprehension about the terms or the subject matter of the transaction and deliberately set out to ensure that the vendor did not become aware that she was being induced to enter into the contract by some material mistake or misapprehension as to its terms or subject matter.

32. In the course of the judgment, their Honours referred to the law in the United States and Canada where the rule is that relief from contractual obligations on the ground of unilateral mistake will be granted where the enforcement of the contract would be unconscionable. The United States and Canadian position as stated is wider than the actual proposition of law accepted by the High Court.

33. No doubt the respondent might have sought to make out a case based on estoppel, at the heart of which lies the concept of unconscionable conduct, (cf The Commonwealth v Verwayen (1990) 170 CLR 394), but the respondent does not seek to rely on that doctrine here.

34. There will, no doubt, be an issue to be determined at the hearing as to whether the facts are such that the applicants were aware that the respondent was entering into the settlement agreement under a mistake about the validity of the patents, that being alleged to be part of the content or subject matter of the term of the contract between them, and deliberately set out to ensure that the respondent did not become aware of the existence of its mistake or its fundamental misapprehension. On the facts as presently before me, it is sufficient to say that there is no evidence that supports such a suggestion at all. All that the respondent can point to are differences between the United States patent application and the Australian patent application of the applicants, differences which the respondent asserts suggest fraud. There was some expert evidence as to the significance of these differences. Suffice it to say here, that fraud must be proved and that will ultimately be an issue for the hearing. However, as pointed out by counsel for the applicants, the patent law in the United States and Australia differs, and there may well be explanations for the differences between the form the patent applications took in each of the two countries which explain the differences in them without the need to infer fraud. It is also not clear to me that the validity of the patent was a matter that was at the heart of the contract between the parties.

35. As I see the matter at the present interlocutory stage, however, the case of the applicants is very strong and the defence of the respondent rests really on an assertion which would need to be proved by evidence, which assertion seems rather difficult to bring within the scope of a commercial settlement of a claim for patent infringement where each of the parties is separately advised by solicitors. It obviously is not sufficient for the respondent to say that it was under a mistake as to the validity of the patent without more. But there is not a skerrick of evidence before me to suggest that the applicants deliberately engaged in a course of conduct designed to inhibit the respondent's discovery that the patent might be invalid.

36. I turn now to deal with the balance of convenience, which is the real issue before me.

37. The applicants, being non-residents, have offered to provide security in an acceptable form for their undertaking as to damages, limited to the sum of $20,000. Counsel for the applicants indicated, however, that while he had no instructions to agree to security for a higher amount, he would not say anything in opposition to an order making the grant of an injunction conditional upon security of an amount approximately equal to the profit margin of the respondent on four shipments, to which I will shortly refer. The figures upon which the calculation of profit margin were based are confidential and accordingly I will not in this judgment refer to the result of the calculations. Suffice it to say, that the amount for security calculated on that basis would be somewhat greater than that which was offered.

38. The evidence disclosed that since the date of the commencement of the present proceedings, the respondent has ordered four further container-loads of locks. If an injunction were to be granted, the respondent would be unable to complete the sale of these items and would clearly enough suffer damage which, if the security for the undertakings as to damages were inadequate, the respondent would have difficulty recouping, given that the applicants reside outside the jurisdiction. I should say to some extent that the respondent is the author of its own misfortune in that it imported the containers in question after the present proceedings had commenced and with knowledge that interlocutory relief was sought by the applicants.

39. The Patriot product is but one of a number of products which are marketed or distributed by the respondent. It is, the parties agree, a good seller. In correspondence the solicitors for the respondent estimated that it accounted for a figure which is a quite considerable percentage of the respondent's business. The respondent company is, as the evidence discloses, a relatively young company, and there is no doubt that an injunction restraining the sale of the Patriot lock would cause financial difficulty to it. The parties estimate that it could be upwards of 12 months before the case would be ready for trial, given the large amount of evidence of prior art and evidence of experts thereon.

40. The evidence discloses that as at 30 June 1991, the respondent had a deficiency of assets of $17,674. It had total assets of $1,520,986, most of which was represented by inventories or receivables and only $163,923 of which was represented by investments or plant. It had creditors, including provisions, of $1,459,321 shown as current liabilities, and non-current liabilities of $79,339. It might be mentioned that the deficiency of assets as at 30 June 1990 was $15,936.

41. Gross sales of the respondent, in fact, were lower in the fiscal year 1991 than were recorded in the fiscal year 1990, although as cost of sales had apparently reduced, the profit from sales had, accordingly, increased. There was a small trading profit ultimately realised in the 1991 year of $8,247 and the operating loss in that year was a result of an extraordinary item being an adjustment for prior years on capitalisation of leased assets.

42. Mr Rosenberg has given evidence of his belief that provided no injunction were granted, the respondent would be in a trading position to meet any order for damages relating to the proceeds of sale of Patriot and Super Patriot locks. The evidence before me does not do much to support that belief.

43. The respondent has undertaken to keep proper records of all sales and also undertaken to pay a sum of US$3.00 for each Patriot and Super Patriot lock it now sells, into an interest-bearing account in the joint names of the solicitors of the parties, pending a determination of the proceedings. That figure is somewhat less than the figure which may be derived from confidential material tendered before me of the profits derived, or expected to be derived, by the applicants from the sale of Super Club products. It is approximately the profit margin derived by the respondent at current pricing based on an estimate taking into account overhead expenses. When pressed, the respondent offered to pay a higher figure pointing out that so to do could jeopardise the respondent's financial position. For this reason I do not think I should accept the offer.

44. These offers were prompted by the attitude taken by Wilcox J in NV Phillips Gloeilampenfabrieken and Anor v Ultralite International Pty Limited [1991] FCA 346; (1991) AIPC 90-828, a case upon which the respondent heavily relied. That case also concerned an alleged patent infringement in circumstances where a serious question arose as to the validity of the patent. It did not have the feature, present in this case, of an earlier settlement and undertaking not to thereafter sell. I was taken by the parties to an examination of the evidence as found by Wilcox J in that case, and through a comparison with the evidence in the present case. I find that comparison not particularly helpful as ultimately the question in granting interlocutory relief is how to do justice between the parties in the circumstances of a particular case. It is difficult to extrapolate from the facts of one case to the facts of another in determining where the justice lies.

45. However, Wilcox J formed the view in the case before him that it would not be a correct exercise of his discretion to restrain the sale of the allegedly infringing product. He did so largely on the basis that an interlocutory order, if made, would have the effect of putting the respondent out of business. It is plain that his Honour was of the view that the validity of the patent raised a very serious question. His Honour was of the view, in the circumstances, that an interlocutory injunction was not necessary to safeguard the applicant's position and accepted an undertaking that an amount of $1.00 per lamp be set aside on all sales prior to the ultimate determination of the matter. That was a figure that was slightly higher than the profit currently being made by the respondent, although there was no guarantee that it would cover a damages claim should such a claim be ultimately pressed.

46. The present is not a case where an injunction will necessarily put the respondent out of business, although it is clear that an injunction will have a serious impact upon the respondent's business. In this respect, I take into account the following matters which appear from Mr Rosenberg's affidavit evidence, some of which were admitted as submission only rather than as evidence of fact.

47. The sales revenue of the respondent is significant. It is set out in a confidential exhibit PR12 to which I refer, and there is no doubt that if permitted to continue, sales of the Patriot product will represent a significant proportion of monthly sales made by the respondent.

48. Mr Rosenberg deposes that it is the respondent's intention to expand sales of the Patriot steering lock and increase the respondent's customer base. He estimates that retail sales, if made through major department stores, could increase five fold the current sales of the product. He says that an injunction would not only prevent his making the sales currently projected, but also future sales would be lost until the final determination of the proceedings and judgment in them. He believes that there will be an adverse effect on relations between the respondent and its customers which could have a long-term effect on the company. He points to a $500 warranty offer that is made by the respondent to customers in the event that the customer's car is stolen while fitted with a Patriot lock. He is concerned that consumers may be led to question the validity of that warranty if there is difficulty in selling the Patriot lock by reason of a court order. He points to damage which he says would be serious and irreparable.

49. The respondent has expended moneys in marketing and promoting the Patriot product. The effort put into that promotion of the Patriot product has been accompanied by a corresponding decrease of effort in the promotion of other products and a significant reduction accordingly in the range of other products marketed which are said to have proved to be less profitable than the Patriot lock. He predicts loss of sales, over a 12 month period, in excess of $1,000,000. It is difficult to calculate the precise profit that would be generated by sales of $1,000,000, although calculations of figures made by counsel for the applicants would suggest that the profit margin would be approximately 10%.

50. I take into account the following matters raised in the submissions of the respondents:

1. That if the applicants are ultimately successful it would be
possible to calculate an accounting of profit of the
respondent or the damage suffered by the applicants as the
case may be.
2. That the respondent is a relatively young company and an
injunction would have a significant detrimental effect on
its business.
3. Pursuant to the distribution agreement between the
respondent and the Taiwanese company, the respondent has a
minimum purchase requirement of the Patriot product. The
grant of the injunction would put it in breach of that
minimum requirement and also would have impact upon the
Taiwanese company, a third party, whose interests are
required to be considered in relation to the injunction: cf
Appelton Papers Inc v Tomasetti Paper Pty Ltd (1983) 3 NSWLR
208 at 219.
4. The granting of the injunction now might amount to a summary
decision in favour of the applicants having regard to its
economic effect upon the respondent (cf Cayne v Global
Natural Resources PLC (1984) 1 All ER 225 at 236 per Kerr
L.J.).
5. That the respondent's financial situation is fragile and
that the respondent is dependent upon sales of the Patriot
product to produce cash flow. The fragility of the
respondent's financial position is a matter that cuts both
ways and may as well be seen to be adverse to the
respondent.
6. That the respondent has made sales of the product since
September 1991 and the applicants have apparently not
objected to those sales. The evidence does not make it
clear one way or the other whether the applicants knew of
the sales and the conduct of the respondent in making sales
without advising the applicants in the circumstances of the
case is hardly a matter to be seen positively in favour of
the respondent.
7. Given the $500 warranty which the respondent has given for
its product, customers might well be prompted to sue if the
viability of the respondent were affected. Against this it
must be said that unless the customers had in fact had their
cars stolen it is difficult to see how the customers could
in fact sue.
8. The respondent had relied and continues to rely upon the
patent rights of the Taiwanese company and the rights
granted in respect of that protection to the respondent so
that the matter really involved competition between two
Commonwealth monopolies.
9. That in respect of two orders placed by the respondent,
presumably not yet delivered, irrevocable letters of credit
had been given, so that the respondent was bound to pay for
the items in question. Against this is the fact previously
mentioned that those orders were placed after the present
proceedings had commenced.

51. In considering the balance of convenience I also take into account the following matters which have been raised by counsel for the applicants:

1. That if no injunction be granted the applicants' monopoly
term will to that extent be reduced. I should say that I do
not place much emphasis on this because argument as to the
validity of the patent must ultimately be resolved at the
hearing.
2. If no injunction were granted, there would be considerable
difficulty in determining whether sales made by the
respondent were sales lost to the applicants. This is a
problem which will often arise in patent cases where damages
are claimed.
3. The advertising commitments entered into by the respondent
and the shipments ordered for sale by it, seem largely to be
matters that have originated after the dispute arose between
the applicants and the respondent and to some extent are
self-induced expenditure incurred by the respondent with its
eyes open. In this regard reference was made to the
decision of the High Court in Beecham Group Limited v
Bristol Laboratories Pty Limited [1968] HCA 1; (1968) 118 CLR 618 at 626,
where the full High Court refers to risks taken by a
defendant with its eyes open.
4. The new distributor of the Super Club lock has ordered a
large quantity of that product (the exact amount is shown in
a confidential exhibit) and has also incurred expenditure.
If the respondent were allowed to sell the Patriot lock it
would impact upon a third person, again not a party to the
litigation.
5. That the offer to pay money into a fund is an answer only to
the question of financial weakness and not to the
fundamental point that the respondent has entered into an
agreement not to sell during the term of the patent and in
breach of that agreement now seeks to continue so to do.

52. Having taken all these matters into account on behalf both of the applicants and the respondent, I am of the view that the balance of convenience in the present case favours the granting of an injunction. I am fortified in so doing by the strength of the applicants' claim on the breach of contract issue. In so doing, I take into account the fact that there was a time lapse between September and December during which the respondent sold the Patriot lock in Australia. However, I do not think that the evidence suggests that the applicants sat by and let those sales proceed, a circumstance which would provide a discretionary reason not to grant relief.

53. I would, therefore, propose to order that the respondent be restrained by itself, its servants and agents or otherwise until further order from importing, selling, offering for sale, or by way of trade distributing, the automobile steering locks known as the Patriot and Super Patriot. This order would, however, be conditional upon the provision within a reasonable time of security in the sum of $38,000 in a form acceptable to the court.

54. The costs of the present application will be costs in the proceedings.

55. There was a further motion before me by the respondent seeking security for costs from the applicants. The parties have agreed to the making of an order that the applicants provide security in the form of a guarantee acceptable to the court in the sum of $25,000 and that the costs of that motion will be costs in the proceedings.

56. The applicants seek security from the respondent in respect of the respondent's cross-claim in the sum of $15,000. However, the cross-claim is in substance but a defence to the proceedings initiated by the applicants and for that reason I do not think that it is appropriate that security be ordered. Reference may be made to the decision of Hodson J in EI Du Pont de Nemours and Co v Commissioner of Patents (1990) 18 IPR 643, the decision of French J in Lewis v WD and VJ Hambley Pty Limited (unreported, 13 November 1987), Interwest Limited v Tricontinental Corporation Limited (1991) 9 ACLC 1,218 and Avtex Air Services Pty Limited v Bartsch (unreported, 27 August 1991). I would, accordingly, refuse to order that the respondent provide security in respect of the cross-claim. The applicants should bear any costs in respect of the application for security against the respondent.

57. I direct the applicants to bring in short minutes of order to give effect to these reasons and I shall stand the matter over to a date to be fixed with counsel to settle the terms of the short minutes.