Epikk International Pty Ltd v Australian Football League [2000] FCA 43 (2 February 2000)

Last Updated: 2 February 2000

FEDERAL COURT OF AUSTRALIA

Epikk International Pty Ltd v Australian Football League [2000] FCA 43

EPIKK INTERNATIONAL PTY LTD v AUSTRALIAN FOOTBALL LEAGUE, WILSON DJUKE HOLDINGS PTY LTD, BRIAN WILSON, THE COMMERCIAL NETWORK PTY LTD and BARRY BESANKO

VG 216 of 1994

RYAN J

MELBOURNE

2 FEBRUARY 2000

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VG 216 OF 1994

BETWEEN:	EPIKK INTERNATIONAL PTY LTD Applicant
AND:	AUSTRALIAN FOOTBALL LEAGUE and OTHERS First Respondent
and	WILSON DJUKE HOLDINGS PTY LTD (ACN 059 529 896) Second Respondent
and	BRIAN WILSON Third Respondent
and	THE COMMERCIAL NETWORK PTY LTD (ACN 057 309 672) Fourth Respondent
and	BARRY BESANKO Fifth Respondent
JUDGE:	RYAN J
DATE OF ORDER:	2 FEBRUARY 2000
WHERE MADE:	MELBOURNE

THE COURT ORDERS THAT:

1. In default of compliance within 30 days of this day with the order of 15 September 1995 requiring provision by the applicant of security for costs, the proceedings be struck out.

2. The costs of the parties represented on the motion on notice dated 9 November 1999 be costs in the cause.

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

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VG 216 OF 1994

BETWEEN:	EPIKK INTERNATIONAL PTY LTD Applicant
AND:	AUSTRALIAN FOOTBALL LEAGUE First Respondent
and	WILSON DJUKE HOLDINGS PTY LTD (ACN 059 529 896) Second Respondent
and	BRIAN WILSON Third Respondent
and	THE COMMERCIAL NETWORK PTY LTD (ACN 057 309 672) Fourth Respondent
and	BARRY BESANKO Fifth Respondent

JUDGE:	RYAN J
DATE:	2 FEBRUARY 2000
PLACE:	MELBOURNE

REASONS FOR JUDGMENT

1 By motion on notice dated 9 November 1999, the applicant, Epikk International Pty Ltd ("Epikk"), has sought to set aside orders made on 15 September 1995 that it provide security for costs in the total amount of $36,000.00 and that the proceedings be stayed until compliance with that order for security. The power of the Court to make and to vary orders for security is conferred by s 56 of the Federal Court of Australia Act 1976 and regulated by O 28 of the Federal Court Rules.

2 The basis of Epikk's claim in the substantive matter is set out in my reasons for judgment in Epikk International Pty Limited v. Australian Football Leagues & Ors (unreported 15 September 1995) ("the previous reasons"), and it is convenient to reproduce the following extract from pp 1 - 4 of the previous reasons:

"By its statement of claim, Epikk has pleaded that on 25 May 1992 it entered into a licence agreement ("the 1992 licence agreement") with the first respondent, the Australian Football League ("AFL"), which was expressed to commence on 1 March 1992 and expire on 15 February 1993. It is then alleged that the AFL represented and warranted to Epikk that the 1992 licence agreement would operate for a term of one year only in the event that Epikk did not wish to continue as a licensee of the AFL but would otherwise be renewed annually, provided that Epikk did not act unreasonably and paid royalties as stipulated in the 1992 licence agreement. It is then pleaded that a second "1993 licence agreement" was concluded between Epikk and the AFL to enure from 16 February 1993 to 1 March 1994. The statement of claim goes on to plead that between September and November 1993, the AFL represented that Epikk was authorised under the 1993 licence agreement to manufacture and distribute a calendar displaying caricatures of AFL footballers ("the calendar") for the 1994, and part of the 1995, calendar year. It is further alleged that between November 1993 and January 1994, the AFL represented that the 1993 licence agreement would be renewed, but it was not, in fact, renewed. As a result it is sought to make the AFL liable for contraventions of ss 51A, 51AA and 52 of the Trade Practices Act 1974.

Further or in the alternative, it is pleaded that there was a self-contained agreement under which Epikk was licensed to manufacture and distribute the calendar ("the AFL calendar agreement"); or that the 1993 licence agreement was varied to confer such a licence on Epikk. The licence to manufacture and distribute the calendar is alleged to have been withdrawn, as a result of which Epikk suffered damage.

As against the second respondent, Wilson Djuke Holdings Pty Ltd ("Djuke"), and the third respondent, Brian Wilson ("Wilson"), it is alleged that one or other of them represented that neither of them proposed to apply to the AFL for a licence agreement, and that Wilson had obtained indications that two major chains of retailers would make large purchases of two lines of merchandise. Those lines were "Daicos badges" and magnetic autograph books ("MAB's") which had been developed by Epikk. Those representations are alleged to have been false and made in contravention of ss 6, 51A and 52 of the Trade Practices Act or of provisions of the Fair Trading Act 1985 (Vic). It is further alleged that Djuke and Wilson or one or other of them procured a breach by the AFL of the 1993 licence agreement as varied, or of the AFL calendar agreement.

As against the fourth respondent, the Commercial Network Pty Ltd ("Commercial"), and the fifth respondent, Barry Besanko ("Besanko"), it is alleged that they had represented to the applicant that they had orders for 200,000 MAB's, or that Commercial would order 200,000 MAB's from Epikk, and that Commercial had orders for or had agreed to buy 30,000 calendars. Further representations allegedly made in this context were to the effect that Commercial and Besanko or one or other of them would provide Epikk with a letter of credit in respect of 100,000 MAB's and that Commercial had orders from three named customers for a further 240,000 MAB's. The fifth representation allegedly made by or on behalf of Commercial was that it acknowledged Epikk's exclusive right to manufacture and distribute the calendar and would not infringe that right. The various representations alleged to have been made by or on behalf of Commercial are said to have been false, and it is said to have broken the agreements which it allegedly made with Epikk. As a result of the consequential contraventions of the Trade Practices Act and the Fair Trading Act it is sought to make Commercial and Wilson liable in damages to Epikk. It is also alleged that either Commercial or Besanko procured the AFL to break the 1993 licence agreement as varied or the AFL calendar agreement."

3 Epikk contends that it is faced by the dilemma that it cannot comply with the order for security until it can sell its only major asset. Sale of that asset is restricted, first, by the nature of the stock, which bears logos and trademarks identified with member clubs and players of the Australian Football League ("the AFL"). Of its nature, that stock is obsolescent with the passage of time. Secondly, the AFL asserts intellectual property in the logos and trademarks and, accordingly, its consent is required before the stock can be offered for retail sale.

4 Those circumstances led to my expressing the view in the previous reasons that:

"I consider the better course to be to leave Epikk to seek to sell the stock as it sees fit. If it finds that the restriction sought to be imposed by the AFL unduly limits the market or depresses the prices which can be realised, application can be made for further orders pursuant to liberty to apply which I propose to reserve."

5 Epikk did not seek to exercise that liberty to apply, and a directions hearing was held on 22 February 1999 when the matter was adjourned to enable Epikk to formulate a proposal for sale of the stock. That necessitated clear identification of the stock to enable any proposal to be properly considered by the AFL and, if required, the Court. The extent to which Epikk has so far identified the stock remains in dispute between the parties. No step was taken by any party to re-activate the matter and it was listed, on the Court's initiative, for directions on 6 August 1999, when the parties were invited to make submissions as to why the application should not be struck out. On that date, with a view to resolving the impasse over the provision of security, I directed that a mediation be conducted to explore, particularly, the question of whether agreement could be reached to enable, at least, sale of the stock. That mediation was unsuccessful.

6 It thus remains the fact that the security for costs ordered on 15 September 1995 has not been provided, and Epikk now seeks to set aside that order. In support of its motion, Epikk contends, in substance, that it is effectively insolvent and unable to raise the necessary funds. The only new circumstance which has arisen since 15 September 1995 is that the parties have not been able to agree on licensing or other arrangements which would free the stock for sale. Otherwise, the circumstances remain unchanged from those which led me to conclude at p 8 of the previous reasons (after referring to Bell Wholesale v. Gates Export Corporation (1984) 2 FCR 1 at 4):

"The principle which I extract from that authority is that the court can decline to make an order for security for costs in the circumstances of the present case where it is shown that those who stand behind an impecunious corporate applicant are also without means and the general impecuniosity is arguably attributable to the conduct of the respondent ... I am not satisfied that either of those elements has been made out in the present case"

7 Epikk has remained entirely silent on whether the beneficiaries of the family trust administered by Epikk, or other persons standing behind the corporation who will presumptively benefit from the conduct of the litigation, are all similarly without the resources to comply with the order for security.

8 At its highest, the case for Epikk in support of the motion is that its impecuniosity is referable to conduct of the respondents, in that, it is said, its endeavours to sell the stock have been frustrated by the actions or obstructive attitude of the respondents. I dealt with that issue at p 10 of the previous reasons in these terms:

"Nor do the pleadings or the present state of the evidence suggest that Epikk's existing financial resources have been depleted by the conduct of the respondents. The case can rather be assimilated to that recently described by Cooper J in Market Facts (Qld) Pty Ltd v. Peregrine Australia Pty Ltd (unreported 9 June 1995) where his Honour said, at p 9:

"The material does not disclose that Market Facts' present financial position has been in any significant way affected by the alleged conduct of Peregrine. The complaint is that because of Peregrine's conduct, Market Facts has been denied great wealth and profits. It is not a case of conduct destroying existing wealth or profitability. The present financial position of Market facts as revealed in the calculations of Mr Skelton shows a picture of some financial stringency brought on by circumstances other than the conduct of Peregrine.""

9 That characterisation of the financial circumstances of the applicant is not altered by any fresh material before the Court. In affidavits filed on 22 February and 10 November 1999, and in oral submissions, Mr Krongold (the director of Epikk and, since 28 July 1999, the representative of Epikk in these proceedings) has continued to press that the order for security should be varied or set aside because of the difficulties Epikk faces in raising funds by selling its stock, including the alleged intransigence of the AFL in refusing to consent to such a sale. That argument, however, does not overcome the difficulty which has confronted Epikk from the outset because of its inability to show that its impecuniosity has been attributable to the conduct of the respondent.

10 The evidence available to the Court suggests that the AFL has repeatedly asserted that Epikk is free to sell its stock, provided that it does not infringe the AFL'S intellectual property rights. No explanation or suggestion of how such a sale might occur has been advanced by the respondents before this Court, despite several requests from the former solicitors for Epikk. However, mediation was directed primarily to explore a possible resolution of that issue and I do not place any great weight on the failure, before this Court, of the AFL to assist Epikk by agreeing to an unconditional sale of the stock, or to purchase the stock itself.

11 Two further factors bear on the relation between Epikk's impecuniosity and the actions of the AFL. In the first place, even if the AFL had been bound to license Epikk to sell the stock, any such licence would have expired long ago and would not explain Epikk's present impecuniosity. Secondly, the continuing deterioration in the value of the stock will reach a point, if it has not done so already, where it is insufficient to recoup other losses, described in February 1999 as being more than $56,000.00, which on any view of the evidence, are not attributable to the AFL. At its highest, the case for Epikk is that the purchase and development of the stock has cost it in the order of $43,000.00 and the inability to realise the stock has deprived Epikk of its wholesale market value. However, even if all those assumptions be made in Epikk's favour, they do not provide a full explanation of the insolvency which precludes Epikk from complying with the orders for security.

12 In short, it is clear that nothing in the material filed in support of the present notice of motion contradicts anything in the previous reasons or warrants the variation, in Epikk's favour, of the order of 15 September 1995. Given the inordinate length of time which has passed since that order and the fact that Epikk has done nothing to rectify the action until prompted by directions of the Court, I shall vary the order of 15 September 1999 by requiring that, in default of compliance with the order for security within 30 days of today's order, the proceedings be struck out.

13 The respondents raised as a further issue the continued representation of Epikk in these proceedings by its principal director Mr Krongold, in circumstances where complex questions of fact and law may arise. In light of the further order which I have just proposed, that issue will not arise unless Epikk complies with the order for security. Accordingly, I say nothing further about that question other than to observe that it is a matter which Epikk will have to address in the event that its action is kept on foot. The costs of the parties represented on the motion on notice dated 9 November 1999 will be costs in the cause.

I certify that the preceding thirteen (13) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Ryan.

Associate:

Dated: February 2000

Representative for the Applicant:	Mr D Krongold (Director)
Counsel for the First Respondent:	Mr P J Booth
Solicitor for the First Respondent:	Browne & Co
Counsel for Fourth & Fifth Respondents:	Mr R Harris
Solicitors for Fourth & Fifth Respondents:	Paul McGuiness & Associates Pty Ltd
Date of Hearing:	10 December 1999
Date of Judgment:	February 2000