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Entirity Business Services v Garsoft [2011] FCA 76

by Martha.Ware 18. May 2011 12:21


Two former business partners operated a joint venture via the applicant company which was dissolved.  The applicant company brought an action against its former director and his entities.


The applicant company claimed that the third respondent was responsible for managing its accounting records and failed to do so properly which resulted in an inaccurate reflection of the company’s financial position at the time of the dissolution of the joint venture. The applicant company also claimed that it owns copyright in two computer programs and that the respondents have infringed that copyright. 


The respondents cross claimed against the applicant for unpaid invoices issued to the applicant.


The court determined three questions to be answered: firstly, were the respondents responsible for the accounting records of the applicant, secondly, did the third respondent make a misleading representation about the financial position of the applicant and if so did the applicant suffer damage, and finally, does copyright subsist in certain works, who owns the copyright and has it been infringed: [4].


The applicant bears the burden of establishing its case on the balance of probabilities that a representation or a number of representations were made by the third respondent about the state of the applicant’s finances in terms which caused Mr Barlow, the applicant’s director and shareholder, to agree to a demerger: [40].


In failing to properly set up and maintain the applicant’s accounting system, the applicant claimed that the third respondent had breached his duties as a director in failing to exercise care and diligence. 


His Honour stated that the third respondent became a director of the applicant as a result of a joint venture arrangement; he did not become a director because he possessed special skills in maintaining accounts or bookkeeping. There is a material difference between the two and the third respondent therefore, did not breach his director duties: [62].


With respect to the applicant’s claim for misleading conduct, the court found that on the basis that the applicant failed to adduce evidence of the third respondent’s alleged representations, the claim must fail.  Essentially, the applicant had pleaded a different case than it sought to prove by evidence: [64].


The court considered the role of pleadings in court proceedings.  The applicant pleaded relief under section 42 of the Fair Trading Act 1987 (NSW).  That section refers to representations of existing fact.  The applicant however adduced evidence of a representation being made concerning future matters.  Accordingly, the court found that the applicant had failed to prove its case as pleaded: [74].


In respect to the applicant’s claim for breach of copyright, the court found that the applicant did not prove that the software said to manifest the breach of copyright was software provided to or written for or on behalf of the applicant rather than developed by another person and, accordingly, dismissed the claim: [78,79].



Judgment was given in favour of the applicant against the first respondent for the sum of $39,982.50 and in favour of the first respondent against the applicant for the sum of $28,673.08.


Relevant paragraphs of Ford



Ford's Principles of Corporations Law


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