Power v Schembri[2017] QDC 269

DISTRICT COURT OF QUEENSLAND

1. [1]
   By proceedings commenced on 16 May 2017, the plaintiffs allege the first defendant breached its obligations under a settlement deed. They seek to recover damages against the first defendant for breach of contract or alternatively, an account of profits. The plaintiffs allege, as against the second defendant, that it is jointly and severally liable for the first defendant’s breaches of the settlement deed. No other basis for liability is alleged against the second defendant.

2. [2]
   On 11 September 2017, the second defendant filed an application seeking summary judgment on the whole of the claim, pursuant to rule 293 of the Uniform Civil Procedure Rules 1999 (Qld) (‘UCPR’).

3. [3]
   It is common ground that the resolution of the application depends on the construction of the settlement deed.

Settlement deed

4. [4]
   In the Supreme Court, the plaintiffs were in dispute with the defendants and another party, being Lorraine Schembri, the former wife of the first defendant. The dispute related to intellectual property rights concerning a machine, Mark III, which accelerates the production of composting material. One form of relief sought by the plaintiffs against the defendants was the delivery up of the machine, which was in the possession of the first defendant. The defendants defended the proceedings and counter-claimed for revocation of the patent.

5. [5]
   The parties agreed to settle all disputes and matters in issue related to the Supreme Court proceedings without admission of liability, on the terms of the settlement deed entered into on 23 February 2015.

6. [6]
   In the settlement deed, the first plaintiff is referred to as Power, the second plaintiff is referred to as PDP, the first defendant is referred to as Paul and the second defendant is referred to as Bettergrow.

7. [7]
   Clause 2 of the settlement deed is the Terms of Settlement provisions and clause 2.1 is in the following terms:

“Without any admission of liability, Paul shall be entitled to retain possession of, and continue to use, the Mark III under license from PDP and Power as set out in clause 4.”

8. [8]
   Relevantly, clauses 4.1 and 4.5 of the settlement deed are as follows:

“4.1Pursuant to their rights under the Patent, PDP and Power grant to Paul an irrevocable licence (‘Licence’) to use the Mark III apparatus currently in use by Paul, howsoever modified at any place of business operated by Paul in the State of Queensland.

…

…

…

4.5PDP and Power reserve the right to take further proceedings against Bettergrow, Paul & Lorraine in order to enforce their rights under the Patent and Deed should there be a breach of either on or after the date of execution of this deed by PDP and Power.

…

…”

9. [9]
   The issue of the licence fee is provided for in clause 5 of the settlement deed. In particular, clauses 5.1 and 5.3 provide:

“5.1In consideration of the Licence granted pursuant to the Deed, Paul will pay a licence fee (‘Licence Fee’) to be calculated at the rate of $5.00 plus GST per cubic metre of the Raw Materials delivered for processing by the Mark III (or any replacement machine), with such payment to be calculated from the date of execution of this Deed, and paid monthly in arrears.

…

5.3For the purposes of calculating and verifying the Licence Fee, Paul

1. (a)
   Must, by the 7^th day of each calendar month, deliver to PDP and Power a copy of all invoices from suppliers showing the total volume of Raw Materials delivered in the preceding calendar month;

2. (b)
   Undertakes not to process any materials using the Mark III unless those materials have been purchased from an ABN registered supplier;

3. (c)
   In the event of the appointment of any additional or alternative supplier of Raw Materials to his business, will notify PDP and Power in writing within 7 days;

4. (d)
   Agrees, subject to provision of 7 days written notice by writing to PO Box 5765, Torquay, Qld, 4655 or by email to [email protected], to PDP and Power having access to the Mark III and any feed hoppers for the purposes of installing a metering device to them;

5. (e)
   Agrees, subject to provision of 7 days written notice by writing to PO Box 5765, Torquay, Qld, 4655 or by email to [email protected], that PDP and Power shall be permitted to have access to the Mark III and any feed hoppers every six months following installation of the metering devices to monitor the metering devices.

…”

10. [10]
    Clause 6 is a ‘general’ provision and relevantly, clause 6.1 provides:

“6.1Release by PDP and Power

Upon execution of this deed, except for the enforcement of its terms and subject to Clause 4.5 PDP and Power will release, discharge and forever hold harmless Bettergrow, Paul and Lorraine in relation to any Claims including for costs arising from the matters the subject of the Proceedings and the Counterclaims.”

Issue

11. [11]
    By paragraph 12 of the statement of claim, the plaintiffs allege that the first defendant breached the express terms of the deed in three material respects. First, he failed to pay the licence fee from June 2015. Second, he appointed additional or alternative suppliers of raw materials without notifying the plaintiffs in writing within seven days. Third, from June 2015, he failed to deliver to the plaintiffs a copy of all the invoices from suppliers showing the total volume of the raw materials delivered in the preceding month.

12. [12]
    The plaintiffs contend that as a result of these alleged breaches by the first defendant, the second defendant is jointly and severally liable pursuant to the settlement deed for the loss and damage to the plaintiffs flowing from these breaches by the first defendant.

13. [13]
    The principal issue is whether a proper construction of the settlement deed makes the second defendant jointly and severally liable with the first defendant for the alleged breaches by the first defendant.

Does the settlement deed expressly provide for joint and several liability

14. [14]
    Mr Radcliffe who appeared for the plaintiffs, argued that the first defendant’s breaches of the settlement deed trigger an entitlement on the part of the plaintiffs to sue the second defendant for such breaches. He contended that this is expressly provided for in clauses 4.5 and 6.1.

15. [15]
    This was expanded on at the hearing. Mr Radcliffe submitted that because clause 6.1 has the effect of extinguishing all rights the parties had against each other in relation to the previous Supreme Court proceedings, the only rights the plaintiffs have to take further action against either of the defendants under the settlement deed, are in relation to breaches by the first defendant in respect of the licence granted to him as set out in clauses 4 and 5.

16. [16]
    The question of whether the settlement deed creates joint and several obligations on the part of the defendants, is one determined by construing the language used by the parties, so as to determine their intention.^[1]This can require a consideration, not only of the text of the document, but also the surrounding circumstances known to the parties at the time the contract was entered into and the purpose and object of the contract.^[2]There was no attempt by the parties in this case to invoke extrinsic evidence to assist in the construction of the settlement deed.

17. [17]
    The meaning of a clause may be revealed by other parts of the document.^[3]Questions as to meaning are "to be answered in a practical and realistic way, not in a way which adopts an overly fine or theoretical approach that is alien to commercial agreements".^[4]In resolving an ambiguity "… if the language is open to two constructions, that will be preferred which will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust.”^[5]

18. [18]
    Ordinarily it would be expected that express reference would be made for a court to be satisfied that the parties intended to create joint and several obligations.^[6]

19. [19]
    In short, the construction contended for by Mr Radcliffe seems to me to be without substance. By its terms, the settlement deed does not expressly, in clauses 4.5 and 6.1 or indeed in any other clause, provide for joint and several liability on the part of the second defendant and I do not consider that it should be construed in that way.

20. [20]
    As a matter of business common sense, I have difficulty accepting that it could have been the intention of the parties to include such a term which is adverse to the second defendant’s interests. This is in circumstances where it is not in dispute that the second defendant had no involvement with the business operated by the first defendant, at the time of, or subsequent to, the execution of the settlement deed. I consider the failure to include any unambiguous language to this effect speaks strongly of an assumption that the settlement deed was not intended to have this effect. It would take much clearer language to persuade me that this was intended by the parties.

21. [21]
    I also do not accept Mr Radcliff’s submission that clause 4.5 would be ‘utterly redundant’ if the interpretation urged upon me by him is not accepted. This is because on reading the settlement deed, it is clear the plaintiffs could reserve their rights in relation to breaches by the second defendant of other clauses. For example, clause 3.1 required the second defendant to discontinue its counter-claim against the plaintiffs in relation to the Supreme Court proceedings within 14 days of the execution of the settlement deed. If the second defendant did not discharge its obligation in this regard, clause 4.5 gave the plaintiffs the right to take further action for this breach.

22. [22]
    Another example of the utility of clause 4.5 can be found in clause 7. This clause contains the standard ‘confidentiality’ clause often seen in settlement deeds, whereby each of the parties are required to maintain confidentiality concerning the terms of the settlement, subject to specified exceptions. If this was breached by the second defendant, clause 4.5 enabled the plaintiffs to take further action for such a breach.

23. [23]
    Accordingly, I consider that, properly construed, clauses 4.5 and 6.1 do not provide for the second defendant to be jointly and severally liable with the first defendant, for the alleged breaches by the first defendant.

Should the defendant obtain summary judgment

24. [24]
    Rule 293 of the UCPR confers a discretion on the Court to give judgment for a defendant against the plaintiff, if the court is satisfied:

1. (i)
   the plaintiff has no real prospect of succeeding on all or a part of the plaintiff’s claim; and

2. (ii)
   there is no need for a trial of the claim (or part of it).

25. [25]
    The same test applies to a defendant applying for summary judgment, as applies to a plaintiff under r 292 of the UCPR. The rule is said to be expressed in clear and unambiguous language.^[7]The appropriate enquiry is whether there exists a real, as opposed to a fanciful, prospect of success.^[8]

26. [26]
    Rules 292 and 293 are to be applied keeping in mind the purpose of the UCPR, articulated in r 5, to facilitate the just and expeditious resolution of the real issues in civil proceedings at a minimum of expense.^[9] However, that does not detract from the well-established principle that the power to order summary or final judgment is one that should be exercised with caution. As Gaudron, McHugh, Gummow and Hayne JJ said in Agar v Hyde^[10]:

“Ordinarily, a party is not to be denied the opportunity to place his or her case before the court in the ordinary way, and after taking advantage of the usual interlocutory processes. The test to be applied has been expressed in various ways, but all of the verbal formulae which have been used are intended to describe a high degree of certainty about the ultimate outcome of the proceeding if it were allowed to go to trial in the ordinary way.”

27. [27]
    Upon an application for summary judgment, it is necessary to bear in mind that the rules provide for amendments to pleadings.^[11]At the hearing of the application, counsel for the plaintiffs indicated that the pleadings would require an amendment to claim damages within the jurisdiction of the District Court.

28. [28]
    In this matter, for the reasons explained above, I have reached the view that the two requirements of the rules have been met. They are, that the plaintiffs have no real prospect of establishing the claim, and there is no need for a trial of the claim. For these reasons, it is appropriate to exercise my discretion under r 293 of the UCPR, to give judgment for the second defendant against the plaintiffs.

Costs

29. [29]
    Section 15 of the Civil Proceedings Act 2011 (Qld) confers the power in this court to order costs. It provides as follows:

“A court may award costs in all proceedings unless otherwise provided.”^[12]

30. [30]
    Rules 680 and 681 of the UCPR are relevant. These rules provide:

“680 Entitlement to recover costs

A party to a proceeding can not recover any costs of the proceeding from another party other than under these rules or an order of the court.

681 General rule about costs

3. (1)
   Costs of a proceeding, including an application in a proceeding, are in the discretion of the court but follow the event, unless the court orders otherwise.

3. (2)
   Subrule (1) applies unless these rules provide otherwise.”

31. [31]
    Pursuant to r 686(a) of the UCPR, costs may be assessed without an order for assessment having been made if the court orders a party to pay another party’s costs. This means that it is unnecessary to seek an order that costs be assessed.

32. [32]
    Further, r 702(1) of the UCPR expressly provides that:

“[u]nless these rules or an order of the court provides otherwise, a cost assessor must assess costs on the standard basis”. Again it is unnecessary to seek an order that costs be assessed on the standard basis.”

33. [33]
    Rule 678 of the UCPR applies Ch 17A to costs payable under an Act, these rules or an order of the court. Rule 679 provides the following relevant definitions for Ch 17A:

“assessed costs means costs and disbursements assessed under this chapter

…

costs of the proceeding mean costs of all the issues in the proceeding and includes—

(a)costs ordered to be costs of the proceeding; and

(b)costs of complying with the necessary steps before starting the proceeding; and

(c)costs incurred before or after the start of the proceeding for successful or unsuccessful negotiations for settlement of the dispute.”

34. [34]
    It was contended for on behalf of the plaintiffs, that the second defendant ought to pay their costs because the plaintiffs had previously offered to discontinue the proceedings on the basis that each party bear their own cost. This offer was rejected by the second defendant. The fact that this offer was made and rejected does not give the plaintiffs an entitlement to their costs. In my view, because the second defendant has been wholly successful, there is no reason to depart from the rule, that costs should follow the event.

Orders

35. [35]
    Accordingly, I make the following orders:

1. (i)
   The plaintiffs’ claim against the second defendant be dismissed; and

2. (ii)
   The plaintiffs pay the second defendant’s costs of the proceeding, including any reserved costs.