Dialog Pty Ltd v Addease Pty Ltd

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FEDERAL COURT OF AUSTRALIA

Dialog Pty Ltd v Addease Pty Ltd
[2003] FCA 1359

TRADE PRACTICES - misleading and deceptive conduct - sale of business - licences - value of information technology products and intellectual property transferred during sale - Trade Practices Act 1974 (Cth) s 52, s 87

CONTRACT - sale of business - whether liabilities transferred with business - obligation to perform labour hire contracts - cross-claim - restitution - unjust enrichment

Global Sportsman Pty Ltd v Mirror NewspapersLtd (1984) 2 FCR 82
Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107
Pitman v Pantzer (2001) 115 FCR 361
Riches v Hogben [1985] 2 QdR 292; affirmed on appeal (1986) 1 QdR 315
Giumelli v Giumelli (1999) 196 CLR 101
Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221
David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353

DIALOG PTY LTD ACN 010 089 175 v ADDEASE PTY LTD ACN 007 212 768, AND GEORGE MICHAEL MIHAILIDES
Q235 OF 2001

COOPER J
BRISBANE (HEARD IN BRISBANE AND MELBOURNE)
26 NOVEMBER 2003


IN THE FEDERAL COURT OF AUSTRALIA

QUEENSLAND DISTRICT REGISTRY

Q235 OF 2001

BETWEEN:

DIALOG PTY LTD ACN 010 089 175
APPLICANT

AND:

ADDEASE PTY LTD ACN 007 212 768
FIRST RESPONDENT

GEORGE MICHAEL MIHAILIDES
SECOND RESPONDENT

ADDEASE PTY LTD ACN 007 212 768
FIRST CROSS CLAIMANT

GEORGE MICHAEL MIHAILIDES
SECOND CROSS CLAIMANT

DIAGLOG PTY LTD ACN 010 089 175
CROSS RESPONDENT

JUDGE:

COOPER J

DATE OF ORDER:

26 NOVEMBER 2003

WHERE MADE:

BRISBANE (VIA VIDEO LINK TO MELBOURNE)

ON THE APPLICANT’S CLAIM THE COURT ORDERS THAT:

1.The claim against the respondents be dismissed and judgment be entered in favour of the respondents.

2.The applicant pay the respondents their costs of and incidental to the claim, including reserved costs if any, to be taxed if not agreed.

ON THE CROSS-CLAIM THE COURT DECLARES THAT:

3.The cross-respondent is indebted to the first cross-claimant in the sum of $279 816.36 in respect of the claims made in paras 22, 23 and 26 of the Cross-claim.

4.The cross-respondent is entitled to set off against such indebtedness credits due to it by the first cross-claimant in the sum of $98 813.35.

5.The first cross-claimant is entitled to payment of commission by the cross-respondent under cl 2 of the Commission Agreement of 22 December 1999.

6.The second cross-claimant is presently entitled to be paid the sum of $300 000 under a Contract of Employment of 22 December 1999 between the second cross-claimant and the cross-respondent and is entitled to payment of a further sum of $150 000 under the said Contract of Employment which further sum falls due for payment to the second cross-respondent on 1 December 2003.

ON THE CROSS-CLAIM THE COURT ORDERS THAT:

7.Judgment be entered in favour of the first cross-claimant against the cross-respondent in the sum of $181 003.01 being the balance due in favour of the first cross-claimant after set off of credits due. 

8.All necessary…

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Details
Case
[2003] FCA 1359
Decision Date

CaseChat Overview and Summary

In the case of Dialog Pty Ltd v Addease Pty Ltd, the primary dispute centred around the ownership and control of intellectual property and software products developed by Addease, particularly the AXiOM and TemPak systems, following a series of business transactions involving Dialog, Addease, and Intrinsic. The court was required to determine whether Dialog was entitled to compensation and damages from Addease due to alleged breaches of contract and other obligations arising from their business dealings.

The key legal issues involved the interpretation of contracts and agreements between the parties, including the Business Sale Agreement and the Commission Agreement. Dialog claimed that Addease had breached the terms of these agreements by failing to transfer ownership of certain software and intellectual property and by not fulfilling certain contractual obligations. Addease, on the other hand, denied these allegations and counterclaimed for unpaid commissions and employment-related entitlements.

The court, having considered the evidence presented, found in favour of Dialog on several counts. It ruled that Dialog was entitled to set off certain amounts against the sums claimed by Addease, and that Dialog was not liable for the debts of Intrinsic. The court also found that Dialog was entitled to compensation for damages arising from Addease's failure to transfer ownership of the AXiOM system, and ordered that Addease pay Dialog a sum of $181,003.01. Additionally, the court ruled that Dialog was liable for commission payments under the Commission Agreement and for employment-related entitlements owed to Addease. Consequently, judgment was entered in favour of Dialog, with specific monetary awards and orders for payment and costs.

Orders

Orders of the court

7. Judgment be entered in favour of the first cross-claimant against the cross-respondent in the sum of $181 003.01 being the balance due in favour of the first cross-claimant after set off of credits due.

8. All necessary enquiries and accounts be taken by the Queensland District Registrar as to the commission due under cl 2 of the Commission Agreement of 22 December 1999 in respect of licence and maintenance fees as defined by cl 1(d) at the rates provided in cl 1(b) of that agreement; and that upon the striking of such an account, judgment be entered in favour the first cross-claimant against the cross-respondent in such amount as is found due and owing.

9. Judgment be entered in favour of the second cross-claimant in an amount of $300 000 as money due and owing under the Contract of Employment of 22 December 1999 between the second cross-claimant and the cross-respondent.

10. In default of payment on 1 December 2003 of the sum of $150 000 then falling due and owing by the cross-respondent to the second cross-claimant, judgment be entered in favour of the second cross-claimant against the cross-respondent in the sum of $150 000, proof of such default being made by affidavit of the second cross-claimant’s solicitor.

11. The cross-respondent pay the first and second cross-claimants costs of and incidental to the cross-claim, including reserved costs if any, to be taxed if not agreed.

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

Dialog, by its Amended Reply and Defence to Cross-claim, pleaded an entitlement under cl 8.9 and cl 9.3 of the Business Sale Agreement to set off the sum of $19,791.87, and $50,000 against any sums payable as alleged in pars 16 and 17 of the cross-claim. Dialog otherwise denied the allegations in pars 18 to 20 inclusive, pleaded that it was not liable for the debts of Intrinsic by reason of the matters pleaded in these proceedings, denied the allegations in pars 23 and 24 (and alleged that no necessary notice under cl 8.3 of the Business Sale Agreement to retain ownership of the debts claimed under pars 22 and 23), and, denied the allegations in pars 25 to 29 inclusive and pars 31 to 37 inclusive of the Cross claim.the evidence and findings Both parties handed up numerous objections to evidence in respect of the affidavits which were intended to be tendered and stand as evidence-in-chief of the various witnesses. In February 2002, Dialog forwarded further objections to evidence with its final written submissions. I have based my decision on the oral evidence of the witnesses, the documents tendered into evidence on the trial, and any assessment of the credibility of the evidence given by the principal witnesses. Where I have relied upon the affidavit evidence appears in the reasons, and such evidence was, in my view, admissible. I do not intend to deal specifically with each of the objections seriatim. Addease commenced business in 1989. It is the corporate vehicle by which Mihailides carried on business as an information technology software developer. Addease designed a speciality product for use in the labour recruitment industry. It was called TemPak. The program enabled recruitment agencies to match up candidates to job vacancies (front office functionality) and pay temporary staff for which the client was invoiced (back office functionality). Addease sold a significant number of TemPak licences and maintenance contracts to agencies within the recruitment industry. In 1996 Addease commenced to develop a new product in a Microsoft Windows environment, which was directed towards larger operators within the labour recruitment industry. The product was called AXiOM and was to include a number of programs. Initially Addease produced AXiOM Win 32, which provided a front office functionality only. AXiOM Win 32 was trialled in the North Sydney office of Alectus Personnel and, in March 1998, Alectus Personnel entered into an agreement with Addease for the supply of AXiOM Win 32 for use in its offices around Australia. In 1998, Mihailides was approached by Barry Keown, a salesman employed by Intrinsic. At that time, Intrinsic was negotiating to sell Skilled Engineering Ltd (‘Skilled Engineering’), a general ledger/financial management software program called Infinium. Keown put a proposal to Mihailides for the development for Skilled Engineering of an integrated system which included Infinium and a payroll system called Opus One as the back office systems, and AXiOM Win 32 as the front office system (‘the integrated suite’). Ultimately, it was agreed between Neill Hills-Johnes, the Managing Director of Intrinsic, and Mihailides on behalf of Addease, that a proposal for the integrated suite would be put to Skilled Engineering. Under that proposal, Intrinsic would supply to Skilled Engineering as the contractor with it, the integrated suite and would be responsible for implementation of the suite and the provision thereafter of annual maintenance; Addease would act as subcontractor to Intrinsic in respect of the supply of the AXiOM Win 32 program.

Decision

Reasons for decision

COOPER J

Full text does not contain this section.

Ratio Decidendi

Legal Principle Established

Established by: COOPER J

After dealing with the current situation, noting that the interface between AXiOM and Opus One to generate the base details for the employee and time sheet details was still at the beta test stage, and setting out the current development schedule of Opus One for a standard payroll, Young dealt with what he considered were problems with the system. In part, he said:‘2.2.2. IntegrationThe interface between Axiom and Opus is a little cumbersome and probably should be more automated. Ie. Currently, the Axiom system exports a file (nominated by the user) and then Opus imports the file (again nominating the file name to be imported).One area of concern with this interface is the lack of control over the Axiom system. Ie. All development within Axiom is performed by Addease staff and any changes required to the interface cannot be easily changed without agreement by this company. They will be promoting their own solution to other clients, specifically their own payroll, which may be awkward in some situations. Although, their solution for payroll is far too simplistic to be used by any reasonably [sic] size company.The transfer from the Opus payroll to the Job Management and General ledger is performed with one option and is satisfactory as a procedure.I feel that there should be another interface between the deductions generated and the actual payment of these accounts. Ie. Rather than allow for the payment of the group tax within the payroll (generation of file for transfer of funds via EFT), this should have been transferred to the Accounts Payable system, together with all other deductions generated by the payroll system.The actual payment of these accounts can then be performed by the Accounts Payable system by either cheque or electronic funds depending on the creditors status. This must currently be handled by manual entry of the details into the Accounts Payable system.’(Original emphasis) Young delivered the second report to Alan Key, the Managing Director of Dialog, but did not discuss the contents of the report with him at that time. Nevertheless, the real interest in Dialog acquiring control over all the systems in the integrated suite, and in particular, control of the AXiOM system for the reasons outlined by Young, was self-evident from a reading of the report. On 11 October 1999, Hills-Johnes sent an e-mail to Key headed ‘Sept Billings & Outlook to December’. The e-mail stated that the ‘90 day forecast attached ignored backlog software revenues for Labour Hire Companies’. The Outlook, so far as is relevant to sales of the integrated suite, provided:‘ Oct Nov Dec 2000 ServicesJulia Ross Labour hire 125 125Bensons Labour hire 75 75Forstaff Labour hire 100 100’The figures were stated in multiples of $1,000. On 12 October 1999, Mihailides had a meeting in Melbourne with Gordon and other employees of Dialog to discuss the Labour Hire Contracts. On 25 October 1999, Hills-Johnes and Key met with Mihailides in Melbourne to discuss distribution models for the future distribution of the AXiOM Win 32 programs developed by Addease.