Drake Australia Pty Ltd v Platypus Telecommunications Pty Ltd
[2009] VSC 67
•10 March 2009
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 4763 of 2008
| DRAKE AUSTRALIA PTY LTD | Plaintiff |
| v | |
| PLATYPLUS TELECOMMUNICATIONS PTY LTD | Defendant |
---
JUDGE: | Mandie J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 23 February 2009 | |
DATE OF JUDGMENT: | 10 March 2009 | |
CASE MAY BE CITED AS: | Drake Australia Pty Ltd v Platypus Telecommunications Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2009] VSC 67 | |
---
CONTRACT – joint venture agreement – preliminary questions - definition of “Costs” to be shared under the agreement – whether term should be implied requiring costs to be reasonably incurred and of reasonable amount – whether appropriate to determine all questions at this stage.
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr R Strong | Gadens Lawyers |
| For the Defendant | Mr P Corbett | Sparke Helmore |
HIS HONOUR:
The Court is asked to determine a number of questions[1] concerning the proper construction of a joint venture agreement in writing between the plaintiff (“Drake”) and the defendant (“Platypus”) dated 16 November 2005 (“the Agreement”).
[1]The relevant order of the Master reads “in accordance with Rule 47.04, the Plaintiff’s claims for relief as set out in paragraphs A.1 and A.2 of the prayer for relief in the amended statement of claim be tried as a separate question before any other question in the proceeding.”
Broadly speaking, the Agreement provides for the parties to share certain costs of or associated with the joint venture business equally and the plaintiff contends that there should be a term implied in the Agreement that the costs incurred by each party would not be unreasonably incurred or of an unreasonable amount and the plaintiff further or alternatively contends that the word “Costs” where used in the Agreement bears a particular confined meaning.
The Agreement arose out of discussions between representatives of Platypus and representatives of Drake that commenced in or about November 2004. A “Memorandum of Understanding” (MOU) dated 15 December 2004 was entered into between Drake and Platypus. The MOU refers to an arrangement whereby the parties would provide and manage the application of wireless communication solutions to independent contractors who provide their services to corporate enterprises. Further discussions and communications ensued which resulted in the Agreement of November 2005. The parties do not contend, and I do not think, that the “matrix” of the prior discussions and communications, or such evidence as there is of the precise nature of the business, is of any assistance in determining the questions of general interpretation that, as will be seen, I have decided are appropriate to determine at this stage.
The Agreement recites that Platypus has expertise in wireless application solutions and that Drake has expertise in marketing, management and business promotion and that the parties will combine together to establish and promote the business “Drake Connect” in accordance with the Agreement.
Clause 1.1 contains a number of definitions and is prefaced by the provision that:
In this Agreement unless the subject matter or context otherwise requires the following words and expressions shall have the following meanings…
The important definitions, for present purposes, are:
·“Costs” means the costs set out in Schedule 3
·“Customers” means persons introduced to Platypus by or through Drake who sign up for the Mobile Telephone Services
·“Mobile Telephone Services” means the provision by Platypus to customers of a mobile telephone service as set out in clause 5 of the Terms and Conditions, and includes other ancillary communication and services that Platypus may offer from time to time
·“Net Revenue” means the revenue generated from the Mobile Telephone Services, being the call costs and other associated services and charges payable by the Customer less any charges by the carrier, less the Costs of the Joint Venture
·“Terms and Conditions” means the Equipment and Service Agreement Terms and Conditions for Drake Connect as attached to Schedule 1.
The Terms and Conditions (attached to the Agreement) refer to the Services to be provided as a digital mobile telephone service selected by the Customer and a “mobile application service” provided by Platypus.
The Agreement contains the following relevant provisions.
Clause 5.1(a) provides:
The parties agree that the Business shall be conducted as a commercial venture in accordance with best commercial practice and proper skill and care applicable to the operation of a business in this field, with both parties to act in good faith at all times and to provide all reasonable assistance to the other for the operation of this Agreement.
Clause 5.4 provides that the Agreement is initially implemented for the establishment and operation of the Mobile Telephone Services but that the parties may develop additional services to be operated by the business particulars of which will be evidenced in writing.
The Agreement deals with costs as follows:
·All Costs associated with the establishment and operation of the Business and creation and execution of this Agreement shall be met on a 50/50 basis by the parties. (cl.5.3)
·Platypus agrees to pay to Drake on a monthly basis fifty (50%) percent of the Net Revenue generated by the Business. (cl.6(l))
·Platypus and Drake each agree to pay 50% of all Costs incurred by the Business or, by either party on behalf of, or for the benefit of, the Business. (cl.6(m) and 7(f))
·Schedule 3 (referred to in cl.1.1 definition of Costs) provides as follows:
“COSTS
1.$25 incentive fee payable to the Customer per referral that results in a new Customer for the Business;
2.Business registration costs;
3.ABN application and registration costs;
4.all incorporation and establishment fees for a company established in accordance with clause 3.2;
5.fees and charges for all ASIC notifications and statements in accordance with clause 7(e);
6.all costs for any buy-out required to transfer existing Drake telephone services to the Business from Macquarie Corporate Telecommunication Pty Ltd;
7.the costs of registration or application for any Joint Venture Intellectual Property;
8.Costs of either party in administering the Joint Venture.”
Clauses 6 and 7 of the Agreement, in addition to dealing with costs to the extent set out above, allocate the responsibilities of the parties in relation to the joint venture business. Platypus agrees, inter alia, to provide the Mobile Telephone Services, address concerns and complaints by customers, keep books of account for the business and provide monthly statements of accounts to Drake and pay for goods or services provided to the business. Drake agrees, inter alia, to use Platypus as its preferred supplier for its corporate mobile phone requirements and use reasonable endeavours to refer customers to Platypus to use the Mobile Telephone Services. The Agreement further provides that Drake has the right at any time to audit the business and the performance of Platypus (cl.8.1) and that Platypus agrees to conduct the business on an “open book” basis (cl.8.2).
Clause 22.1 provides that the Agreement embodies the entire agreement between the parties and supersedes any prior agreement or understanding between them and that there are no agreements, representations or warranties oral or written between the parties other than those in the Agreement.
The joint venture business operated until about 31 May 2007. Platypus has produced accounts for the period showing that the business had no “Net Revenue,” within the meaning of the Agreement, but operated at a loss. Drake challenges these accounts and various categories of costs said by Platypus to be covered by the Agreement.
In that context, Drake seeks declarations as follows (and these are the matters raised for determination as separate questions):
“A. Declarations that:
1.It is an implied term of the Joint Venture Agreement that the Costs incurred by each party on behalf of or for the benefit of the Business would not be unreasonably incurred or of an unreasonable amount.
2.On the proper construction of the Joint Venture Agreement, the references to “Costs” in clause 5.3, clause 6(m), clause 7(f) and the definition of “Net Revenue” in clause 1 thereof:
(a)means the categories of expense or outgoings specified in Schedules 3 of the JVA and does not include any other category of expense or outgoing;
(b)does not include fees charged by a party to the Joint Venture for software licensing or other services supplied to the Joint Venture;
(c)does not include any amount by way of profit margin or otherwise in excess of the actual amounts paid or disbursed by a party to the Joint Venture;
(d)does not include any amount calculated by way of allocation of the expenses incurred by a party in respect of staff or overhead expenses where such expenses were not specifically incurred for the purposes of the Joint Venture.”
The implied term
I consider that this issue can be shortly dealt with. In my opinion it is unnecessary, in order to give business efficacy to the Agreement, to imply a term that the costs incurred would not be unreasonably incurred or of an unreasonable amount. Whatever might have been the position otherwise, the provision in cl.5.1(a) of the Agreement is entirely sufficient to deal with this question – indeed it might be thought to cover the precise field of concern.
The parties agree, by cl.5.1(a), that they will act in good faith. That aspect of the provision protects each party from dishonest, and probably reckless, conduct contrary to the interests of the other. But the provision goes further and requires the Business to be conducted “with best commercial practice and proper skill and care.” Thus each party is protected against the negligent conduct, and any poor business practice, of the other. In the present context, if Drake could show that any costs incurred (whether as to category or quantum) were incurred negligently or contrary to best commercial practice, that would be a breach of the Agreement having appropriate consequences. The implied term is unnecessary and to the extent that, by virtue of the implied term, the “onus of proof” would shift from the party challenging the costs to the party incurring the costs it would also be inconsistent with the intent of cl.5.1(a).
The meaning of “Costs”
Drake submitted, in effect, that the definition of “Costs,” by the incorporation of the cost items listed in Schedule 3, was the governing provision and that, to the extent that cll.5.3, 6(m) and 7(f) appeared to embrace a wider concept or category of costs, those provisions had to be read down to harmonise with the definition and with Schedule 3.
On the other hand, Platypus submitted the opposite, namely, that cll.5.3, 6(m) and 7(f) expressed the dominant intention of the parties with regard to the costs to be shared and overrode the definition and Schedule 3 to the extent that the latter contained a narrower definition of “Costs.”
On the face of it, there is a contradiction between the definition of “Costs” and the list in Schedule 3 and the other provisions concerned with costs. Clause 5.3 refers to “all Costs” associated with the establishment and operation of the Business and cll.6(m) and 7(f) both refer to “all Costs” not only incurred “by” the Business but also incurred by either party “for the benefit of” the Business. These wide provisions may be contrasted with the cl.1.1 definition incorporating referring to “the costs set out in Schedule 3.” Looking at Schedule 3, items 1 to 6 are primarily costs of a preliminary nature or very specific – item 8 is the only item of a broad nature and it refers to costs of either party in “administering the Joint Venture.” Prima facie, the administration of the Joint Venture would not cover the whole operation of the Joint Venture business but would refer principally to organisational, bookkeeping and accounting functions. Prima facie, administration would not include such matters as sales and advertising.
I am unable to accept Drake’s submission because it seems to me that it is an unreasonable, artificial and uncommercial construction to read down the very clear and wide words of the operative provisions of the Agreement by reference to the language used in item 8 of Schedule 3.
There is much to be said for the view that “administering the Joint Venture” should be treated as synonymous with “operating the Joint Venture business.” That interpretation would result in a consistency and harmony between the definition and the other provisions on the question of costs. Alternatively, if “administering the Joint Venture” is to be understood as referring to a concept of administration which is narrower than the operation of the business as a whole, then Schedule 3 and the definition might appropriately be regarded as inclusive rather than exclusive despite the use of the word “means” in cl.1.1. It might be thought that Schedule 3 was intended to clarify that certain categories of costs were included rather than intended to limit the scope of the costs otherwise covered by the operative provisions of the Agreement.
However I think that the better view is that the language contained in cll.5.3, 6(m) and 7(f) is so clear and decisive as to the parties’ intention that those provisions must be taken to override the definition of “Costs” – in the prefatory words of cl.1.1, “the subject matter or context otherwise requires.”
Reading the Agreement as a whole, the parties clearly intended that the costs incurred in operating the business and any costs incurred for the benefit of the business should be borne equally. An interpretation which excluded, for example, the sharing of sales and advertising costs, would be unreasonable and uncommercial in addition to being contrary to the plain meaning of three express provisions.
Further, the definition of “Net Revenue” in cl.1.1 provides for deducting “the Costs of the Joint Venture” from the revenue generated. The plaintiff submitted that the word “Costs” in that definition should bear the same meaning as in the definition of “Costs” (i.e. as listed in Schedule 3) but, if that were so, there would have been no need to add the words “of the Joint Venture.” I consider that the better view is that the expression “the Costs of the Joint Venture” should be read as having the same scope as I have found to be intended by the words used in cll.5.3, 6(m) and 7(f). The interpretation advanced by the plaintiff is also contrary to ordinary commercial concepts of “net revenue.”
Conclusions
Drake’s application for a declaration as to the alleged implied term will be dismissed.
Drake’s application for a declaration that “Costs” in cll.5.3, 6(m), 7(f) and the definition of “Net Revenue” means the categories specified in Schedule 3 and does not include any other category of costs will also be dismissed.
As regards Drake’s application for a declaration that such “Costs” do not include “fees charged by a party to the Joint Venture for software licensing or other services supplied to the Joint Venture,” I consider that this question is premature and cannot be determined on the evidence presently before the Court. It should be determined at trial in the context of evidence about the particular fees and other items relevantly in issue.
As regards Drake’s application for a declaration that such “Costs” do not include “any amount by way of profit margin or otherwise in excess of the other amounts paid or disbursed,” I tentatively think that Drake is correct in relation to profit margins but I consider, again, that the question should not be determined on the evidence presently before the Court but should be determined at trial in the context of precise evidence about the particular items that are relevantly in issue.
As regards Drake’s application for a declaration that such costs do not include “staff or overhead expenses where such expenses were not specifically incurred for the purposes of the Joint Venture,” Drake sought to distinguish between general staff or overhead expenses and staff or overhead expenses specifically incurred for the Joint Venture business. This distinction, even if valid, may perhaps be elusive and I think that it is preferable, again, that this whole question be determined at trial in the light of all the evidence.
I will hear submissions as to whether any positive declaration should be made and as to the costs of this aspect of the proceeding.
0
0
0