Funge Systems Inc v Newcom Technologies P/L (in Liq) (No 2) - [2006] SASC 109

SUPREME COURT OF SOUTH AUSTRALIA
(Applications Under Various Acts or Rules: Civil)
FUNGE SYSTEMS INC AND ANOR v NEWCOM TECHNOLOGIES P/L (IN LIQ) AND ORS (No 2)
Judgment of The Honourable Justice White
13 April 2006
EQUITY - EQUITABLE REMEDIES - INJUNCTIONS - PRACTICE AND PROCEDURE
PROCEDURE - SUPREME COURT PROCEDURE - SOUTH AUSTRALIA - PROCEDURE UNDER RULES OF COURT - JUDGMENTS AND ORDERS
Application by respondent seeking a dismissal or a striking out of the notice of appeal - respondent asserted that appeal instituted in breach of a contractual stipulation that no appeal would lie from the final decision of this Court concerning the disposition of certain monies - construction of parties' agreement - whether judgment that is the subject of the notice of appeal is, for the purposes of the agreement, "the final decision" of the court.
Held: settlement agreement restricts the parties from appealing against the final decision of the Supreme Court which finally determines the disposition of the monies - agreement does not preclude appellant from instituting an appeal concerning issues heard as preliminary issues only - application dismissed.
Supreme Court Rules 1987 r 75.02, r 95.08, referred to.
Funge Systems Inc & Anor v Newcom Technologies Pty Ltd & Ors [2005] SASC 498; Codelfa Constructions Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337, considered.

FUNGE SYSTEMS INC AND ANOR v NEWCOM TECHNOLOGIES P/L (IN LIQ) AND ORS (No 2)
[2006] SASC 109

WHITE J: On 22 December 2005, Layton J delivered her decision on certain issues in these proceedings which had been heard as preliminary issues.[1] On 10 February 2006, pursuant to an extension of time granted by Layton J on 8 February 2006, the second defendant instituted an appeal against that decision.
[1] Funge Systems Inc & Anor v Newcom Technologies Pty Ltd Ors [2005] SASC 498.
By the present application, Imbros Corporation (“Imbros”) which was an intervenor in the proceedings before Layton J and is the respondent to the appeal, seeks a dismissal or, in the alternative, a striking out of the notice of appeal. It submits that the institution of the appeal is in breach of an express term of an agreement to which both the second defendant and it are parties.
Section 50(1a)(a)(iii) of the Supreme Court Act 1935 provides, amongst other things, that no appeal lies from a judgment which is by agreement of the parties final or without appeal.
Pursuant to r 95.08, the application of Imbros came on for hearing before me sitting as a single judge. The determination of the strike out application involves the construction of a term of the written agreement. Neither party submitted that that course was inappropriate on an application of this kind or that it was inappropriate for me, sitting as a single judge, to hear and determine the application made on that basis.
Background
It is necessary to recount only a little of the proceedings at first instance. Those circumstances are set out more fully in the decision of Layton J.[2]
[2] Ibid.
The proceedings concerned a dispute about the ownership and use of certain intellectual property. There has also been substantial litigation in the United States concerning the same issues. It seems that the proceedings in this Court were instituted for the purpose of seeking injunctions to restrain the defendants from dealing with the intellectual property in dispute until the issues in the proceedings in the United States had been resolved.
On 24 May 2001, Lander J ordered that the first plaintiff in the proceedings pay to its solicitors, Kelly & Co, the sum of $250,000 which sum was to be held by Kelly & Co as security for the undertaking as to damages by the first plaintiff, given to this Court as a condition of the grant of an interlocutory injunction restraining the defendants from disposing in any way of any interest which they had in the intellectual property. By that undertaking, the first plaintiff agreed to abide by any order which the court or a judge may make as to the damages to which the defendants, or any of them, should be entitled in consequence of sustaining any loss or damage by reason of the grant of the injunction.
The $250,000 was paid to the firm of Kelly & Co and is still held by that firm pursuant to the order of Lander J.
A compromise of the disputes concerning the intellectual property was reached in the context of the proceedings in the United States. The terms of the compromise are recorded in a written agreement to which the present litigants are parties. Prior to the compromise being reached certain orders concerning the dispute had been made by Judge Mayer in the US Bankruptcy Court on 27 March 2003 and 20 February 2004.
The second defendant asserts, in the present proceedings, an entitlement to be paid the sum of $250,000 held by Kelly & Co.
Its assertion is that that entitlement arises by one or more of the following:
(a)its entitlement to the money has been determined by a US court of competent jurisdiction (the US Bankruptcy Court) and that this Court should enforce the orders made by that Court;
(b)an agreement to which each of the present litigants is a party entitles it to payment of the $250,000;
(c)it can prove that it has suffered damage amounting to at least $250,000 and as the $250,000 was paid to Kelly & Co to secure the first plaintiff’s undertaking as to damages, this Court should order the payment out to it of that sum.
By a Notice for Specific Directions dated 23 August 2004 (and amended on 22 November 2004), the second defendant sought an order that the orders of Judge Mayer be enforced as judgments of this Court. On 18 April 2005, an order was made by a master that the issues arising in that application be determined as preliminary issues. It was that application which was the subject of the decision of Layton J on 22 December 2005.
As I understand it, the parties sought the determination of the issues raised in the Notice for Specific Directions filed on 23 August 2004 (as amended) as preliminary issues because, if resolved in the second defendant’s favour, it would make it unnecessary for the court to hear and determine the alternative bases upon which the second defendant makes its claims, ie, as set out in sub-paras (b) and (c) above. If the preliminary issues were resolved adversely to the second defendant, it would remain open to it to pursue those alternative claims.
In effect, the court and the parties were proceeding pursuant to r 75.02 so as to have some issues determined before others. The second defendant also sought, in some way which is not clear, to invoke r 25.04 (which provides for applications for summary judgment or dismissal). Layton J held that r 25.04 did not have any application to the determination of the preliminary issues.
By the decision of 22 December 2005, Layton J held that the second defendant was not entitled to an order from this Court enforcing the order of Judge Mayer and, accordingly, declined to make a declaration that the second defendant was entitled to the sum of $250,000 held by Kelly & Co and declined to order that Kelly & Co pay those monies to the second defendant’s solicitors.
The Settlement Agreement
The agreement which Imbros contends is breached by the institution of the appeal from the decision of Layton J is a settlement agreement entered into on 15 November 2005 in the United States between various parties, including the second defendant and Imbros. Portions only of the settlement agreement were put in the evidence before me. It was common ground that it was not necessary for this Court to have the whole agreement in order to resolve the question of construction which arises.
As I understand it, the settlement agreement records the terms upon which the disputes about the use of, and dealing with, the intellectual property in question were resolved. Clause 4 of the settlement agreement provides:
Notwithstanding any other provision in this Settlement Agreement, the Parties agree that the claims made and rights asserted by the parties and other third Parties with respect to the security bond posted in the Supreme Court of South Australia in 2001 (the “Australian Bond Proceeding”) in connection with litigation brought against Holdings and others in FSI’s name shall not be affected or prejudiced in any way by the terms of this Settlement Agreement, and that those claims shall be retained by the current parties in interest and independently pursued to resolution. The Parties further agree that they will abide by and take no appeal from the final decision of the Supreme Court of South Australia in which the Australian Bond Proceeding is pending as to the disposition of the funds in question, whether that decision comes in response to the motion that is currently under advisement or after a subsequent hearing or trial if the current motion is denied.
I was told that cl 4 was a “stand alone” clause, so that the proper construction of it could be considered without reference to the other clauses of the settlement agreement. That being the parties’ common position, I will proceed on that basis.
A number of other matters were also common ground. First, that the sum of $250,000 provided to Kelly & Co was the “security bond” to which cl 4 referred. Secondly, that the proceedings in this action were the “Australian bond proceedings” to which cl 4 refers. Thirdly, that the application filed on 23 August 2004 (as amended), which was being heard by Layton J, was the “motion that is currently under advisement” mentioned in cl 4. (Layton J heard the preliminary issues on 25 August 2005 and had reserved her decision).
The Effect of Clause 4
Mr Duggan, who appeared for Imbros, referred to the second sentence of cl 4. His submission was, in effect, that that sentence should be construed as meaning that there was to be no appeal from the final decision on the preliminary issues and no appeal from the final decision following a trial.
I commence with some general observations. The clause comprises, in substance, two parts as well as an unstated premise. By the first part, contained in the first sentence, the parties agree that the settlement of their disputes concerning the intellectual property should not be regarded as determining or affecting the rights of the parties with respect to the $250,000. In effect, the parties had agreed that there was one aspect of the disputes between them which was not resolved, or affected by, the terms of the settlement agreement.
The unstated premise is that the dispute about the $250,000 should be resolved in this Court. At the time of entry into the settlement agreement, the parties knew of the proceedings in this Court, knew that the hearing of the preliminary issues had already occurred, and knew that Layton J had reserved her decision on those preliminary issues.
The second part of cl 4 qualifies, to some extent, the first part. Despite agreeing that the dispute about the $250,000 should not be regarded as affected by the other terms of the settlement agreement, the parties did agree that there should be a limitation on the exercise of rights of appeal from the decision of this Court determining the fate of the $250,000. That is the subject matter of the second sentence of cl 4.
The second sentence of cl 4 takes as its subject the final decision of this Court. The use of the definite article before the words “final decision” is important. It indicates, in my opinion, that the parties contemplated that there would be one decision which would be the final decision. That final decision is the decision of the Court “as to the disposition” of the $250,000, ie, the decision which finally determines the fate of the $250,000.
The second sentence of cl 4 contemplates that that final decision may be reached by alternative routes. It could result from the determination of the preliminary issues (but only of course if those issues were resolved in favour of the second defendant). Alternatively, the final decision could result from a hearing and trial if the preliminary issues were resolved adversely to the second defendant (ie, “if the current motion is denied”). However reached, it is only the decision which determines finally the fate of the $250,000 which the parties have agreed should not be subject to appeal.
The decision of Layton J on 22 December 2005 did not have the effect of determining finally the fate of the $250,000. All it meant was that the second defendant had not succeeded in obtaining an order concerning the $250,000 by the first of the alternatives upon which it relied.
If the parties had intended that there should be no appeal at all from the decision at first instance on the preliminary issues, it would have been quite simple to say so, eg, that there was to be “no appeal from the decision on the motion that is currently under advisement or from a decision after a subsequent hearing or trial if the current motion is denied”. I note again that as at the date of entry into the settlement agreement (15 November 2005) the parties knew that Layton J had reserved her decision. They may be taken to have known that there were two possible outcomes. If they had intended that whatever the outcome, there should be no appeal, it would, as I say, have been quite straightforward to say so. Instead, what the parties did was to agree that there was to be a restriction on the right of appeal only in respect of the decision (whichever it was) which finally determined the disposition of the $250,000.
For these reasons, I do not consider that cl 4 precludes the second defendant from instituting and prosecuting its appeal.
Other Matters
The second defendant sought to rely on an affidavit from Stephen Cochrane, a person involved in the negotiation and preparation of the settlement agreement. Mr Cochrane deposed to his understanding and belief at the time of drafting of cl 4 as to the effect of the clause. Evidence of that kind is not admissible[3] and I have paid no regard to Mr Cochrane’s affidavit.
[3] Codelfa Constructions Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 352 per Mason J.
At the hearing before me, there was some debate as to whether the words “final decision” in the second sentence of cl 4 were used in contra distinction to the words “interlocutory decision”. I have not thought it necessary to consider that issue in any detail because, as indicated above, I consider the “final decision” to be that decision, whether resulting from a determination of the preliminary issues or from a trial, which has the effect of determining the fate of the $250,000.
The possibility that the expression “final decision of the Supreme Court of South Australia” referred to the last possible decision in this Court, ie, whether at first instance or on appeal, was also raised in argument. Neither party seemed to advocate for that construction. I have not had to decide that issue for the purposes of resolution of the present application, and I refrain from doing so.
Conclusion
For the reasons given above, my conclusion is that the application of Imbros for the dismissal or strike out of the notice of appeal should be dismissed. I will hear the parties as to costs.