Jackson v Cheek
[2023] VSC 298
•6 June 2023
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
COMMERCIAL LIST
S ECI 2022 05340
| MICHAEL JACKSON | Plaintiff |
| v | |
| ROBERT REGINALD CHEEK & ANOR | Defendants |
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JUDGE: | M Osborne J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 11 May 2023 |
DATE OF JUDGMENT: | 6 June 2023 |
CASE MAY BE CITED AS: | Jackson v Cheek |
MEDIUM NEUTRAL CITATION: | [2023] VSC 298 |
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CONTRACT – Construction of agreement – Settlement agreement relating to initial proceeding – Whether covenant not to sue is breached by commencement of later proceeding – Scope of the words ‘any other person’ – Words given ordinary, natural meaning – Commercial considerations, if relevant, do not alter reasonable interpretation – Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | C Juebner SC E Nadon | Aptum Legal |
| For the Defendants | N Ferrett | Hickey Lawyers |
HIS HONOUR:
Introduction
Until 13 July 2017, the plaintiff, Dr Michael Jackson, and a company he controlled, Jumic Services Pty Ltd (‘Jumic’), were shareholders in Dockvest Pty Ltd (‘Dockvest’). Dockvest operated a fitness gymnasium business trading as Zap Fitness. In addition to Dr Jackson and Jumic, Dockvest’s other shareholders were the second defendant, Bective Enterprises Pty Ltd (‘Bective’), as trustee for the Bob Cheek Family Trust, and Steven Chopping. Bective was controlled by the first defendant, Robert Cheek, who was also the chief executive officer and managing director of Dockvest. Mr Chopping was also a director of Dockvest.
On about 13 July 2017, Dockvest entered into a share buyback agreement with Dr Jackson and Jumic, under which Dockvest bought back all of the shares that had been held by Dr Jackson and Jumic for $2.5 million.
On about 15 November 2017, Fitness and Lifestyle Group Bidco Pty Ltd (‘FLG Bidco’), a company that was part of the ‘Fitness and Lifestyle Group’ (‘FLG’), entered into a share purchase agreement with Bective and Mr Chopping for all of the shares in Dockvest.
On 22 March 2018, Dr Jackson and Jumic commenced proceeding number VID312/2018 (‘Jackson Proceeding’) in the Federal Court of Australia (Victorian Registry) against Dockvest and FLG Bidco, who filed a defence and a cross-claim against Mr Cheek and Bective. On 22 June 2018, Mr Cheek and Bective were joined as respondents to the claim brought by Dr Jackson and Jumic, with the result that the statement of claim included claims by Dr Jackson and Jumic against Dockvest, FLG Bidco, Mr Cheek and Bective.
The gist of the claim was that Dr Jackson and Jumic had been misled by Dockvest, Mr Cheek and Bective by representations made to them to the effect that Dockvest was experiencing serious financial difficulty and by the failure to disclose that FLG had expressed interest in purchasing Dockvest. Dr Jackson and Jumic alleged that had they not been misled, they would not have accepted Dockvest’s offer to buy back the shares at a price of $2.5 million.
The Jackson Proceeding settled prior to trial. In about December 2018, Dr Jackson, Jumic, Dockvest, FLG Bidco, Mr Cheek and Bective entered into terms of settlement which, in substance, required Mr Cheek and Bective to pay to Dr Jackson and Jumic a settlement sum of $4.25 million, with Dockvest and FLG Bidco required to pay $250,000. The terms of settlement provided for the proceeding to be struck out with a right of reinstatement and the cross-claim dismissed.
The terms of settlement include the following:[1]
[1]Capitalised terms in the excerpt refer to defined terms in the terms of settlement.
3 Releases and covenant not to sue
3.1Upon the date of this agreement, Jackson and Jumic forever release and discharge Dockvest, FLG Bidco, Cheek and Bective (and each of their past and present directors, officers and employees) from all claims or causes of action arising out of or related to the matters the subject of the Proceeding or the Cross-Claim, save for any claims or causes of action for breach of this agreement.
3.2Upon the date of this agreement, Dockvest and FLG Bidco forever release and discharge Cheek and Bective (and each of its past and present directors, officers and employees) from all claims or causes of action arising out of or related to the matters the subject of the Proceeding or the Cross-Claim.
3.3Upon the date of this agreement, Dockvest, FLG Bidco, Cheek and Bective forever release and discharge Jackson and Jumic (and each of its past and present directors, officers and employees) from all claims or causes of action arising out of or related to the matters the subject of the Proceeding or the Cross-Claim.
3.4Upon the date of this agreement, Jackson, Jumic, Dockvest, FLG Bidco, Cheek and Bective hereby severally covenant not to sue any other person in respect of the matters the subject of the Proceeding or the Cross-Claim.
On about 25 August 2022, Mr Cheek and Bective commenced proceeding QUD288/2022 (‘Cheek Proceeding’) in the Federal Court of Australia (Queensland Registry) against Pitcher Partners Advisors Pty Ltd (‘Pitcher Partners’).
In the statement of claim filed in the Cheek Proceeding, Mr Cheek and Bective allege, among other things, that:
(a) the non-disclosure of Dockvest’s actual financial position and FLG’s expressed interest in purchasing Dockvest (‘Disclosure Information’) to Dr Jackson and Jumic was a result of negligent advice from and/or misleading and deceptive conduct by Pitcher Partners;
(b) if Dockvest had provided the Disclosure Information to Dr Jackson and Jumic, Dr Jackson and Jumic would, in any event, have agreed to Dockvest’s share buyback proposal that the shares be bought back for $2.5 million;
(c) because Dr Jackson and Jumic would have agreed to Dockvest’s share buyback proposal, even where they had been provided with the Disclosure Information, Dr Jackson and Jumic would not have brought the Jackson Proceeding against Mr Cheek and Bective;
(d) as a result, Mr Cheek and Bective would not have entered into the terms of settlement and become liable to pay $4.25 million to Dr Jackson and Jumic; and
(e) Pitcher Partners’ negligent advice and/or misleading and deceptive conduct therefore caused loss to Mr Cheek and Bective.
On 26 October 2022, Pitcher Partners’ solicitors wrote to Dr Jackson, informing him of the existence of the Cheek Proceeding and that he would likely be required to give evidence in the proceeding. The letter observed that the matters alleged by Mr Cheek and Bective in the Cheek Proceeding were in direct contradiction to the matters pleaded by Dr Jackson in the Jackson Proceeding and, as such, they expected that Mr Cheek and Bective would need to make arrangements for Dr Jackson to give evidence and alternatively, if that did not occur, Pitcher Partners may take steps to call Dr Jackson. The letter appears to have prompted the commencement of this proceeding.
The issue which arises is whether the bringing of the Cheek Proceeding by Mr Cheek and Bective against Pitcher Partners infringes the covenant not to sue contained in clause 3.4 of the terms of settlement.[2] Orders have been made in the Federal Court standing over the Cheek Proceeding until this proceeding is heard and determined.
[2]See above [7].
Mr Cheek and Bective accept that if the bringing of the Cheek Proceeding is contrary to clause 3.4 of the terms of settlement, Dr Jackson is entitled to an injunction restraining its further prosecution. The earlier contention advanced in written submissions to the effect that Dr Jackson should be confined to a remedy in damages was abandoned at the hearing.
Accordingly, the issue in dispute is a narrow one: does the bringing of the Cheek Proceeding amount to a suit against ‘any other person’ in respect of the matters the subject of the Jackson Proceeding or the cross-claim?
Dr Jackson and Jumic submit that the relevant enquiry calls into question two issues:
(a) determination of the proper meaning of ‘any other person’ in clause 3.4 of the terms of settlement; and
(b) whether the Cheek Proceeding is a suit which is ‘in respect of the matters the subject of the [Jackson Proceeding] or the [cross-claim]’.
Mr Cheek and Bective approach the issue in a slightly different way, arguing that the proper approach is to interpret the entirety of clause 3.4 in the context of the terms of settlement as a whole, applying orthodox interpretative tools.
This minor difference in approach aside, there was otherwise no dispute between the parties as to the appropriate approach in resolving the question of construction. The parties accept that the process of construction is to be approached by determining what a reasonable business person would have understood the term ‘any other person’ to mean and that this requires consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. The appreciation of the commercial purpose or objects is facilitated by an understanding ‘of the genesis of the transaction, the background, the context [and] the market in which the parties are operating’.[3] Both parties accept that the Court will approach the task of giving a commercial contract a businesslike interpretation on the assumption ‘that the parties … intended to produce a commercial result’.[4]
[3]Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640, 656–7 (citations omitted).
[4]Ibid.
Mr Cheek and Bective emphasise that the overarching objective of the terms of settlement was to ‘… settle the claims made in the Proceeding and in the [cross-claim] without any admissions of liability on the terms [thereof]’.[5] The ‘Proceeding’ is defined to be ‘proceeding number VID312/2018 … in the Federal Court of Australia,’[6] that is, the Jackson Proceeding.
[5]Recital E of the terms of settlement.
[6]Recital A of the terms of settlement.
Mr Cheek and Bective accept that a literal construction of the words ‘any other person’ is clear and unambiguous when ‘shorn of context’, but submit that the literal meaning of the words is nevertheless affected by the balance of the clause which reads ‘… in respect of the matters the subject of the [p]roceeding or the [cross-claim]’.
They also accept that the phrase ‘any other person’ in clause 3.4, in contrast to ‘party’ or ‘parties’, defined in clause 1.1 by reference to the parties to the terms of settlement, is intended to have effect beyond the parties to the terms of settlement. However, they submit that a construction which accords with the literal meaning of the words ‘any other person’ lacks commercial rationale such that the ambiguity which they submit is implicit in such a phrase should be resolved in favour of what the Court, exercising its own sense of commercial rationality, regards as the more likely commercial interpretation. In that respect, they submit that the reference to ‘any other person’ should be read down so as to be confined to ‘related entities of the parties’ or accessories of the parties, because the presumed intention of the parties as to the class of persons who might be the subject of a claim ‘in respect of the matters the subject of the [Jackson Proceeding] or the [cross-claim]’ would be expected to be so confined.
In aid of the submission that the width of the words should be read down, Mr Cheek and Bective assert that in the case of a release, the general words of the release are limited to the thing or things that were specifically in the contemplation of the parties at the time when the release was given.[7] This proposition does not assist the defendants. Clause 3.4 of the terms of settlement is not a release; it is a covenant not to sue. The distinction between the two is not only well known, but apparent on the face of the terms of settlement. Whilst there may be little practical difference between a release by A of B and a covenant by A not to sue B, such that it is possible that in such instance the argument may have more force, here the covenant not to sue is given by all parties to the terms of settlement and is directed to not suing ‘any other person’. The parties to the terms of settlement did not need to rely on the covenant not to sue as an answer to any claim brought by one of them against another, because each had the benefit of the releases in clauses 3.1 to 3.3. The manifest intention of clause 3.4 was to operate in a different circumstance to that of the releases.
[7]Grant v John Grant & Sons Pty Ltd (1954) 91 CLR 112, 123.
In any event, even if the principle of a restrained construction has any application, it still requires identification of that which was objectively contemplated by the parties. Here, that which was objectively contemplated by the parties was that no party to the terms of settlement could sue ‘any other person’ in respect of the matters the subject of the Jackson Proceeding or the cross-claim. The words ‘any other person’ are clear and unambiguous. They are words which have an ordinary and natural meaning and prima facie, the words used should be given that ordinary and natural meaning.[8] Of course, such an interpretation must occur in the context of the reading of the document as a whole, together with admissible extrinsic evidence, but there is no absurdity or repugnance which arises from an interpretation which accords with the ordinary sense of the words.[9]
[8]Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500, 510.
[9]Watson v Phipps (1985) 60 ALJR 1, 3.
The terms of settlement disclose an objective intention to differentiate between parties and persons.[10] So much is accepted by Mr Cheek and Bective. The terms of settlement contain various provisions that confer rights and obligations on a party or parties.[11] In contrast, the terms of settlement make express reference to ‘person’ in clauses 3.4, 4 and 10.1. Unless the context suggests otherwise, where a contract uses different expressions, those expressions are presumed to have different meanings.[12]
[10]See definition of ‘Parties’ and ‘Party’ in clause 1.1 of the terms of settlement.
[11]For example, recital E and clauses 2.7, 2.8, 4, 5, 8.2 and 10 of the terms of settlement.
[12]Eureka Funds Management Ltd v Freehills Services Pty Ltd (2008) 19 VR 676, 691–3 [52]–[53].
The defendants’ submission to the effect that the words ‘any other person’ should be interpreted as to be confined to those who might be accessories of parties to the terms of settlement or related entities is problematic. Neither ‘accessories’ or ‘related entities’ are defined in the terms of settlement. To the extent to which the parties intended to pick up the definition of ‘related entity’ in s 9 of the Corporations Act 2001 (Cth), or ‘related party’ in s 228 of the Corporations Act 2001 (Cth), one could hardly expect that the parties would be intending to pick up the rather complicated definition set out in legislation to which no reference is made, rather than the application of the straightforward and easily understood meaning ordinarily given to ‘any other person’.
In my view, there is nothing absurd or repugnant about the reference to ‘any other person’ being given its ordinary and natural meaning. There is nothing surprising about a mutual intention to prevent matters in respect of the subject of the Jackson Proceeding or the cross-claim being traversed in further litigation, regardless of the identity of the defendant to any such claim. The terms of settlement were entered into to bring finality to all issues agitated in the Jackson Proceeding. The circumstances which have now arisen support the commercial justification of clause 3.4 of the terms of settlement, as propounded by Dr Jackson. Reasonable business persons would readily accept that by clause 3.4, Dr Jackson (and the other parties to the terms of settlement) sought to ensure that he (and they) would not be vexed by any subsequent proceeding in relation to those same matters. The vexation anticipated at the time may have been of the kind where one or more of them may be required to give evidence in a later proceeding, or of a more significant kind, such as being joined to any subsequent proceeding as a third party or cross-respondent. Given the absence of any indemnities in the terms of settlement in respect of subsequent proceedings, the inclusion of a covenant not to sue cast in wide terms presents as an obvious mechanism to mitigate against such risk.
To the extent to which the defendants’ submissions suggest that the result of any interpretation being given to the words ‘any other person’ in the manner urged by Dr Jackson produces an unreasonable or unfair result, there is no common law or equitable rationale for the Court to not uphold the plain meaning of a contract, simply because it produces an unfair result. The orthodoxy of construing an agreement on the basis that the parties intended to produce a commercial result does not constitute a licence to alter the meaning of a term to achieve a result the Court may think to be reasonable.[13]
[13]Great Union Pty Ltd v Sportsgirl Pty Ltd [2021] VSCA 299, [32].
Contrary to the defendants’ submissions, the proper approach to construction does not limit or confine the ordinary and natural meaning of the words ‘any other person’ by reason of the words which then follow, being ‘in respect of the matters the subject of the [Jackson Proceeding] or the [cross-claim]’. Rather, the words ‘any other person’ are to be given their ordinary, natural and wide meaning. The words ‘in respect of the matters the subject of the [Jackson Proceeding] or the [cross-claim]’ operate to confine the sphere of operation of the clause, but not by limiting or confining the width of ‘any other person’. Rather, they limit the scope of the operation of the covenant not to sue ‘any other person’ by reference to the subject matter of the subsequent action, by requiring a connection between the subsequent action and the matters the subject of the Jackson Proceeding or the cross-claim.
Having determined that the proper construction to be given to the words ‘any other person’ accords with their ordinary natural meaning and therefore has potential application to the proceeding commenced by Mr Cheek and Bective against Pitcher Partners, the remaining question is whether the Cheek Proceeding is a proceeding which is ‘in respect of’ the matters the subject of the Jackson Proceeding.
The expression ‘in respect of’ is an expression that, subject to context, is capable of a very wide meaning. The High Court has observed in relation to the use of that expression in a policy of insurance:[14]
Undoubtedly the words ‘in respect of’ have a wide meaning, although it is going somewhat too far to say, as did Mann CJ in Trustees Executors & Agency Co Ltd v Reilly, that ‘they have the widest possible meaning of any expression intended to convey some connection or relation between the two subject-matters to which the words refer’. The phrase gathers meaning from the context in which it appears and it is that context which will determine the matters to which it extends.
[14]Workers’ Compensation Board (Qld) v Technical Products Pty Ltd (1988) 165 CLR 642, 653–4 (citations omitted).
Similarly, in Tanning Research Laboratories Inc v O’Brien, Deane and Gaudron JJ observed that ‘… in any context, “matter” is a word of wide import’.[15]
[15]Tanning Research Laboratories Inc v O’Brien (1990) 169 CLR 332, 351.
The Cheek Proceeding is a proceeding ‘in respect of’ the matters the subject of the Jackson Proceeding. A comparison of the pleadings make that clear.
In the Cheek Proceeding, Mr Cheek and Bective allege, inter alia, that:
(a) Mr Cheek discussed his and Mr Chopping’s proposal to buy out Dr Jackson’s shares with Pitcher Partners;
(b) Pitcher Partners proposed a share buyback and purchase and prepared the transaction documents accordingly;
(c) Mr Cheek informed Pitcher Partners of FLG’s interest in acquiring an interest in the Zap Fitness business and sought Pitcher Partners’ advice regarding the potential sale of shares in Dockvest to FLG;
(d) Dockvest failed to comply with its disclosure obligations as a consequence of breaches of duty by Pitcher Partners;
(e) but for the failure to advise Dockvest of the disclosure obligations, Mr Cheek and Bective would have caused Dockvest to comply with the disclosure obligations;
(f) notwithstanding such compliance, Dr Jackson and Jumic would have agreed to the buyback proposal;
(g) Dr Jackson and Jumic would not have commenced the Jackson Proceeding, as a consequence of which, Mr Cheek and Bective would not have become liable to pay the Jackson Proceeding compromise sum or legal costs; and accordingly,
(h) Mr Cheek and Bective seek loss and damage from Pitcher Partners as a consequence of, inter alia, its breach of retainer.
The statement of claim filed in the Cheek Proceeding expressly refers to the statement of claim filed in the Jackson Proceeding. A copy of the statement of claim in the Jackson Proceeding is annexed to the statement of claim in the Cheek Proceeding.
A comparison of the pleadings alone makes it clear that there is a connection or relationship between the subject matter of the Jackson Proceeding and the cross-claim and the allegations made in the Cheek Proceeding. It is entirely unsurprising therefore that Dr Jackson is likely to be a witness in the Cheek Proceeding. The Cheek Proceeding is an action which is ‘in respect of’ the matters the subject of the Jackson Proceeding.
As noted above, Mr Cheek and Bective did not press the contention earlier advanced that Dr Jackson should be confined to a remedy in damages. To the extent to which this concession did not carry with it the abandonment of the submission that relief should be declined on comity grounds as any injunction interferes with a pending proceeding in another court, that submission too is rejected. In the case of anti-suit injunctions, there is a frequently expressed need for caution in their grant, given that they interfere with the processes of another court and may well be perceived as a breach of comity by that court.[16] The need for caution does not mean that no relief is obtainable; the alternative course is to seek a stay in the court in which the proceeding is brought, as opposed to seeking an anti-suit injunction in another court.
[16]CSR Ltd v Cigna Insurance Australia Ltd (1997) 189 CLR 345, 395 (‘CSR’).
In Aggeliki Charis Compania Maritima (SA) v Pagnan SpA (The Angelic Grace),[17] the Court observed that the time had come to lay to rest the ritualistic ‘incantation’ that the jurisdiction to grant anti-suit injunctions should be exercised sparingly and with great caution. The Court contrasted applications for anti-suit injunctions based on forum non conveniens grounds, those where the foreign proceedings are vexatious and oppressive and where no breach of contract is alleged, and those involving a breach of a contract not to sue in a particular forum. Only the former warranted caution, with the question of whether proceedings are vexatious or oppressive primarily a matter for the court in which they are pending. As the Court noted, where the proceeding is brought for breach of contract, there is no warrant for caution of the kind merited, where one court is being asked to find that another court is a wholly inappropriate forum. This is entirely consistent with the High Court’s approach in CSR Ltd v Cigna Insurance Australia Ltd.[18]
[17][1995] 1 Lloyd’s Rep 87, 96.
[18]CSR (n 16).
The present is a case where the plaintiff seeks to enforce a covenant not to sue. No need for caution arises. In any event, the Federal Court, by its adjournment of the further directions hearing in the Cheek Proceeding, pending the outcome of this proceeding, has recognised that the enforcement of the covenant not to sue will take place in this Court. To suggest that the injunction should be refused in this Court and instead that Dr Jackson should somehow apply for injunctive relief in the Federal Court makes no sense,[19] and is not required by authority.
[19]It is not clear how Dr Jackson could have done so, given he is not a party to the Cheek Proceeding and his claim is one founded on a breach of contract.
I shall hear the parties as to the precise form of order and as to costs.
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