Optus Networks Pty Ltd v Horman
[2010] VSC 108
•1 April 2010
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 8346 of 2009
| OPTUS NETWORKS PTY LIMITED (ACN 008 570 330) | Plaintiff |
| v | |
| IAN WOOD HORMAN | Firstnamed Defendant |
| and | |
| PATRICK SCHOFIELD MANN | Secondnamed Defendant |
| and | |
| FRANK NOLA | Thirdnamed Defendant |
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JUDGE: | KAYE J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 26 March 2010 | |
DATE OF JUDGMENT: | 1 April 2010 | |
CASE MAY BE CITED AS: | Optus Networks Pty Ltd v Horman & Ors | |
MEDIUM NEUTRAL CITATION: | [2010] VSC 108 | |
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PRACTICE – Application by plaintiff for summary determination of counter-claim – Claim in contract – Whether defendants have standing to sue on claim alleged in counter-claim – Whether contract entered into by another as agent or trustee of defendants – Whether claim released – Rules of Supreme Court Rule 23.01, 23.02.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff and Defendant by Counter-claim | Mr S McLeish SC and Mr E Wheelahan | Minter Ellison |
| For the Defendants and Plaintiff by Counter claim | Mr J Tsalanidis | Halperin & Co Pty Limited |
HIS HONOUR:
This is an appeal, by the plaintiff, from an order of Associate Justice Daly made on 18 December 2009. By that order, her Honour dismissed a summons, by which the Plaintiff had sought orders for judgment against the defendants on their counter-claim, or alternatively an order staying the counter-claim, or an order striking out the defence and counter-claim.
The claim by the plaintiff (“Optus”), and the counter-claim, arise out of an agreement made between Optus and Convergency Services Pty Ltd (“Convergency Services”) in about June 2005. Originally, the plaintiff’s claim was commenced in the County Court. That claim is for the amount of $120,000, being the balance of the additional advance commission payment which it made to Convergency Services in October 2006, and which Convergency Services and each of the three defendants, Ian Horman (“Horman”), Patrick Mann (“Mann”), and Frank Nola (“Nola”), had agreed to repay to Optus. After the defendants were granted leave to file and serve their counter-claim, the proceedings were transferred to this Court. By that counter-claim, the defendants claim damages arising out of alleged breaches by Optus of the agreement. The issues, raised by the plaintiff’s summons, concern, first, whether the defendants have standing to make the claims in the counter-claim, and, secondly, whether those claims have been released as a result of an agreement between Optus and Convergency Services in the course of Federal Court proceedings between them.
The first, and principal, issue, concerns the standing of the defendants to make the claims in the counter-claim. In short, the defendants allege that Convergency Services entered into the agreement with Optus as agent for a partnership, known as “the Convergency Services Partnership”, the membership of which consists of three family trusts, of which the three defendants are now the trustees. On the other hand, the plaintiff contends that Convergency Services entered into the agreement as a principal, and not as an agent, and, in particular, that it did so as trustee of the Convergency Services partnership.
The counter-claim also alleges that a related company, Business Integration Solutions Australia Pty Ltd (“BISA”) was also a party to the Optus agreement. The defendants have pleaded that BISA entered into that agreement as agent for the BISA partnership, the members of which were three family trusts, of which the defendants are now the trustees.
Thus, the issue of standing concerns whether Corporate Services entered into the Optus agreement as trustee for the Convergency Services partnership (and the BISA partnership), or whether it did so as agent for those partnerships. For that purpose, it is necessary for me to outline, briefly, the corporate structures of those entities.
The Convergency Services and Business Integration Solutions partnerships
The relationship between Convergency Services and the three trusts which constituted the Convergency Services partnership, are contained in an agreement entitled “The Convergency Services Partnership Agreement” dated 30 September 2002. Similarly, the relationship between BISA and the BISA Partnership are contained in an identical agreement. For convenience, I shall refer to the Convergency Services Partnership Agreement. In that agreement, there were four parties described as the “partners”. One of those partners has ceased to be involved and is not relevant. The other three are Rubens Run Pty Ltd (as trustee of the Mann Family Trust No 2), Kamita Pty Ltd (as trustee of the F J Nola Family Trust No 2), and Marinlea Pty Ltd (as trustee of the Miowera Trust No 2, which is a family trust of the defendant, Ian Horman). The business of the partnership was defined as the business of selling and installing and servicing telecommunications goods and equipment, including PABX installation, maintenance, minor works and related services for customers of Damovo (Australia) Pty Ltd.
Recital B to the Convergency Services Partnership Agreement states:
“CS (Convergency Services) agrees to hold and conduct the Business for and on behalf of the Partners and to hold, enter into, and carry out contracts and agreements and incur any debts and liabilities in relation to or affecting the Business or the conduct of the Business as the custodian and agent for the Partners.”
Clause 4.1 provides that the purpose of the partnership was to purchase, own and hold the business, to conduct the business, to improve and expand the business so as to operate it in a profitable manner, and to earn income and profits from the business. Clause 4.3 states:
“In connection with the Purpose, CS (Convergency Services) will enter into any contracts and agreements (including any supply or sale contracts, development contracts, franchise agreements, contracts for works, contracts for services, leases, licenses, rights of occupation and rights of use) in its capacity as custodian and agent of the Partnership.”
In September 2007, each of the family trust companies, Rubens Run Pty Ltd, Kamita Pty Ltd and Marinlea Pty Ltd, went into liquidation. In February 2008, Nola, and on 30 April 2008 each of Horman and Mann, respectively exercised powers of appointment under the trust deeds of their family trusts, to substitute themselves as the trustees of their family trust. Thus, from those dates, each of the three defendants, Horman, Mann and Nola, became members of the Convergency Services Partnership, in their capacities as trustees of their respective family trusts.
The counter-claim pleads a similar structure in relation to the BISA partnership. As I stated, the agreement constituting that partnership is in identical form to the agreement by which the Convergency Services partnership was constituted. The business of the BISA partnership consisted of conducting service work. The partners of the BISA partnership were Cranewood Pty Ltd (as trustee of the Miowera Trust No 3, which is a family trust of the Horman family), Rothgate Pty Ltd (as trustee of the Mann Family Trust No 3), and Aronmeda Pty Ltd (as trustee of the F J Nola Family Trust No 3). On 17 September 2007, each of those three trustee companies went into liquidation. On 30 April 2008, Nola, Horman and Mann each exercised powers under the trust deeds of their family trusts to substitute themselves as trustees of their respective family trust. Thus, from that date, each of the three defendants, Horman, Mann and Nola, became members of the BISA partnership, in their capacity as trustees of their family trusts.
Counter-claim
There is an issue between the parties as to whether the Optus agreement comprised solely a document entitled Optus Master Partnership Agreement (“the Optus MPA”) dated 30 June 2005, or whether it also consisted of other documents and communications between the parties at about the time of the execution of that document. The plaintiff relies solely on the Optus MPA. The parties to that agreement are respectively Optus and Convergency Services. I shall return to that agreement later.
In paragraph three of the defence, the defendants admit the Optus MPA, but plead that it formed part of the relevant agreement between the parties, which is set out in paragraph 18 of the counter-claim. In paragraph 18, the defendants plead their version of the agreement between the parties in the following terms:
“18. By an agreement made between March 2005 and July 2005 between Convergency Services, BIS Aust and Optus it was agreed that in consideration for Convergency Services agreeing to terminate its agreement with Telstra, Optus would expand Convergency Services’ and BIS Aust’s customer base and pay Convergency Services commissions (“the partnership agreement”).”
The particulars of the agreement, alleged under paragraph 18, state that the agreement was partly oral, partly in writing and partly to be implied. Insofar as it was in writing, it was constituted by a binding heads of agreement between Convergency Services and Optus dated 8 March 2005, and a number of emails, which were also referred to an affidavit sworn by Mr Nola in this application. It is also alleged in the particulars that the agreement was constituted by an Optus business partnership agreement between BISA and Optus dated 24 June 2004.
Paragraph 19 of the counter-claim pleads a number of terms of the agreement, and paragraph 20 pleads breaches by the plaintiff of those terms. Paragraph 21 pleads that, by reason of the breach of the agreement by Optus, the defendants have suffered loss and damage. The particulars to paragraph 21 contain two paragraphs. The first paragraph alleges damages sustained by the defendants in their personal capacity. It was accepted by Mr Tsalanidis, who appeared for the defendants, both before the Associate Justice and myself, that that paragraph requires amendment. The second paragraph states that the defendants, in their respective capacities as trustees of the family trusts, claim loss of profits of the Convergency Services Partnership and of the BISA Partnership during the term of their five year partnership agreement.
In addition to the claim for damages for breach of contract, the defendants, by their counter-claim, also plead causes of action for misleading and deceptive conduct (paragraphs 22 to 27A), unconscionable conduct in contravention of s 51AC of the Trade Practices Act 1973 (Cth) and s 7 of the Fair Trading Act 1986 (Vic) (paragraphs 27B to 27E), negligent misrepresentation (paragraphs 28 to 31), and estoppel (paragraphs 32 to 36). Each of those alternative courses of action are premised on the particulars of loss and damage to paragraph 21, which themselves refer to the alleged breach of the agreement pleaded in paragraph 18 of the counter-claim.
As I have stated, the principal issue, in the previous application, is whether the defendants have standing to sue in relation to the agreement which is pleaded, in their counter-claim, as the basis of the claim for damages, and for the other relief claimed by the defendants.
The release of the Federal Court proceeding
The second issue, which is raised by the plaintiff’s application, is whether the defendants claim on the counter-claim would fail because of a release entered into by Convergency Services with Optus in the course of Federal Court proceedings between the parties in 2007.
In June 2007, Convergency Services issued proceedings in the Federal Court against Optus and the National Australia Bank Ltd. By its application, it sought a declaration that Optus had engaged in conduct in breach of ss 52 and 51AC of the Trade Practices Act, and it claimed an injunction to restrain Optus from terminating the Optus MPA dated 1 July 2005, and from taking any step to call up the bank guarantee provided by the National Australia Bank Ltd. The Statement of Claim, which accompanied the application, was couched in almost identical terms to the counter-claim in this case, save that the defendants were not parties in the Federal Court proceedings, and it was not claimed that the defendants were parties to, or entitled to any rights under, the agreement alleged in those proceedings between Optus and Convergency Services. On 17 August 2007, Johannes Vorster and Colin Nicol were appointed joint and several administrators of Convergency Services, and of the other companies within the Convergency group of companies, including each of the trustees of the family trusts, to which I have referred. The administrators settled the Federal Court proceedings with Optus. On 6 September 2007, a release was executed between Optus and Convergency Services, by its two administrators. In its preamble, the release referred to the Federal Court proceedings. Clause 4.1 contains the relevant term of the release, stating:
“4.1 Upon execution of this Deed, Convergency Services releases and forever discharges Optus Networks and its Related Parties from all Claims which it has or may have against them arising out of or connected with, either directly or indirectly, the proceeding including the MPA and the Interlocutory Injunction.”
The plaintiff relies on that term of the release as precluding the claims asserted by the defendants in the counter-claim. In response, the defendants contend, first, that they were not parties to the release, and therefore that the causes of action, in the counter-claim, were not released by it. Secondly, they contend that, in any event, they did not authorise the execution by Convergency Services of the release, and thus Convergency Services did not have authority to release, on their behalf, the causes of action which they maintain in the counter-claim in this proceeding.
The plaintiff’s application.
The principal application, seeking summary determination of the counter-claim, is made under Rule 23.01(1), alternatively Rule 23.02, or, alternatively, in the inherent jurisdiction of the Court. In support of the application under Rule 23.01(1), the plaintiff relied on two affidavits sworn by its solicitor, Ms Rebecca Bedford, and an affidavit of Andrew James Weeks, sworn 1 October 2008. In response, the defendants relied on four affidavits of the third defendant, Frank Nola, and a brief supporting affidavit of the second defendant, Patrick Mann. In addition, the plaintiff, by way of alternative, made an application under Rule 23.02 in respect of some aspects of the pleading of the defence and counter-claim.
In support of its primary submission, the plaintiff largely relied on Rule 23.01(1). The principles, in relation to the exercise of an application for summary relief, have been considered in a number of authorities, and are relatively uncontroversial. Ultimately, to justify a court dismissing, staying or striking out a claim or counter-claim summarily, the case in support of that relief must be particularly clear. Otherwise, under ordinary principles, the claim, or counter-claim, should be permitted to be the subject of a full hearing at trial. Thus, if there is a “real question to be tried”, the court should not afford summary relief, but the case should be permitted to go to trial in the ordinary way[1]. On the other hand, the fact that there may be argument, and even extensive argument, in the hearing of the application for summary relief, may not necessarily preclude the exercise of the summary jurisdiction where, after such argument, it becomes evident that the claim or counter-claim (as the case may be) is “so clearly untenable that it cannot possibly succeed”[2]. However, in the end, in order to exercise its jurisdiction to summarily determine a claim or counter-claim, the court must have a “high degree of certainty” about the ultimate outcome of the proceeding, if it were allowed to go to trial without summary determination.[3]
[1]Dey v Victorian Railways Commissioners (1948) 78 CLR 62, 92 (Dixon J).
[2]General Steel Industry Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125, 130 (Barwick CJ).
[3]Agar v Hyde (2000) 201 CLR 552, 575-6 (Gaudron, McHugh, Gummow and Hayne JJ).
Plaintiff’s submissions.
As I have stated, the application by the plaintiff for summary determination of the counter-claim, is based on two main propositions, namely, that the defendants do not have standing to claim damages, for breach of the agreement between Optus and Convergency Services, and, secondly, that the claims by the defendants in the counter-claim have been the subject of an effective release in the Federal Court proceedings.
Mr S McLeish SC, who appeared with Mr E Wheelahan for the plaintiff, submitted that the defendants do not have standing to propound the claim for damages in their counter-claim, because Convergency Services entered into the contract with Optus as the trustee for the Convergency Services partnership, and not as agent for the three defendants. Mr McLeish accepted that the same person may, in a particular case, act as both agent and trustee for a principal. However, he contended, the critical question is whether the causes of action, on which the counter-claim is based, are the property of Convergency Services, or whether they were held by Convergency Services (and BISA) as the agent of the defendants.
In respect to that question, Mr McLeish submitted that the provisions of the Convergency Services partnership agreement are inconclusive. He contended that the language in which the Convergency Partnership agreement, and the BISA partnership agreement, were couched, is not definitive as to the question whether, in each partnership, Convergency Services and BISA were, respectively, agents or trustees of the members of the partnership. In particular, he referred to clause 4.3 of the partnership agreement (to which I have already referred), and also to clauses 6, 7.3(c), 12.1, 13 and 23 of the agreement. He submitted that each of those clauses are consistent with the existence of the relationship of trustee and beneficiary, as they are with a relationship of principal and agent, between Convergency Services and the three defendants.
On the other hand, Mr McLeish submitted that the terms of the agreement entered into between Convergency Services and Optus dated 30 June 2005 are unequivocal, and are inconsistent with Convergency Services (or BISA) acting as the agent of the Convergency Services partnership (or the BISA partnership). In support of that submission, he pointed, first, to the description of the contracting parties as, respectively, Optus and Convergency Services. He referred to Public Trustee v Taylor[4], as support for the proposition that the unqualified execution of a document by a party as principal is a cogent indication of an intention by that party to bind itself as principal, rather than as agent on behalf of another person.
[4][1978] VR 289, 293 (Kaye J).
Mr McLeish then referred to a number of specific provisions of the Optus MPA dated 30 June 2005. He referred to clause 2.1.1 of the agreement, which required, as a condition precedent, that Convergency Services register a second-ranking charge over all its real and personal property in favour of Optus as security for monies advanced by Optus to Convergency Services, and as security for the obligations of Convergency Services under the agreement. He submitted that the provision by Convergency Services of such a charge would be inconsistent with it entering into the agreement with Optus as an agent, and not in its own capacity as a principal. Mr McLeish also referred to clause 5.1, which required (inter alia) that if Optus gave notice to Convergency Services, the latter must, within four months, consolidate the business and all the Convergency group companies into a single entity represented by Convergency Services, and which also required that Convergency Services ensure that each of the Convergency group of companies did not transfer any assets or interests of those entities. He submitted that the obligations contained in clause 5.1 are inconsistent with Convergency Services acting as agent, and not as principal, in relation to the members of the Convergency Services partnership. Mr McLeish also pointed to clauses 5.6 and 6 (relating to the performance obligations of Convergency under the agreement), to clause 11.5 (which acknowledged that if Convergency Services sold goods and services as agents of Optus to customers, Convergency would be treated, for the purposes of the Goods and Services tax, as making the supplies), to clause 9 (relating to the payment of commission) and to clause 20.2(a), all of which, he submitted, militated against Convergency Services entering into the Optus agreement as agent, and not as a principal in its own right.
Mr McLeish submitted, alternatively, that if Convergency Services acted as agent on behalf of the defendants, then the claims, made by the defendants in the counter-claim, have been released as a result of the Deed of Release entered into between Optus and Convergency Services in respect of the Federal Court proceedings between them. He pointed out that, in substance, the claims pleaded in the counter-claim are identical to the claims made by Convergency Services in the Federal Court proceedings. Thus, he submitted that if Convergency Services was (as the defendants maintain) the agent of the three defendants, it follows that Convergency Services, in that capacity, resolved the claims of the defendants against Optus by entering into the release. In this respect, Mr McLeish referred to clause 9A.1(xxiii) of the Convergency Services Partnership Agreement, by which it was agreed that Convergency Services would not, without the unanimous approval of the members of the partnership, perform any of the following:
“(xxiii) The instigation, participation, defence settlement or abandonment of any legal proceedings, litigation, arbitration, conciliation, mediation or appeal.”
Finally, Mr McLeish submitted that, in any event, the claim, in paragraph 21 of the counter-claim, by the defendants for damages for loss of profits of the BISA partnership should be summarily dismissed, because the counter-claim does not properly plead that BISA was a party to the Optus partnership agreement.
The defendants’ submissions
In response, Mr Tsalanidis, who appeared for the defendants, submitted that under the Convergency Services Partnership Agreement, the primary relationship between Convergency Services, and the members of the partnership, was that of agent and principal. He accepted that, in carrying out its role as agent for the members of the partnership, Convergency Services also acted, in some respects, as trustee for the members of the partnership. However, Mr Tsalanidis submitted that the primary relationship established under the Convergency Services Partnership Agreement was that of principal and agent.
In particular, Mr Tsalanidis placed substantial emphasis on the terms of clause 23 of the Convergency Services Partnership Agreement, which reposed a significant degree of control in the partners over the conduct of Convergency Services. He submitted that a critical point of distinction between the relationship of principal and agent on the one hand, and the relationship of trustee and beneficiary on the other, is the capacity of the principal to control the agent in the performance by the agent of its duties. In that respect, Mr Tsalanidis referred to the decision of the Court of Appeal of the Ontario Supreme Court in Trident Holdings Ltd v Danand Investments Ltd & Ors[5], and in particular to the passage in the judgement of the Court which quoted, with approval, the following passages from the classic work Scott, the Law of Trusts (4th ed) 1987:
“An agent acts for, and on behalf of, his principal and subject to his control; a trustee as such is not subject to the control of his beneficiary, although he is under a duty to deal with the trust property for the latter’s benefit and in accordance with the terms of the trust, and can be compelled by the beneficiary to perform this duty. The agent owes a duty of obedience to his principal; a trustee is under a duty to conform to the terms of the trust.(Vol 1, p 88)
…
A person may be both agent of and trustee for another. If he undertakes to act on behalf of the other and subject to his control he is an agent; but if he is vested with a title to property that he holds for his principal, he is also a trustee. In such a case, however, it is the agency relationship that predominates, and the principles of agency, rather than the principles of trust, are applicable (Vol 1, p 95).”
[5](1988) 49 DLR (4th)1.
Mr Tsalanidis then turned to some of the provisions of the Optus MPA which had been referred to by Mr McLeish. He submitted that it is not a necessary consequence of clause 5.1 of the agreement that Convergency Services must have been acting as trustee, and not agent, for the members of the partnership. In particular he submitted that clause 5.1 would not be necessary, if Convergency Services, as trustee, held the property, referred to in clause 5.1(a)(i). Likewise, he submitted that a number of the other obligations, under clause 5 .1, would not be necessary, if Convergency Services held the assets of the partnership as trustee, rather than as agent.
Mr Tsalanidis further submitted that the agreement between Optus and Convergency Services did not consist solely of the Optus MPA, but that it was also partly oral and partly constituted by other communication between the parties, including a number of emails, before the execution of the Optus MPA.
In particular, Mr Tsalanidis referred to the affidavit of Frank Nola sworn 23 October 2008, in which he deposed that before the parties entered into the Optus MPA dated 30 June 2005, Optus had been advised that Convergency Services held the business and assets of the Convergency Services partnership as agent on behalf of the partnership, and not in its own right. In this respect, Mr Tsalanidis specifically referred to emails between Optus and the defendants dated 12 May 2005. In addition, in his affidavit, Mr Nola stated that the second defendant, Mr Mann, had outlined the structure of Convergency Services in discussions which he had with representatives of Optus, before the Optus MPA was signed.
Turning to the question of the release, Mr Tsalanidis submitted that, on its face, the deed of release in the Federal Court proceedings was executed by Optus and Convergency Services. He submitted that clause 4.1 of the release was unequivocal, indicating an intention that the release be provided by Convergency Services in its own right. At the time of the release, Optus was well aware of the relationship between Convergency Services and the members of the Convergency Services Partnership, yet it chose, expressly, only to take a release from Convergency Services.
In addition, Mr Tsalanidis submitted that, contrary to clause 9A.1(xxiii) of the Convergency Services Partnership Agreement, the members of the partnership had not given any approval to Convergency Services to enter into the release on their behalf. Thus, he submitted that if Convergency Services purported to enter into the release on behalf of the members of the partnership, it did so without the authority of its principals. Accordingly, Mr Tsalanidis contended that it is arguable that the release, executed by Convergency Services, does not preclude the defendants from maintaining the claims pleaded in the counter-claim.
The capacity in which Convergency Services contracted with Optus.
It is evident, from the foregoing, that the defendants, essentially, make their case, on the issue of standing, in two ways, namely:
(1) On proper construction of the Optus MPA, in the context of the Convergency Services Partnership Agreement, Convergency Services entered into the Optus MPA as agent for the three members of the Convergency Services Partnership, and not as a principal in its own right;
(2)In any event, the Optus MPA did not contain the whole of the contract between the parties, but, rather, it was constituted by other documents, including emails, and conversations, between the relevant parties, which demonstrate Convergency Services was acting as the agent of the three members of the Convergency Services Partnership, and not as a principal in its own right.
In addressing the construction of the Optus MPA, Mr McLeish did not contend that the terms of the Convergency Services Partnership Agreement were inadmissible on, or irrelevant to, the question of the interpretation of the Optus agreement. Rather, he submitted that the Convergency Services Partnership Agreement was inconclusive as to the question of the capacity in which Convergency Services entered into the agreement with Optus. That approach is realistic, as it is clear from the evidence in the affidavits of Mr Nola that Optus was aware that Convergency Services was contracting with Optus in its capacity as a party to the Convergency Services Partnership Agreement. In any event, the authorities support the proposition that, ordinarily, extrinsic evidence is admissible in respect of the question of the capacity in which a person has entered into an agreement, and, in particular, whether a party entered into an agreement as a principal in its own right, or as an agent for another[6].
[6]See for example Fred Drughorn Ltd v Rederiaktiebolaget Transatlantic [1919] AC 203, 206-7 (Viscount Haldane); Danziger v Thompson [1944] KB 654, 666-7 (Lawrence J); Epps v Rothie [1945] 1KB 562, 565 (Scott LJ); Hardinge v Schidor [2002] NSWSCA 277, [31]-[34] (Mason P); Carberry v Gardiner (1936) 36 SR (NSW) 559, 574-5 (Jordan CJ).
In construing the Convergency Services Partnership Agreement, it is important to bear in mind that an agent may, in particular respects, also be constituted the trustee of the principal in respect of some aspects of the relationship between the two parties[7]. Further, as stated in the passage from Scott, the Law of Trusts, which was quoted by the Ontario Court of Appeal in Trident Holdings Ltd[8], the question whether a party acts as agent or trustee for another does, at least to a material degree, depend upon the level of potential control which the other might exercise over the particular party.
[7]Owners-Strata Plan No 43551 v Walter Construction Group Ltd (2004) 62 NSWLR 169, [46] (Spiegelman CJ).
[8]Above.
The relationship between Convergency Services and the members of the partnership is defined in Recital B and clause 4.3 of the Convergency Services Partnership Agreement, which provide that Convergency Services was to act as the “custodian and agent” for the members of the partnership, both in conducting the business of the partnership, and in entering into any agreement on behalf of the partnership. The term “custodian” is apposite to describe the capacity of Convergency Services, in some respects, as a trustee. However, there is substance in the contention by Mr Tsalanidis that, when the Convergency Services Partnership Agreement is construed as a whole, the predominant role of Convergency Services, under that agreement, was to act as the agent on behalf of the members of the Convergency Services partnership.
In this respect, the provisions of clause 23 of the partnership agreement are particularly significant. Clause 23.1 provided:
“CS (Convergency Services) is hereby appointed to act as custodian and agent for the partnership and will make any supplies or acquisitions on behalf of the partners as principals.”
Clause 23.2 provided that Convergency Services would, and was authorised to, hold, enter into and perform any rights under any contracts “…as a custodian and agent for and on behalf of the partners.” Clause 23.4 provided that all the income derived or received by Convergency Services from the business would be received by Convergency Services “as custodian and agent for and on behalf of the partners absolutely in their proportions”. Pausing there, each of those provisions lend support to the proposition that the primary role of Convergency Services was to act as an agent, rather than as a trustee, for the members of the Convergency Services Partnership.
In addition, the Convergency Services Partnership agreement contains a number of provisions, which reposed significant power in the partners to control and direct the activities of Convergency Services. Clause 23.8 provides that Convergency Services shall act in accordance with any lawful directions or instructions of the management committee or the partners. Clause 23.12 states that Convergency Services shall not manage the partnership, but that the management of it shall be the responsibility of the management committee, to which (by clause 8.2) each of the partners is entitled to appoint one person as a member. By clause 9A.1, the parties to the partnership agreement undertook to procure that the partnership and Convergency Services should not perform a number of acts (specified in clause 9.A) without the unanimous approval of the partners or of all the members of the management committee, including: the transfer or sale of the whole or a substantial part of the business or the assets of the partnership (sub-clause ii); entering into or modifying any contract (otherwise than in the ordinary course of business) which is of an onerous or long term nature (sub-clause xvi); and the instigation, participation or settlement of any legal proceedings (sub-clause xxiii). The retention by the partners of such power and control over Convergency Services is a particularly important factor supporting the proposition that the primary relationship between Convergency Services and the members of the partnership was that of principal and agent.
Ultimately, it not necessary to resolve this question. The matters to which I have referred in respect of the Convergency Services Partnership Agreement, demonstrate that there is a sound basis upon which the defendants may maintain that the fundamental relationship between Convergency Services and the members of the partnership was that of principal and agent, and not trustee and beneficiary.
I turn, then, to the Optus MPA. Certainly if that document were considered in isolation, it would, on its face, give rise to a strong argument, at the least, that Convergency Services entered into the agreement as principal, and not as agent for the Convergency Services partners. As Mr McLeish pointed out, it is significant that Convergency Services is described as one of the contracting parties, without any qualification to that description[9]. Further, clause 2.1.1, which required Convergency Services to give a second ranking charge over its property in favour of Optus to secure its obligations under the agreement, is strong support for the proposition that Convergency Services entered into the agreement in its own capacity, and not as trustee. Similarly, clause 5.1(a) also tends in favour of that conclusion. That clause provides that if Optus gives Convergency Services notice of its intention to exercise the option referred to in the agreement, Convergency Services must (inter alia) consolidate the businesses of all the Convergency group of companies into a single entity represented by Convergency Services, and perfect the transfer to Convergency Services of all the assets and liabilities of the Convergency trusts and the Convergency partnerships.
[9]Compare Public Trustee v Taylor [1978] VR 289, 293.
On the other hand, I do not consider that the provisions of the Optus MPA, relied on by Mr McLeish, necessarily compel the conclusion that Convergency Services entered into the Optus MPA in its capacity as a principal contracting party, and not as agent for the three family trusts, which constitute the members of the Convergency Services partnership. There is, I consider, substance in the submission by Mr Tsalanidis that clause 5.1(a) would not be necessary, if Convergency Services already held the properties, referred to in that clause, in its own right. Furthermore, it is relevant that the Convergency Services Partnership Agreement makes specific provision, not only for Convergency Services to enter into agreements on behalf of the members of the partnership, but also to perform those agreements on its behalf. It is arguable that in performing an agreement, which has been concluded on behalf of the partnership, Convergency Services, for some purposes, may act as the trustee of the members of the partnership, in holding property and other assets of the members of the partnership, for the purposes of that agreement. If that is so, then that analysis might arguably account for, and give substance to, the covenants undertaken by Convergency Services in its own right under the Optus MPA, including provisions such as clause 2.1.1.
In determining the present application, it is significant that the terms of the Convergency Services Partnership Agreement support the conclusion that Convergency Services acted as the agent, and not as the trustee, of the partners in entering into contracts on behalf of the partnership. That proposition is a proper basis for the defendants to maintain that Convergency Services entered into the Optus MPA in the capacity thus defined by the Convergency Services Partnership Agreement. As I have stated, it was not submitted that the Convergency Services Partnership agreement is not relevant, and inadmissible, in determining the capacity in which Convergency Services entered into the Optus MPA. Taking the provisions of that agreement into account, I do not consider that the question of construction of the Optus MPA is sufficiently clear to entitle me to shut the defendants out from contending, at trial, that they have standing to claim damages for breach of the agreement between Optus and Convergency Services.
The conclusions, which I have so far expressed, do not take into account the alternative proposition argued by Mr Tsalanidis, namely, that the agreement between Optus and Convergency Services was not confined to the provisions of the Optus MPA, but was also constituted by other communications between the parties, which preceded the execution of the Optus MPA. It was not argued on behalf of the plaintiff that the parol evidence rule precluded the defendants from pleading such an agreement. Nor was any argument presented in relation to the effect of clause 34.1 of the Optus MPA which is entitled “Entire Agreement”, and which provides that the Optusd MPA constituted the entire agreement between the parties, and that it superceded all prior representations and agreements in connection with the subject matter of the agreement[10]. Rather, Mr McLeish contended that the extrinsic evidence, relied on by the defendants, does not support the conclusion that the agreement, pleaded in the counter-claim, that the agreement between Convergency Services and Optus was made by Convergency Services as agent for the defendant.
[10]See for example Johnson Matthey Ltd v A C Rochester Overseas Corp (1990) 23 NSWLR 190, 196 (McLelland J), Australian Co-operative Foods Ltd v Norco Co-operative Ltd (1999) 46 NSWLR 267, 279 (Bryson J); compare Whittet v State Bank of New South Wales (1991) 24 NSWLR 146, 153-4 (Rolfe J).
On this aspect of the case, Mr Tsalanidis referred me to the affidavit of Mr Nola of 23 October 2008, and in particular an email from the second defendant (Patrick Mann) to Mr Philip Keoghan of Telstra dated 12 May 2005, stating: “Convergency Services Pty Ltd holds the business and assets for and on behalf of Convergency Services. Convergency Services is a custodian and agent for the Convergency Services Partnership.” Subsequent to that email, Optus sent a draft of the MPA to the defendants. On 29 June 2005 (one day before the MPA was executed), the second defendant sent a detailed email to Mr Keoghan, stating that the MPA was:
“…wide of the mark and does not reflect all that has been agreed…There are a number of principles and expectations that have been agreed through our discussions and negotiations with you…over the past several months which are not addressed in the MPA but which we are relying upon in terms of entering into the MPA and linking up with Optus.”
The email then recited a number of commitments which, it was alleged, had previously been given by Optus to the Convergency Group.
As I stated, the defendants relied on the communications between the parties, referred to by Mr Nola in his affidavits, in support of the alternative version of the agreement, between Convergency Services and Optus, alleged in paragraph 18 of the counter-claim. Pausing there, I observe that some of the matters, referred to by Mr Nola in his affidavits, may also be relevant to the question of the capacity in which Convergency Services executed the Optus MPA[11]. On that basis, the extrinsic facts, deposed to by Mr Nola, would reinforce the conclusion which I have so far reached relating to the question of the capacity in which Convergency Services executed the Optus MPA.
[11]See the cases referred to in footnote 6 above.
That said, I return to the issue on which the defendants have relied on the affidavits of Mr Nola. As I have stated, the negotiations, which preceded the execution of the Optus MPA, are relied on by the defendants to establish the version of the agreement alleged in the defence and counter-claim. In that respect, the defendants plead that agreement as being alternative to the agreement alleged by the plaintiff. In fact, it may be more appropriate to characterise the agreement, which the defendants seek to rely upon in the counter-claim, as an agreement which was collateral to the Optus MPA[12]. If the antecedent negotiations, referred to by Mr Nola, are admissible to establish that the Optus MPA was not the sole repository of the agreement between the parties, or to establish the existence of such a collateral agreement of the nature pleaded in paragraph 18 of the counter-claim, (both of which propositions may be difficult in light of clause 34.1 of the Optus MPA), the question whether Convergency Services entered into that agreement, or collateral agreement, as the agent for the defendants, would depend, to a significant degree, on the resolution of factual issues at trial. In other words, if evidence of the antecedent negotiations is admissible to prove the agreement pleaded in paragraph 18 of the counter-claim, the question whether that evidence does establish that agreement, and, if so, whether it also establishes that that agreement was entered into by Convergency Services as the agent of the members of the Convergency Services Partnership, could only be properly resolved by an examination of the evidence, and, in particular, the communications between the parties referred to by Mr Nola in his affidavit. It is a matter for argument whether the communications of 12 May and 29 June, to which I have referred, and the other extrinsic evidence described by Mr Nola in his affidavits, are probative of the agreement alleged in the counter-claim, and of the capacity in which Convergency Services entered into that agreement. Ultimately, such an issue could only be properly determined upon an analysis of all the admissible evidence at trial.
[12]Hoyts Pty Ltd v Spencer (1919) 27 CLR 133; Maybury v Atlantic Oil Pty Ltd (1953) 89 CLR 507, 517-8 (Dixon J, Fullagar and Taylor JJ); Alliance Acceptance Co Ltd v Oakley (1987) 48 SASR 337, 340 (King CJ).
It follows, from the matters I have so far discussed, that I do not consider that the prospects of the plaintiff succeeding, on the issue of the standing of the defendants to make the claims in the counter-claim, are so clear cut, as to entitle the plaintiff to summary judgment on the counter-claim. It is therefore necessary to consider the second point raised by Mr McLeish, which concerns the effect of the release executed by Optus and Convergency Services in settlement of the Federal Court proceedings.
The Release
For the purposes of the present application, the question I must determine is whether the submission by the plaintiff, that the deed of release, entered into between Optus and Convergency Services, operates as a bar to the causes of action pleaded in the counter-claim, is so clear cut, as to justify an order for summary judgment in favour of the plaintiff in respect of the counter-claim.
Certainly, a number of matters, referred to by Mr McLeish, support the plaintiff’s contention. In particular, it is significant that the claims by Convergency Services in the Federal Court, and which were the subject of the release, were practically identical to the claims in the counter-claim, except that, in the Federal Court proceedings, the claims were not made on behalf of the defendants to the present proceedings. There is a tension between the position adopted by the defendants in respect of the capacity in which Convergency Services entered into the Optus MPA, and the position of the defendants as to the capacity in which it executed the deed of release. On the one hand, the defendants maintain that Convergency Services entered into the Optus MPA as their agent, notwithstanding that, on the face of that document, Convergency Services contracted on its own behalf. On the other hand, the defendants maintain that Convergency Services executed the deed of release only in its own capacity, and not as agent, notwithstanding that the subject matter of the release consisted of the same rights as those asserted by the defendants in the counter-claim.
Nevertheless, there are some aspects of the deed of release, which militate against a conclusion that the construction of the deed of release is so clear cut, as to entitle the plaintiffs to summary judgment on the counter-claim. In particular, the deed of release was entered into by the administrators of Convergency Services, Mr Vorster and Mr Nicol. Although they were also the administrators of the former trustees of the three family trusts, which constituted the membership of the Convergency Services partnership, nevertheless they only executed the deed of release in their capacity as administrators of Convergency Services. As I stated, clause 4.1 is expressed in terms of a release given by Convergency Services, without any qualification as to the capacity in which that company executed the release. By contrast, the recitals to the release expressly recognise the relationship between Convergency Services and other members of the Convergency Group of Companies, including the companies which were then trustees of the three family trusts, which were members of the Convergency Serivces partnership. In particular, Preamble E states that Optus held second ranking and fixed floating charges over the assets of Convergency Services “and the other companies within the Convergency Group of Companies, details of which are set out in Annexure 1 to this deed.” Annexure 1 then referred to a number of companies, including the three companies which were then the trustees of the family trust, and which constituted the membership of Convergency Services Partnership. It is significant that, notwithstanding the knowledge and recognition by Optus of the relationship between Convergency Services and those companies, the release, in clause 4.1, was expressed to be given by Convergency Services in its own right.
In this connection, it is relevant that, perhaps paradoxically, the claims in the Federal Court proceeding were pleaded on behalf of Convergency Services in its own right, and not in its capacity as acting, in one form or another, for the members of the Convergency Services partnership. In that light, it is clear that the deed of release, which was principally designed to address the claims in the Federal Court, was intentionally expressed as a release given by Convergency Services in its own right, and not in any other capacity. That consideration lends weight to the defendant’s argument that the release did not extend to, or affect, the rights claimed by the defendants in the counter-claim.
It is not necessary for me, at this stage, to resolve which of the competing considerations should prevail in relation to the question whether the deed of release is effective to preclude the defendants from asserting the claims pleaded in the counter-claim. As I stated, the matters relied on by Mr McLeish are persuasive. However, I consider that the countervailing matters, to which I have also referred, are of sufficient substance that they raise a triable issue as to whether the deed of release, executed by the administrators of Convergency Services, did operate as a release of the claims now sought to be made by the defendants in the counter-claim. Thus, in my view, the question of the construction of the Deed is not so clear cut to justify determining the point summarily.
In light of that conclusion I shall only deal briefly with a second matter raised by Mr Tsalanidis. In his affidavit, Mr Nola deposed that the administrator of Convergency Service entered into the deed of release, without consulting with either himself or any of the other defendants. That fact was argued to be relevant to clause 9A.1(xxiii) of the Convergency Services Partnership Agreement, which provided that Convergency Services was not authorised (inter alia) to settle any legal proceedings without the unanimous approval of the membership of the partnership or the members of the management committee. However, as pointed out in the response by Mr McLeish, at the time of the execution of the deed of release, the members of the partnership were the three trustee companies, and Messrs Forster and Nicol were the administrators of each of them. In those circumstances, clause 9A.1(xxiii) of the Convergency Services Partnership did not, it would seem, preclude resolution of the claims in the Federal Court, without prior approval of the present three defendants.
Sufficiency of pleading of defence and counter-claim
As an alternative, Mr McLeish submitted that if the counter-claim were not summarily determined, some parts of the counter-claim, and of the defence, should be struck out, on the basis that they had not been properly pleaded. When the matter was before Associate Justice Daly, Mr Tsalanidis accepted that some of the matters raised by the plaintiff have substance, and required further attention. As I understand it, that concession primarily related to the pleading of an estoppel in the counter-claim. I shall deal briefly with the matters which, it appeared from oral argument, are still outstanding between the parties.
Mr McLeish submitted that paragraphs 18 and 21 of the counter-claim are defective. First, he pointed out that the agreement pleaded in paragraph 18 is not expressed to be an agreement entered into by Convergency Services on behalf of the defendants, or on behalf of the former trustees of the family trusts of which the defendants are now trustees. Secondly, he made a similar point in relation to the allegation, in paragraph 18, that BISA was a party to the agreement relied on in the defence.
It is tolerably clear from the pleading which preceded paragraph 18, and in particular paragraphs 16A and 16K, that it was intended that paragraph 18 plead an agreement entered into by (inter alia) Convergency Services on behalf of the former trustees, and by BISA on behalf of the former trustees of the family trust which constituted the BISA partnership. However, I agree with Mr McLeish that paragraph 18 is deficient, in not pleading that allegation expressly. Thus, as it is presently drafted, paragraph 18 of the counter-claim does not lay a proper foundation for a claim for damages for breach of contract pleaded in paragraph 21. I shall therefore make an order, under Rule 23.02, that the defendants amend paragraph 18 of the counter-claim so as to plead the basis upon which the defendants claim to be entitled, in paragraph 21, to claim damages for breach of the agreement expressed in paragraph 18.
Mr McLeish then turned to the defence pleaded by the defendants. I shall deal briefly with the points made by Mr McLeish in relation to the defence.
First, Mr McLeish submitted that paragraph 6A(a) of the defence is defective because it pleads a breach of a term of the “advance agreement” which is not pleaded. I reject that submission. Paragraph 4(a) of the defence pleads the relevant provision of the advance agreement, which, it is alleged in paragraph 6A(a), was breached.
Mr McLeish next took issue with some of the particulars provided under paragraph 6B of the defence. However, he accepted that that argument would only succeed if his application to strike out the counter-claim is successful.
Mr McLeish also submitted that the particulars to paragraph 6H of the defence are defective. In particular, Mr McLeish submitted that the entry into the advance agreement could not have constituted loss and damage by the defendants. I do not accept that proposition. The advance agreement contained a number of obligations undertaken by the defendants, and which are pleaded in paragraph 4(b) of the Statement of Claim. In my view, it is clear that the defendants intend to assert that it was the undertaking by them of those obligations which constitutes the loss and damage claimed in paragraph 6H.
Conclusion
For the foregoing reasons I have reached the following conclusions;
(1)The plaintiff is not entitled to an order for summary judgment in favour of the plaintiff on the counter-claim or alternatively for an order that the counter-claim be stayed.
(2)The defendants are directed to amend paragraph 18 of the counter-claim so as to state expressly the basis upon which the defendants claim damages in paragraph 21, for breach of the agreement pleaded in paragraph 18 of the counter-claim.
(3)Otherwise the appeal by the plaintiff from the decision of Associate Justice Daly made 18 December 2009 should be dismissed.
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