Termguard Pty Ltd v Statewide Pest Control Pty Ltd
[2016] WASC 359
•8 NOVEMBER 2016
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: TERMGUARD PTY LTD -v- STATEWIDE PEST CONTROL PTY LTD [2016] WASC 359
CORAM: ACTING MASTER STRK
HEARD: 27 SEPTEMBER 2016
DELIVERED : 8 NOVEMBER 2016
FILE NO/S: CIV 2006 of 2016
BETWEEN: TERMGUARD PTY LTD
Plaintiff
AND
STATEWIDE PEST CONTROL PTY LTD
First DefendantKIM ARGAET
Second DefendantANDREW COLLEY
Third DefendantROHAN RODAUGHAN
Fourth Defendant
Catchwords:
Mutual negotiation and mediation - Dispute resolution clause - Application to set aside originating process - Stay application in the alternative - Posttermination obligations - Mediation to be elected - Not mandatory
Legislation:
Nil
Result:
Defendants' application refused with costs
Category: B
Representation:
Counsel:
Plaintiff: Mr S R Sirett
First Defendant : Mr A M Prime
Second Defendant : Mr A M Prime
Third Defendant : Mr A M Prime
Fourth Defendant : Mr A M Prime
Solicitors:
Plaintiff: McInnes Wilson Lawyers
First Defendant : Septimus Jones & Lee
Second Defendant : Septimus Jones & Lee
Third Defendant : Septimus Jones & Lee
Fourth Defendant : Septimus Jones & Lee
Case(s) referred to in judgment(s):
Cessnock City Council v Aviation & Leisure Corp Pty Ltd [2012] NSWSC 221
Hooper Bailie Associated Ltd v Natcon Group Pty Ltd (1992) 28 NSWLR 194
Pipeline Services WA Pty Ltd v ATCO Gas Australia Pty Ltd [2014] WASC 10
Straits Exploration (Australia) Pty Ltd v Murchison United NL [2005] WASCA 241; (2005) 31 WAR 187
VDM Construction Pty Ltd v MCC Mining (Western Australia) Pty Ltd [2011] WASC 269
ACTING MASTER STRK: By a chamber summons dated 2 August 2016, the first to fourth defendants apply for orders that the originating summons filed by the plaintiff on 16 June 2016 be wholly set aside or in the alternative, that the proceedings be stayed.
Background
The plaintiff (Termguard) is a company that deals with pest control systems. It licences certain intellectual property rights to licensees to allow them to install and maintain Termguard's systems.[1]
[1] Affidavit of Alan Walker sworn 31 May 2016 [6] ‑ [7].
Although there is some confusion in the affidavit materials, it appears that the business relationship as between Termguard and the first defendant (Statewide) began in approximately 1994,[2] and over time the relationship and arrangements were formalised by the introduction of written licence agreements.
[2] Affidavit of Alan Walker sworn 18 August 2016 [3].
It appears to be common ground that the terms of the document titled '2010‑2011 Licence Agreement', dated 31 October 2010 (Licence Agreement), governed the rights and obligations of Termguard and Statewide in 2014,[3] and that the second, third and fourth defendants (Messrs Arget, Colley and Rodaughan, the directors of Statewide) guaranteed the obligations of Statewide under the Licence Agreement.
[3] Affidavit of Alan Walker sworn on 26 August 2016 [3]; affidavit of Rohan Peter Rodaughan sworn on 1 August 2016 [10].
In about April 2014, Statewide informed Termguard that it intended to sell its business to a third party (Rollins Australia Pty Ltd (Rollins)).
At the end of April 2014, Statewide purported to sell its business to Rollins. No agreement had been reached as between Termguard and Statewide in relation to a change of licensee under the Licence Agreement, nor was it agreed that there would be an assignment of Statewide's interest in the Licence Agreement to Rollins. Upon the sale, the directors of Statewide (Messrs Arget, Colley and Rodaughan) were engaged as General Managers of Statewide Rollins Pty Ltd in Victoria and have been employed in that capacity since 1 May 2014.[4]
[4] Affidavit of Rohan Peter Rodaughan sworn on 1 August 2016 [8].
In the months that followed, Rollins (as the purchaser of Statewide's business) continued to undertake annual servicing and repumping of existing Termguard installations.[5] Mr Rodaughan in his new role as General Manager of Rollins' business in Victoria, arranged those services and attended to the needs of those existing customers.[6]
[5] Affidavit of Rohan Peter Rodaughan sworn on 1 August 2016 [13].
[6] Affidavit of Rohan Peter Rodaughan sworn on 1 August 2016 [13].
On 29 September 2014, a cancellation notice was issued by Termguard to Statewide under the Licence Agreement.[7]
[7] Affidavit of Alan Walker sworn 31 May 2016 [17].
The obligations which survived termination of the Licence Agreement are set out at cl 41 of the Licence Agreement.
By the originating summons, Termguard seeks specific performance of cl 41 of the Licence Agreement. In particular, Termguard seeks from Statewide:
(a)delivery to it of all client or customer lists and records for whom Statewide carried out work using Termguard's systems or products; and
(b)delivery to it of all forms and authority in order to effect a transfer of certain telephone numbers.
The defendants filed a conditional appearance to the originating summons on 20 July 2016. By the chamber summons, the defendants contend that this court does not have the jurisdiction to determine the matters the subject of the originating summons. The defendants say the Licence Agreement prescribes at cl 59 a process of negotiation and mediation that must be completed as a condition precedent to the commencement of court proceedings, and the condition precedent has not been satisfied. Relevant to resolving this issue is the correct interpretation of the dispute resolution clause cl 59.
The 'Disputes' clause
A copy of the Licence Agreement is attached to the affidavit of Alan Walker sworn on 31 May 2016. Clause 59 of the Licence Agreement is reproduced in full below.[8]
[8] Words in bold in the Licence Agreement indicate that they are defined terms. It is not my emphasis.
59.Disputes
59.1Subject to Clause 59.2, unless a party has complied with clauses 59.3 to 59.10, that party may not commence court proceedings or arbitration relating to any dispute arising from this Agreement.
59.2This Clause does not apply if:
59.2.1a party seeks urgent injunctive relief and if failure to obtain that relief may cause irreparable damage to the party seeking relief of to the Systems, the image of termguard or its licensee network; or
59.2.2either party has the right to immediately terminate the Agreement, that right is clearly specified in this Agreement, and there is no bona fide dispute to the interpretation of their meaning or factors giving rise to such dispute.
59.3In the event that any dispute arises between the Licensee and termguard in relation to the Licence or this Agreement or the subject matter thereof, either party to the dispute must provide written notice to the other specifying:
59.3.1the nature of the dispute;
59.3.2what the party giving the notice requires; and
59.3.3what action or steps that party considers should be taken to settle the dispute, including particulars of why that party thinks those steps will settle the dispute.
59.4The parties must then try to resolve the dispute by mutual negotiation.
59.5If the parties are unable to resolve the dispute within 21 days, either party may by notice in writing advise the other party that it seeks to have the dispute resolved by mediation.
59.6If the parties cannot agree on a mediator then either party may ask the mediation adviser appointed under the Franchising Code of Conduct to appoint a mediator (the Mediator).
59.7The Mediator will determine a time and place for mediation.
59.8The parties must attend the mediation as determined by the Mediator and try to resolve the dispute.
59.9The parties will be equally liable for the costs of mediation unless they agree otherwise. The parties must pay for own costs of attending the mediation.
59.10If the dispute is not resolved at mediation either party may then commence court proceedings relating to the dispute.
Steps taken prior to initiating these proceedings
The parties agree that cl 59.2 has no application in the circumstances of this case.
Written notice of the dispute - cl 59.3
Termguard asserts that it satisfied the requirements of cl 59.3 (prior written notice) by having written to Statewide on three separate occasions.[9] It relies in particular on the letter of 4 December 2015.
[9] Termguard refers to the letters dated 29 September 2014 (reproduced in the affidavit of Alan Walker sworn 31 May 2016, 'ARW-7'); 4 December 2015 (reproduced in the affidavit of Caitlin Elise Connole sworn 3 June 2016, 'CEC-1'); and 8 February 2016 (reproduced in the affidavit of Caitlin Elise Connole sworn 3 June 2016, 'CEC-11').
The defendants say that the only evidence of any alleged compliance with the terms of cl 59 is, arguably, the correspondence from Termguard which might be argued constitutes notice of a dispute for the purposes of cl 59.3 of the Licence Agreement.
Having considered the correspondence in evidence, in particular the letter of 4 December 2015, I am satisfied that Termguard complied with the written notice requirement in cl 59.3.
Mutual negotiation - cl 59.4
As to the obligation in cl 59.4 that the parties try to resolve the dispute by mutual negotiation, Termguard says that it was unable to attempt to mutually negotiate as no response was received from Statewide. Termguard also says that cl 59.4 of the Agreement does not outline any procedure by which the negotiations are to take place and as such the clause would be void for lack of certainty.[10]
[10] The plaintiff relied on Hooper Bailie Associated Ltd v Natcon Group Pty Ltd (1992) 28 NSWLR 194.
The defendants say that no 'mutual negotiation' took place at all.
From my review of the affidavit material, I note as follows.
After the cancellation notice was issued by Termguard in September 2014, Mr Matthew Turek, the Managing Director of Rollins, commenced communications with Termguard in relation to the obligations of Statewide which survived termination of the Licence Agreement.[11] Mr Rodaughan deposes that:
From that time Turek in his capacity as Managing Director of Rollins was the sole person in contact with Termguard with respect to the First Defendant's compliance with the Licence Agreement given that the business assets of Statewide that were sold to Rollins included customer lists and intellectual property. There was no physical transfer of the assets sold as Rollins assumed the tenancy of the business premises and all the plant and equipment and other assets sold were located on those premises and the Second, Third and Fourth Defendants were engaged as managers and controllers of the business conducted from the business premises on behalf of Rollins. I know Turek was the person dealing with the plaintiff on the issues because I had been communicating verbally either personally or by telephone with Turek on an ongoing basis and have now seen copies of the correspondence passing between he and the plaintiff. Further, … I signed a statutory declaration authorising him to deal with the matter on my behalf. I know, because I have seen the documents, that each of the second and third defendant did likewise.[12]
[11] Affidavit of Rohan Peter Rodaughan sworn on 1 August 2016 [18].
[12] Affidavit of Rohan Peter Rodaughan sworn on 1 August 2016 [16] ‑ [17].
The terms of the authority recorded in the statutory declaration is narrower than suggested in Mr Rodaughan's affidavit. However, Mr Rodaughan deposes that each of the second, third and fourth defendants (in good faith and reliant upon Rollins and Turek) provided statutory declarations at the request of Termguard confirming that Mr Turek was their representative for the purposes of negotiating matters on behalf of Statewide.[13]
[13] Affidavit of Rohan Peter Rodaughan sworn on 1 August 2016 [19].
The affidavit evidence appears that Mr Turek and DLA Piper (the solicitors for Rollins), engaged in communications with Termguard and its solicitors in relation to Statewide's compliance with the continuing obligations under the Licence Agreement, which remained in dispute.
Having purported to authorise Mr Turek to represent Statewide in negotiations, the defendants cannot now complain that cl 59.4 was not complied with solely by reason of there having been no 'mutual negotiation' as between Termguard and Statewide, but rather Termguard and Statewide's authorised representative.
In all of the circumstances, I am satisfied that there was substantive compliance with cl 59.4 before these proceedings were commenced.
Mediation - cl 59.5 ‑ 59.10
It is common ground that the matters in dispute were not referred by either party to mediation before these proceedings were commenced.
The defendants say that there is a general philosophy that parties should be held to their bargain to arbitrate, or to invoke other mechanisms of dispute resolution, in the absence of good cause.[14] They say that the applicable principles are that alternative dispute clauses should be approached liberally; parties should be held to their bargain; and there is a heavy onus on a party opposing a stay where such a clause exists.[15]
[14] The defendants cite Straits Exploration (Australia) Pty Ltd v Murchison United NL [2005] WASCA 241; (2005) 31 WAR 187; Pipeline Services WA Pty Ltd v ATCO Gas Australia Pty Ltd [2014] WASC 10.
[15] The defendants rely upon Cessnock City Council v Aviation & Leisure Corp Pty Ltd [2012] NSWSC 221.
Termguard says that cl 59.5 which states that a party 'may by notice in writing advise the other party that it seeks to have the dispute resolved by mediation' in no way creates a mandatory requirement that the matter 'must' be mediated. It merely creates a party's right to elect to proceed with mediation.
Termguard relied upon a similar clause which was considered by Kenneth Martin J in VDM Construction Pty Ltd v MCC Mining (Western Australia) Pty Ltd.[16] The relevant clause in that case stated that:
If within fifteen (15) business days (or such longer period as they may agree) of the conference the Parties are unable to resolve the Dispute referred to in clause 46.1, either party may refer the dispute to mediation in accordance with The Institute of Arbitrators and Mediators, Australia, rules of mediation that are in force at the time of the notice being issued [10].
[16] VDM Construction Pty Ltd v MCC Mining (Western Australia) Pty Ltd [2011] WASC 269.
In that case Kenneth Martin J said:
My reading of cl 46.2 is that after the parties have conferred but are still in dispute, either party can within 15 days, or within such longer period as the parties agree, decide to refer the matter to a mediation. Either party alone has the right to elect to require the mediation process for the dispute before litigation. But I do not assess the cl 46 mediation requirement as being mandatory for every notified dispute where there has been unfruitful conferral. Clause 46 could have been drawn in more rigid terms, invariably requiring mediation before litigation, but it was not. Here, a mediation process does not become mandatory until one party elects for it and thereby makes it mandatory by that election [34].
The construction was reached based on an overall interpretation of cl 46,[17] including the last paragraph of cl 46.2 which stated that:
Compliance with the requirements of this clause 46.2 in respect of a Dispute is a condition precedent to commencement of litigation in respect of that Dispute.[18]
[17] VDM [47].
[18] VDM [32].
Termguard says that cl 59 of the Licence Agreement ought be read in the same way - that is, that mediation only became mandatory on election and as no such election was made by it or by the defendants prior to the commencement of these proceedings, Termguard was free to commence proceedings in this case.
Undertaking an analysis similar to that in VDM, my reading of cl 59 is that after the parties have tried to resolve the dispute by mutual negotiation for 21 days, either party can decide to initiate mediation. Either party alone has the right to elect to require mediation. However, I do not assess that cl 59.5 ‑ 59.10 as being mandatory for every notified dispute where mutual negotiation has failed.
Clause 59.5 could have been drawn in more rigid terms, but was not. In this case, as in VDM, a mediation process does not become mandatory until one party elects for it and thereby makes it mandatory by that election.[19]
[19] VDM [34].
On the evidence before me, the communications between Termguard and Statewide (by its representatives), continued for a period in excess of 21 days. This meant that it was open for Termguard to commence proceedings, which it did.
A subsidiary issue arises as to whether the court, having reached such a construction of cl 59, may possess a residual discretion to stay the proceedings and require the parties to participate in the mediation process described in cl 59. Again, consistent with the approach taken in VDM, I do not propose to rewrite the parties' bargain and stay the proceedings so that a particular mediation process might be undertaken in circumstances where neither party made the election to initiate that mediation process.
Determination
The defendants' application that the originating summons filed by the plaintiff on 16 June 2016 be wholly set aside or in the alternative, that the proceedings be stayed, must fail.
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