ERA Polymers Pty Limited v Pacific Urethanes Pty Ltd & Ors

Judgment 1HIS HONOUR: There are two applications before me. The defendants apply for summary judgment. The plaintiff seeks leave to amend its statement of claim. The proposed amendment is opposed on the ground of futility. The issue is whether the plaintiff's proposed amended statement of claim is not seriously arguable because of a settlement and release between the defendants and the party through whom the plaintiff claims. I have concluded that the settlement and release is a complete defence to the claim and that the contrary is not seriously arguable. Accordingly, the proceedings will be dismissed. These are my reasons. 2The plaintiff claims to be the assignee of the business and assets of Ariel Industries Limited (Ariel) pursuant to a business sale agreement dated 1 May 2013. Included in the assets purchased was "Vendor IP" which was defined to include "any right to have information (including confidential information) kept confidential". Also included in the sale was "Intellectual Property Rights". They were defined to include trade secrets, formulae, know-how, and, again, any right to have information kept confidential. 3The plaintiff filed its statement of claim on 23 June 2014. It sued the first defendant, Pacific Urethanes Pty Limited (Pacific) and four individuals, Messrs Stam, Murray, Brooksbank and Hall. In its statement of claim the plaintiff sought a declaration that it is the sole beneficial owner of some 20 formulations being specified polyurethane systems that it claims Ariel had specifically developed, tested, manufactured and sold for particular customers. The statement of claim claims injunctive relief to restrain Pacific from marketing, selling or offering for sale any formula or product substantially identical to or derived from any of the formulations. 4In the statement of claim the plaintiff alleged that between 1980 and 15 September 2008 the third defendant, Mr Murray, was given access to certain confidential information, including technical information about the chemical formulation of products supplied by Ariel to its customers. The plaintiff also pleaded that the second defendant, Mr Stam, and Mr Murray entered into an agreement prior to 26 June 2008 with the fourth and fifth defendants, Messrs Brooksbank and Hall, to establish Pacific to carry on business in competition with Ariel by exploiting Ariel's confidential information and trade secrets acquired whilst Messrs Stam and Murray were employed by Ariel. The statement of claim seeks orders seeking to restrain the defendants from using any of the formulas or products substantially identical to or derived from any of the confidential information. The relief sought includes orders for delivery up of documents recording such formulas or products and an account of profits and equitable damages. The plaintiff pleads that from 28 June 2008 the defendants used Ariel's confidential information and trade secrets in Pacific's competing business. 5Ariel itself had brought proceedings in the Federal Court in January 2009 against Pacific and Messrs Murray, Stam and Brooksbank and, by later amendment, Hall. Substantially the same allegations were made in the Federal Court proceedings by Ariel as are made by the plaintiff in its statement of claim in these proceedings. Indeed, substantial parts of the statement of claim are copied from the further amended statement of claim filed in the Federal Court. 6The Federal Court proceedings were settled by a deed called a deed of settlement and release dated 22 November 2010. That deed recited the Federal Court proceedings. By clause 2.1 Pacific agreed to pay what was called a settlement sum of $250,000 inclusive of GST immediately on execution of the deed. By clause 2.2 the parties agreed to execute, contemporaneously with the deed of settlement and release, a Toll manufacturing deed. The Toll manufacturing deed to be executed was an annexure to the deed of settlement and release. 7Clause 3.1 of the deed of settlement and release provided that as soon as practicable following its execution, the parties would take such steps as were necessary to have the Federal Court proceeding dismissed with "a right of reinstatement". The parties agreed to sign minutes of consent orders which were annexed to the deed. The consent orders relevantly provided, "The proceeding is dismissed with a right of reinstatement". 8Clause 4(a) provided that if the Settlement Sum were not paid in accordance with clause 2.1, then that amount less any payments received under clause 2.1 would become immediately due and payable and the applicant (Ariel) would be entitled to have the proceeding (viz. the Federal Court proceeding) reinstated and to obtain judgment for the Settlement Sum less any payments received, together with interest. 9Clause 6.1 of the deed of settlement and release provided that the respondents represented to the applicant that they were not aware of any fact, matter or circumstance arising from the course of the proceeding which would cause any of them to make any claim against Ariel. 10By clause 19 each party indemnified the other in relation to any claim by a related body corporate of that party against the other in respect of any matter arising out of or in connection with the proceeding and its subject matter. 11By clause 20 the parties agreed to keep the terms of the deed confidential. 12The critical clause for present purposes is clause 5. It provided: "5 Release of the Respondents Save for the rights arising from this deed, upon payment of the Settlement Sum and execution of the Toll manufacturing deed, the Applicant releases and forever discharges the Respondents and each of them (including their officers, directors, employees and agents) from all liability whatsoever and from all suits, causes of action, claims (including claims for interest and costs), costs orders made in the Proceeding, claims for penalties, or the like which the Applicant now has or at any time from the date of this deed may have or, but for the execution of this deed, might have had against the Respondents or any of them, which in any way arises out of, or is connected with or is incidental to the matters the subject of the Proceeding or the facts giving rise to the Proceeding." 13It is not in dispute that the Settlement Sum was paid in accordance with clause 2.1 and that the Toll manufacturing deed was entered into. On the following day, 23 November 2010, the consent orders provided for by the deed were made in the Federal Court. 14The general manager of the plaintiff, Mr Eve, deposes that when the plaintiff commenced its proceeding it was unaware of the earlier settlement. The plaintiff seeks leave to file an amended statement of claim. The proposed amendments confine the claim to five formulations. The plaintiff accepts that the claim as so limited is nonetheless a claim that Ariel had at the date of the deed of settlement and release that arose out of, or was connected with, or was incidental to the matters the subject of the Federal Court proceedings. But the plaintiff contends that it has rights to those five formulations that are acknowledged and, I think it would say, conferred, by the Toll manufacturing deed made on 22 November 2010 between Ariel and the defendants. It asserts that because of the opening words of clause 5 of the deed of settlement and release, the claim in respect of those five formulations is not barred. 15The Toll manufacturing deed recited: "A Pacific sells Products which it requires to be manufactured according to the Specifications. B Ariel is capable of manufacturing the Products in accordance with the Specifications at its Plant. C Pacific has agreed to provide the Specifications to Ariel and Ariel has agreed to manufacture the Products in accordance with the Specifications for Pacific on the terms and conditions of this deed. D Ariel has no right, title or interest in the Specifications, other than where the Specification is known to Ariel before it is provided to Ariel by Pacific or it has been lawfully provided to Ariel by a third party." 16"Product" and "Specifications" were defined as follows: "Product means any polyol blend product nominated from time to time by Pacific which has no more than 5 material components and is to be packaged in 205L drums or 1000L IBCs. Specifications means the formula, manufacturing instructions, allowable manufacturing losses, quality control parameters, test requirements and packaging and palletising requirements for each Product to be provided to Ariel by Pacific with each nominated Product." 17Clause 3.1 provided in substance that beginning on 1 December 2010 Pacific would provide Ariel in writing with a rolling three-month forecast of its anticipated requirements for each of the Products. Unless the parties otherwise agreed in writing, the fee for the manufacture of each Product was a particular price per kilogram. 18Clause 3.4 provided in substance that Pacific could place its orders with Ariel on the first business day of a week for the products it required Ariel to manufacture in the subsequent week. In the week Pacific placed its order Pacific was to use reasonable endeavours to arrange for the delivery of raw materials, packaging and labels required to enable Ariel to manufacture the products. It is clear also from the terms of the deed that where Pacific placed orders for Products to be manufactured by Ariel, it was also to provide the Specifications for the Products to be manufactured, including the relevant formulae. This follows from the definition of "Specifications". 19Ariel was entitled to minimum yearly Toll fees for the first three years whether or not it was requested to manufacture sufficient Products that would generate such fees or, indeed, whether or not any orders were placed by Pacific. 20Clause 8 provided: "8 Confidentiality (a)All parties to this deed will keep the terms of this deed and the negotiations leading to the deed, the subject of this deed, confidential during the Term and for five years following the Term. (b)Ariel must keep confidential: (i)the Specifications, other than where the Specification is known to Ariel before it is provided to Ariel by Pacific or it has been lawfully provided to Ariel by a third party; (ii)the orders made by Pacific. This provision survives termination of this deed and ending of the Term for any reason. ... (d)Ariel agrees it has no right, title or interest in the Specifications, other than where the Specification is known to Ariel before it is provided to Ariel by Pacific or it has been lawfully provided to Ariel by a third party." 21The plaintiff argues that the release in clause 5 of the deed of settlement and release was subject to "the rights arising from this deed". The reference in clause 5 to "this deed" included the rights arising from the Toll manufacturing deed. The plaintiff argued that: "On the proper construction of the Toll manufacturing deed and hence the settlement deed, there was no release of rights in a Specification(s) where it was known to Ariel before it was provided by Pacific to Ariel." 22Counsel submitted that it would be alleged at final hearing that Ariel toll-manufactured three products for Pacific which were the subject of specifications of which Ariel had prior knowledge, because Ariel had manufactured identical products. It would further be alleged that the other two formulations were derived from one of those products. Hence, the plaintiff argues that there was no release of rights in relation to five products that are the subject of the proposed amended statement of claim because they were "Specifications" contemplated by the Toll manufacturing deed in which Ariel had retained its right and interest. 23No defence has yet been filed to the statement of claim. No point has been taken about that. It is not in dispute that the defendants would plead the deed of release and settlement in answer to the plaintiff's claims. The plaintiff did not submit that it might have any ground for setting aside the deed of release and settlement. 24The question whether it is seriously arguable that the plaintiff has a claim that might succeed has resolved itself into a question of construction of the deed of settlement and release and the Toll manufacturing deed. Nonetheless, this is an application for summary judgment. No order has been made for the trial of a separate issue. Being a claim for summary dismissal, the defendants must show that the plaintiff's proposed amended claim is not seriously arguable. The lack of a cause of action must be clearly demonstrated. Various formulations have been used to describe the clarity that must exist before a claim can be summarily dismissed. (See, for example, Burton v Shire of Bairnsdale (1908) 7 CLR 76 at 92; Dey v Victorian Railways Commissioner (1949) 78 CLR 62 at 91; General Steel Industries Inc v Commissioner For Railways NSW (1964) 112 CLR 125 at 128-129; Fancourt v Mercantile Credits Limited (1983) 154 CLR 87 at 99; Agar v Hyde [2000] HCA 41; (2000) 201 CLR 552 at [57]; Spencer v Commonwealth of Australia [2010] HCA 28; (2010) 241 CLR 118 at [24]; and O'Brien v Bank of Western Australia Limited [2013] NSWCA 71 at [67].) 25If there is a real question either of fact or law, then the application for summary dismissal must fail. 26The opening words of clause 5 of the deed of settlement and release are, "Save for the rights arising from this deed". Clause 1.2(b)(iii)(D) of that deed provides that a reference to that deed includes a reference to the annexures to the deed. The Toll manufacturing deed was such an annexure. Therefore, the opening words of clause 5 can extend to rights arising from the Toll manufacturing deed. 27As I have said, where orders are placed by Pacific under the Toll manufacturing deed, it is clear that Pacific is to provide Specifications for the product to be manufactured. Clause 8(b) of the Toll manufacturing deed requires Ariel to keep the Specifications confidential except where the Specification is known to Ariel before it is provided to Ariel by Pacific or has been lawfully provided to Ariel by a third party. Clause 8(d) is a qualified acknowledgment by Ariel that it has no right, title or interest in the Specifications as defined. Ariel's agreement that it has no right, title or interest in the specifications is not provided if the Specification is known to it before being provided by Pacific, or is lawfully provided by a third party. But clause 8(d) does not confer any right on Ariel. That is, the clause does not give Ariel any right to do anything with respect to the formulas that are known to Ariel before being provided in a Specification by Pacific. All that the words relied on by the plaintiff in clause 8(d) do is exclude certain things from the scope of Ariel's agreement that it has no right, title or interest in the Specifications that might be provided by Pacific. 28The fact that clause 8(d) permits Ariel to maintain that it had a right, title or interest in some such Specifications if it had prior knowledge of them, does not mean that the release in clause 5 of the deed of settlement and release is inapplicable to such Specifications. Clause 8(d) does not confer a right, but rather qualifies the extent of Ariel's acknowledgment of Pacific's title. 29Ariel's causes of action that the plaintiff purports to enforce in these proceedings as its assignee arose independently of the Toll manufacturing deed and preceded it. Neither Ariel nor the plaintiff would need to plead any term of the Toll manufacturing deed as part of its cause of action. The plaintiff's claim as purported assignee of Ariel's cause of action does not arise from either the Toll manufacturing deed or the deed of settlement and release. Accordingly, it is clear that clause 5 of the deed of settlement and release is a bar to the claim and the opening words of that clause have no relevant operation. 30This construction gives the deeds a commercially sensible operation. The obvious purpose of the opening words of clause 5 of the deed of settlement and release was to permit Ariel to maintain claims that might arise from either deed; for example, for failure to pay the Settlement Sum, or to execute the Toll manufacturing deed, or for misrepresentation in respect of the matters in clause 6.1, or for an indemnity under clause 19, or for a breach of the obligation of confidentiality under cl 20. 31The qualification in clause 8(d) of the Toll manufacturing deed to Ariel's acknowledgment of Pacific's right and interest in the specifications means that Ariel could manufacture for itself or others the products of which it had prior knowledge without being in breach of clause 8(d). But clause 8(d) does not affect the scope of the release. In my view, this construction is clear and the contrary argument advanced for the plaintiffs is not reasonably arguable. 32Had I accepted the plaintiff's construction of the Deed of settlement and release and the Toll manufacturing deed, or had I accepted that that construction was reasonably arguable, I would not have dismissed the plaintiff's claim on the alternative grounds advanced by counsel for the defendants, namely, on the basis of a res judicata or failure to obtain the defendants' consent to the assignment of Ariel's business and assets. If, on the proper construction of the deeds, the causes of action on which the plaintiff seeks to proceed were not barred by the release, then it would at least be seriously arguable that there could be no res judicata arising from the consent order that the Federal Court proceeding be dismissed, but with a right of reinstatement. It would also be arguable that the defendants would be bound to give their consent, albeit retrospectively, to the purported assignment if the effect of their agreement was that the plaintiff could pursue those claims. 33But it is clear that that is not the effect of the deeds. The release, given by deed and for valuable consideration, operates as an accord and satisfaction and is a complete defence to the claim, including the claim as sought to be raised by the amendment. 34I therefore order that the plaintiff's notice of motion filed on 9 September 2014 be dismissed and I order that the proceedings be dismissed. I will hear the parties on costs. [Counsel addressed on costs.] 35I do not consider that the plaintiff has been guilty of delinquent conduct that would justify the making of an indemnity costs order. I order that the plaintiff pay the defendants' costs of the proceedings. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 19 December 2014