Grant v John Grant and Sons Pty Ltd

Court of Appeal (NSW)|1992-06-03|Before: Clarke JA, Meagher JA, Palmer AJ, Sheller JA

KEYDATA CORPORATION LTD y BURENCAR PTY LTD (IN LIQUIDATION)

CLARKE JA (1), MEAGHER JA (2), SHELLER JA (3) 2 and 3 June 1992, 14 July 1992 [1992] NSWCA 288

Breach of fiduciary duties - Deed of Release FACTS: Appellant wishes to sue respondent for equitable compensation for breaches of fiduciary duties as promoter of appellant. Appealed against decision that deed of release operated to release respondent from claims by appellant against it for said breaches of fiduciary duties. HELD (per curiam): Although the general words of a release contained in a deed cannot be made to apply to circumstances other than those to which they were intended to apply, when the deed of release releases all claims, it means just that; and in this case includes claims by the appellant of breaches of fiduciary duties.

Grant v John Grant and Sons Pty Ltd (1954) 19 CLR 112 Clarke JA I agree with Meagher JA.

Meagher JA This was an appeal against a decision of Palmer AJ that, according to its true construction, a certain deed of release dated 17 March 1990 operated to release the respondent from claims by the appellant against it for breaches of fiduciary duty arising out of the respondent's involvement in the promotion of the appellant. That question had been isolated for determination as a separate question under Pt31 r(2).

For some years before September 1988 Burencar Pty Ltd, now in liquidation, and formerly called Budget Rent-a-Car System Pty Ltd, carried on a business of renting cars by means of a system known as "the Budget System". That system had been devised by a United States company and involved certain intellectual property. Burencar Pty Ltd carried on its business pursuant to various agreements with that United States company. In September 1988 the plaintiff and appellant, Keydata Corporation Ltd, then called Budget Corporation Ltd was floated to the public for the express purpose of acquiring from Burencar Pty Ltd its Budget Rent-a-Car business. On 30 September 1988, by a series of agreements, Burencar Pty Ltd assigned its contractual rights to the plaintiff for $23 million. Amongst the agreements signed on that day was a Management Agreement whereby Burencar Pty Ltd undertook to manage the plaintiffs business. Thereafter, Burencar's financial difficulties became insuperable, and it went into liquidation, as did two of its associated companies, Budget Transport Industries Ltd and Budget Investments Pty Ltd. Thereafter, Burencar Pty Ltd and Keydata Corporation Ltd set about selling the rent-a-car business to a company formed by a consortium of motor vehicle manufacturers, Lanella Pty Ltd. That sale was documented in a letter of 8 February 1990 and a Deed of Release dated 17 March 1990. On the latter day the sale was completed.

The letter of 8 February 1990 contemplated that the sale would involve these matters: (1) Keydata Corporation Ltd transfering to Lanella Pty Ltd all its rights to the Budget Rent-a-Car business (including its contractual rights with the United States company); (2) Burencar Pty Ltd transfering to Lanella Pty Ltd its

rights to management systems and certain other property; and (3) each of Burencar Pty Ltd and Keydata Corporation Ltd releasing any claims either may have against the other. On this third matter the letter used words of considerable plenitude: the parties were to "enter into a mutual Deed of Release in respect of all other company indebtedness and other claims whether before or after 3 November 1989".

The Deed of 17 March 1990, which was described as a "Deed of Release", provided, inter alia, "3. Litigation BCL agrees to discontinue legal proceedings commenced against BRACS.

Release 4.1 BCL hereby releases BRACS, BTI and BI and each of them from all indebtedness and other claims it has or may have against BRACS (except the claims BCL may have or has against BRACS in relation to the Service Fees), BTI and BI or any of them. 4.2 BRACS, BTI and BI, jointly and severally, hereby release BCL from all indebtedness and other claims they have or may have, either jointly or severally, against BCL." (The initials BCL refer to Keydata Corporation Ltd, the initials BRACS refer to Burencar Pty Ltd, the initials BTI refer to Budget Transport Industries Ltd, and the initials BI refer to Budget Investments Pty Ltd).

Keydata Corporation Ltd now wishes to sue Burencar Pty Ltd (in liquidation) for equitable compensation for breaches of its fiduciary duties as a promoter of the plaintiff. Not surprisingly Burencar Pty Ltd wishes to rely on the provisions of CL4 of the Deed of 17 March 1990, which on the face of it releases it from any such cause of action. The plaintiff's riposte is to rely on the High Court decision of Grant v John Grant and Sons Pty Ltd (1954) 19 CLR 112 as authority for the proposition (if authority were needed) that the general words of a release contained in a deed cannot be made to apply to circumstances other than those to which they were intended to apply, and to submit that in the present case there is no reason to think the release of March 1990 was meant to apply to the plaintiffs claim that the defendant had committed breaches of the fiduciary duty which it owed the plaintiff as a promoter. Palmer AJ has found adversely to the plaintiff, which now appeals to us. In my view the appeal should be dismissed. His Honour's view seems to me to be correct whether one confines one's attention to the impact of the plain words of the Deed on the known and admitted facts or one roves more widely into the surrounding circumstances.

Dealing with the plain words of the Deed: since CL4.1 purports to release the defendant and its two associate companies from "all claims it has or may have against" them or any of them "except the claim (it) has or may have against (the defendant) in relation to service fees", one must define what claims the plaintiff had or thought it had against either the defendant or either of its associated companies, jointly or severally, as at 17 March 1990. It is clear, and common ground, that there were three claims, and no more, extant at that time, so far as the parties knew, namely: (a) a claim by the plaintiff against the defendant Burencar Pty Ltd in the amount of approximately $5.3 million for "licence fees", being fees collected by the latter from licensees who were ignorant of Burencar Pty Ltd's assignment of its contractual rights to the plaintiff, which fees were not paid on to the plaintiff; (b) a claim by the plaintiff for service fees owed by Burencar Pty Ltd to the plaintiff in respect of its own activities, a claim amounting to $1.3 million; and (c) the "promoter's claims" which the plaintiff thought it had against Burencar Pty Ltd, its two associated companies, and certain solicitors and accountants. It will be noticed that claims (a) and (b) were claims by the plaintiff against Burencar Pty Ltd solely, whereas claim (c) was a

WHEY DATA CORPORATION LTD v BURENCAR PTY LTD (IN LIQUIDATION) (Meagher JAB

claim asserted against Burencar Pty Ltd and others. The obvious question which then arises is why CL4.1 does not release the claims in categories (b) and (c), it being conceded that the words in brackets which except one category of claims from the release refers to claims in category (a). Mr Ireland QC, senior counsel for the plaintiff, argued that the release only applied to category (b) claims not to category (c) claims, notwithstanding that preliminary steps had already been taken to obtain relief in respect of such claims in the Victorian Supreme Court. This answer does not seem to me to be entirely adequate, and for two reasons.

One is that the language of the release is apt to comprehend category (c) claims as well as category (b) claims. Category (c) claims fit precisely the description of "claims" which the plaintiff "has or may have" against Burencar Pty Ltd and its associated companies; it does not cease to be apt because it is also apt to cover category (b) claims. The second is that unless it is so construed it can have no operation at all against the associated companies. There was no actual or potential claim against them except the "promoter claims" of category (c). Yet they are released from something, and if they are not released from the category (c) claims brought against them, it is difficult to see what they are released from.

If one voyages more widely, into the surrounding circumstances, there are many other indications. For example, at the plaintiff's Board meeting of 21 February a discussion paper was placed before the directors dealing with Lanella Pty Ltd's offer of purchase. It said, in part, "The provisional liquidator has indicated his willingness to.... collapse inter BTI, BRACS and BCL claims. BCL would assign its BRACS debt to BTI.... BCL retains its litigation rights against (CandL) and (WB)".

I find it difficult to see how this could be a reference to other than the "collapsing" of the category (c) claims against the defendant.

Again, in the Victorian proceedings in respect of the category (c) claim, certain procedural steps had to be taken by the solicitors for Burencar Pty Ltd by 18 March 1990, and on 21 February 1990 solicitors for both parties agreed that since a settlement had been reached no further steps should be taken unless the matter became a "live issue" again in the event of the plaintiff's shareholders not approving the settlement. This would seem to mean that if the Release were executed the litigation would not be "live", and that surely because the Release would have taken effect.

A third example is the letter which the plaintiff's solicitors wrote to the then Corporate Affairs Commission on 28 February 1990. To understand this letter one must appreciate that one requirement of the letter of 8 February 1990 required Budget Investments Pty Ltd to distribute the shares which it held in the plaintiff to the plaintiff's shareholders for no consideration. The plaintiff's solicitors were afraid that this requirement might contravene s11 of the Companies (Acquisition of Shares) Code, which was then in force. They therefore sought approval of the Corporate Affairs Commission to the transaction, and in the course of a letter doing so they said: "You will note in the explanatory memorandum, one of the options available to BCL was to pursue (sic) legal remedies against the promoters involved in the sale of the Budget rights to BCL. BRACS, BTI and BI are included in the list of possible defendants and if actions against these parties were successful, we believe the likely Court Order would be rescission (sic) of the sale of the Budget rights and a cancellation of the shares issued to BI. As BCL wishes to conclude matters as quickly as possible for the benefit of the shareholders, it was decided that to pursue (sic) the cancellation of the shares held by BI would be both lengthy and costly to BCL.

Accordingly, the same result to the shareholders could be achieved by distributing the shares held by BI on a pro rata basis to the the (sic) remaining shareholders."

It is difficult to imagine a clearer example of the plaintiff admitting that it was more to its advantage to have abandoned its claim against the defendant and its associated companies, i.e. by releasing its rights against them, and to have taken an alternative course; and the claims which it said it was abandoning were obviously the category (c) claims for breach of fiduciary duty.

The result is irresistible. When the Deed of Release of 17 march released all "claims" it meant just that; and Grant's Case (supra) cannot be tortured into an authority for the proposition that Deeds of Release never mean what they say. The appeal must be dismissed with costs.

Sheller JA I have had the benefit of reading the judgment of Meagher JA and agree that the appeal should be dismissed with costs.

Appellant: JM IRELAND QC/JV NICHOLAS Respondent: RA CONTI QC/MB OAKES SOLICITORS:

Appellant: BAKER and McKENZIE Respondent: MINTER ELLISON

At a glance

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Judgment (25 paragraphs)

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