Legislation cited: ACT Civil and Administrative Tribunal Act 2008 s32

Cases cited: Australian Broadcasting Commission v Australasian Performing Right Association [1973] HCA 36; (1973) 129 CLR 99

Dey v Victorian Railways Commissioners (1949) 78 CLR 62

Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337

General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125

Warren Gardner & Julie Bever v ACT Planning and Land Authority [2010] ACAT 64

JODY MILLER PTY LTD AS TRUSTEE FOR THE MILLER FAMILY

1. The third party's application to strike out the proceedings against her is dismissed.
2. In addition to the Directions of 10 April 2018, the Tribunal makes the following directions:
   • (a) The third party must give to the tribunal and each other person by 22 June 2018:
     • (i) A response setting out the orders the third party seeks;
     • (ii) A written timeline of events;
     • (iii) A written statement of every witness who the third party will call to give evidence at the hearing, including herself;
     • (iv) Any expert reports the third party will rely upon at hearing.

1. This is an application by the third party joined to "strike out" the proceedings against her brought by the respondent, pursuant to section 32(a) or (b) of the ACT Civil and Administrative Tribunal Act 2008 (ACAT Act) on the basis that the application against her is frivolous or vexatious or without substance and is foredoomed to fail.

1. While the dispute is factually complex, it may be summarised as follows. The applicant is a business broker. The applicant claims that he is entitled, pursuant to a brokerage agreement (the brokerage agreement), to a commission for the sale of a business formally owned by the respondent. The respondent sold the business to another company (the buyer), and the third party was the guarantor of that company's obligations under the franchise sale agreement (sale agreement). The sales agreement contains an indemnity clause. The respondent's position is that no commission is payable to the applicant, but its alternative argument is that, if a commission is payable, the third party must indemnify it pursuant to the guarantee and indemnity clauses in the sale agreement.
2. The third party argues that the application to join her as a party has no reasonable prospects of success, because the indemnity clause cannot cover liabilities incurred by the respondent pursuant to a brokerage agreement that was entered into prior to the sale, and over which she had no knowledge or control.
3. The outcome of this strike out has practical consequences for the litigation that go beyond merely saving the third party from incurring unnecessary expenses. My understanding is that the third party is desirous of assisting the applicant in the proceedings, but that she is reluctant to do so if she will ultimately be liable for any breach of the brokerage agreement by the respondent.

1. Section 32 of the ACAT Act provides, relevantly, that:

(1) This section applies if the tribunal considers that an application, or part of an application is--

(2) The tribunal may, by order, do 1 or more of the following:

(b) dismiss the application or part of the application;

1. The effect of a summary dismissal under section 32(2)(b) of the ACAT Act is that the relevant proceeding, or relevant part of it, is dismissed without proceeding to hearing.
2. The relevant test for section 31(1)(a) was described by the tribunal in Warren Gardner & Julie Bever v ACT Planning and Land Authority [2010] ACAT 64 as follows:

There have been various standards stated in the case law as to what test applies when proceedings are alleged to be frivolous or vexatious. For example that the proceedings are "foredoomed to fail", where the claim is without substance, groundless or fanciful, clearly untenable, baseless or where the claim discloses no cause of action or no justiciable legal controversy.

1. Clearly, there is some overlap between proceedings that are allegedly frivolous and vexatious and those that are 'without substance', but the difference or otherwise is not important for these proceedings. On either ground, having regard to the arguments advanced by the parties, I must be satisfied that, the respondent's case against the third party, taken at its highest, has no reasonable prospects of success[1]. This requires that I be satisfied that the terms of the indemnity relied upon by the respondent are not capable of giving rise to liability on the part of the third party, as guarantor.

1. The relevant indemnity provisions of the sale agreement provide as follows:

8.1 The Buyer indemnifies and holds harmless the Seller against all Liabilities and the cost of all demands, actions and other proceedings against the Seller (including legal costs on a solicitor and own client basis) arising from Completion in relation to the Business or arising directly or indirectly as a result of or in connection with, any breach or non-performance by the Buyer of the obligations of the Buyer, whether express or implied, under this Agreement or under any other agreement assigned to the Buyer under this Agreement.

8.2 The Seller indemnifies the Buyer against all liabilities and the cost of all demands, actions and other proceedings against the Buyer (including legal costs and the solicitor and own client basis) prior to Completion in relation to the Business or arising directly or indirectly as a result of or in connection with, any breach or non-performance by the Seller of the obligations of the Seller, whether express or implied, under this Agreement or under any other Agreement assigned by the Seller under this Agreement. (indemnity clauses).

1. 'Completion', by virtue of the lengthy definitions in clause 1.1 and clause 5 of the sale agreement, effectively means the date when the sale is complete. There are a number of variables involved in the determination of this date, but none are relevant to these proceedings. Under clause 9 of the brokerage agreement, commission is paid "on completion". This is not a defined term in the brokerage agreement. Presumably, it means completion under the sales agreement. No party suggested otherwise.
2. The third party's liability arises not merely through the indemnity clauses, but also through the guarantee she signed in her role as director of the buyer. It was not contended at the strike out hearing that the terms of the guarantee do not operate so as to hold the third party liable, as guarantor, for any liabilities that fall on the buyer. The arguments focused on the indemnity clause.
3. The third party's position was that clause 8.1 cannot operate as suggested, because it would be unreasonable to hold the buyer, or the third party guarantor, liable for events which preceded the sale, and over which they had no knowledge, and no control. The third party described its approach as a "common sense" one - it being nonsensical to hold the third party liable for something that so clearly fell solely within the knowledge and sole responsibility or control of the respondent.
4. The third party (who was not represented) did not cite any case law. However, her argument is broadly consistent with the general principles of contract law, expounded in Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 and countless subsequent cases, that:
   • (a) when interpreting a contract, the court attempts to give effect to what the parties intended; but
   • (b) what the parties intended is to be assessed objectively, not subjectively; and
   • (c) the court should interpret terms in a contract with regard to what a reasonable person would understand those terms to mean.
5. No reasonable person, the third party suggested, would intend for a clause to hold the buyer of a property liable for an undisclosed and undiscoverable sales commission owed by the seller.
6. The respondent, on the other hand, said that the starting point must be the words actually used.[2] Focusing on the words of clause 8.1 (which he conceded could be clearer, and would "benefit from a comma") the respondent's solicitor submitted that the effect of the clause, as written, was clearly to create a temporal guillotine, that activates "from completion", so as to "hold harmless the seller against all Liabilities and the cost of all demands, actions and other proceedings against the Seller (including legal costs and the solicitor and own client basis) arising from completion in relation to the Business". In other words, from the date of the completion of the sale, the Buyer will assume responsibility for liabilities of the business, including those liabilities incurred by the seller. The source or cause of that liability, the respondent submitted, is not important - rather, it is whether the liability arises "from [the time of] completion" and in relation to the Business.
7. The respondent suggested that there was nothing unsurprising or unreasonable about the effect of this clause. It drew a commercially pragmatic line dividing before and after sale. Both parties were represented and agreed to it.
8. It is important to note here that, for the purposes of the strike-out, the question is not which approach is correct, but rather whether the respondent's argument is untenable.
9. I have some sympathy for the third party's position and the difficult position she finds herself in. The respondent's interpretation does have the potential to be unduly burdensome on the third party, particularly in the circumstances of this case. However, there are two mitigating elements that undermine any argument that the respondent's argument is so inherently unreasonable as to be unarguable.
10. First, as is typical of contracts where the buyer indemnifies the seller for future liabilities, there are extensive seller's warranties that set out the limits of those liabilities. The warranties are found in Schedule A of the sales agreement. No argument was made by either party during the strike-out as to the effect of these warranties, and therefore I can take that matter no further at this time, other than to note that the existence of the warranties somewhat ameliorates the potentially broad scope of clause 8.1 (whether or not they operate in the precise circumstances of this case).
11. Second, as the respondent noted, there is a counterpart to clause 8.1 in clause 8.2. The wording is nearly identical, but gives the third party, through the buyer, a similar protection in relation to all claims that arose 'prior to completion'. The wording provides some support to the respondent's argument that the clauses are temporal in effect and designed to draw a clear line between the obligations of the parties. Whether this indemnity is of any benefit in this case, or to the third party, as guarantor, is not a question that I can consider in the context of this strike-out.
12. I also note that a clause with the effect contended for by the respondent is not completely without purpose. Such a clause may, for example, encourage buyers to disclose any previous connections to other brokers or agents that may attempt to claim commission from the seller. As in any case, these kinds of clauses ensure that diligence is required on both sides, and on the part of any guarantor.
13. The purchase of a business inevitably carries with it risks, including the risk that the business will be liable for claims that arise out of events that happened prior to the sale. Carefully drafted seller's warranties mitigate this risk - for example, it is possible for warranties to include an express clause to the effect that no commissions are owed to a broker. Again, whether any warranties are applicable in this case was not argued in the strike-out proceedings and is a matter for further hearing.
14. I note, finally, that there was some suggestion in submissions made by the applicant (in support of the strike-out) that the proceedings against the third party may be a deliberate attempt by the respondent to 'coerce' the third party into taking a neutral position or declining to assist the applicant with the proceedings. No evidence was provided, only a suggestion that inferences be drawn from the broader circumstances. I am not prepared to draw such inferences. In circumstances where there is at least some prospect that the respondent, if liable, may be indemnified by the applicant, I am not satisfied that the joinder of the third party is a deliberate instrument of oppression (notwithstanding that it clearly makes it more difficult for the applicant to prove his case).

1. The question before the Tribunal is whether the proceedings against the third party should be struck out, without proceeding to a full hearing, on the basis that the case against the third party is frivolous or without substance or without any reasonable prospects of success.
2. The indemnity in clause 8.1 is not without ambiguity. However, I am satisfied that it is at least arguable that it could operate (in conjunction with the guarantee) in such a way as to hold the third party liable. Whether it actually does operate in that way, and whether liability is excluded for some other reason, is a matter for the final hearing.
3. Accordingly, I decline the third party's application to strike out the proceedings against her. In order to ensure that this matter proceeds to hearing efficiently, I also make the following directions.

1. The third party's application to strike out the proceedings against her is dismissed.
2. In addition to the Directions of 10 April 2018, the Tribunal makes the following additional directions:
   • (a) The third party must give to the tribunal and each other person by 22 June 2018:
     • (i) A response setting out the orders the third party seeks;
     • (ii) A written timeline of events;
     • (iii) A written statement of every witness who the third party will call to give evidence at the hearing, including herself;
     • (iv) Any expert reports the third party will rely upon at hearing.

[1] For example, Dey v Victorian Railways Commissioners (1949) 78 CLR 62; General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125

[2] Australian Broadcasting Commission v Australasian Performing Right Association [1973] HCA 36; (1973) 129 CLR 99, 110