We Two Pty Ltd v Shorrock

REASONS FOR JUDGMENT 1 This is an unusual application brought in unusual circumstances. Messrs Shorrock, Bertelkamp and Goble (whom I shall refer to as "the applicants") seek an order that the within action, being an action in which they are the respondents, be reinstated so that they can obtain a declaration that Little River Band Pty Ltd, which in its former name We Two Pty Ltd (the name that I will continue to use) has brought the action, is in breach of the terms under which the action was settled. They also seek a mandatory injunction to compel performance of the settlement agreement. 2 The event that has provoked this application, which came on for urgent hearing last Friday, 1 July 2005, is a motion returnable next Friday or shortly thereafter in the United States District Court of Florida calling on the applicants to show cause why they should not be held in contempt for having breached a permanent injunction issued out of that court on 6 January 2003. The injunction restrains the applicants and their manager, Mr Wheatley, from "using the trademark and trade name 'Little River Band' or any derivative therefrom". Presumably the order means that the name "Little River Band" should not be used as a trademark or trade name. 3 The injunction was obtained in an action commenced by We Two, an Australian company, and its director, Mr Housden. The applicants and Mr Wheatley were the defendants in that action. We Two is the proprietor in Australia of the trade mark "Little River Band" which is registered in class 41 in respect of "entertainment services". It seems that We Two and Mr Housden have similar rights in respect of the mark under the Trademark Act of 1946 (Lanham Act). At all events, in the US action the plaintiffs claimed to have the exclusive right to use the name "Little River Band" as a trademark and trade name, that the defendants infringed upon those rights and that, accordingly, the plaintiffs were entitled to a permanent injunction to ensure no future violation. There was no trial of the action. Judgment was obtained pursuant to the Federal Rules of Civil Procedure 1937 (US), rule 55(b), which authorises the court to enter judgment by default. 4 I am told that the applicants will apply to have the judgment vacated. It seems that an application of that kind can be made under rule 60(b) of the Rules. Having regard to the grounds upon which the application will be based, the court would in any event have inherent jurisdiction to set aside the judgment: Levander v Prober, 180 F.3d 1114, 1119 (9th Cir, 1999). If the application is made under rule 60 it must be made "within a reasonable time" and in certain cases cannot be made more than one year after judgment. I do not have sufficient information to venture a prediction as regards whether the application will be treated as having been made within time. So it is best to proceed on the assumption that, when filed, the application to vacate (which must be brought by motion) will be determined on its merits. 5 To understand the purpose of the present application it is necessary first to recount some history, most of which is, I trust, uncontroversial. Little River Band is the name of a pop group. The group was established in Australia in the 1970s. The applicants are three of the five original members of the group. Within a short period of its formation the group became very successful with many sell-out concerts and a large volume of record sales. Its success was not confined to Australia. Along with a handful of other Australian groups, Little River Band gained popularity overseas, particularly in the United States where it was the first Australian-based group to sell a "gold" album (that is where sales exceed one million records). 6 Notwithstanding its success the line-up of the group changed from time to time. One by one each of the applicants left the group to pursue his musical interests elsewhere. When any member left he lost the right to perform under the name "Little River Band". That right stayed with the remaining line-up. In due course the proprietorship of the name was transferred to We Two. 7 In 2002 or thereabouts the applicants began to perform together at live concerts in Australia and in the United States. They performed under the name "Bertels, Shorrock and Goble, The Original Little River Band". They made other use of the name "Little River Band" in promotional material. 8 This led to the institution of two actions. One is the US action to which I have already referred. The other is the action commenced in the Federal Court of Australia. The Australian action was for infringement of trade mark, passing off, and misleading or deceptive conduct contrary to s 52 of the Trade Practices Act 1974 (Cth). The foundation for each cause of action was the use by the applicants in their promotional material and in their performances of the name "The Original Little River Band". We Two sought declarations of unlawful conduct, a permanent injunction, damages and other relief. The applicants filed a defence in which they admitted using the words "The Original Little River Band" but alleged that this use was lawful. A company associated with the applicants counterclaimed for the removal of We Two's trade mark from the Register of Trade Marks. 9 The case was placed in my docket. It came on for trial on 11 June 2002. At the end of the second day I was told by counsel that the parties were in discussion about the settlement of the suit, that settlement was imminent and that in those circumstances I should adjourn the further hearing to enable the parties to finalise the terms of a settlement agreement. The trial was adjourned to a date to be fixed. 10 On 21 June 2002 the parties provided me with a copy of the executed deed which contained the terms of settlement. According to those terms the part-heard Australian action was resolved apart from the question of costs. By cl 7 of the settlement agreement the Federal Court was to determine who should pay those costs. For that purpose the parties filed written submissions and, in due course, I ordered the applicants to pay one half of We Two's taxed costs. I delivered reasons for my ruling. 11 The terms of settlement did not make express provision for the final disposition of the Australian action and no order to that effect was made. Strictly speaking, therefore, the action is still current. It will remain current until it is disposed of by an appropriate order. 12 I can now explain with greater precision the nature of the present application. It is an application by motion made in the Australian action. The first order which the applicants seek (that the action be reinstated) was based on the mistaken belief that the action had previously been disposed of by final order. Now that the mistake (that the action had been disposed of) has been discovered an order for reinstatement is no longer sought. 13 The second order the applicants seek is a declaration that by continuing to prosecute the US action and in procuring the entry of the permanent injunction, We Two is in breach of the settlement agreement. Finally, they ask for an order in the nature of specific performance of the terms of settlement. The order sought is that We Two do all such acts and execute all such documents as may be reasonable and proper to obtain the setting aside of the final injunction granted by the District Court for the reason that the US action had been settled before the order was sought. 14 Before dealing with the merits of the application there are two preliminary points that must be considered. The first concerns jurisdiction. It is said that this court lacks jurisdiction to hear the motion. Here I use the word jurisdiction in its narrow sense, which I believe is the meaning intended by We Two, namely to indicate that the court lacks the authority to embark upon the hearing of the motion. The point arises in this way. We Two says that any claim for relief arising out of the settlement agreement is a claim based in non-federal law which the Federal Court has no jurisdiction to determine. There is no doubt that when the Federal Court exercises its federal jurisdiction it can also deal with accrued and pendent claims, as well as pendent parties (Re McJannet; Ex parte Minister for Employment, Training and Industrial Relations (Qld) (1995) 184 CLR 620, 653). But We Two contends that enforcing an agreement that settles an action is beyond the court's reach for it is a simple common law claim with no federal element. 15 I am in no doubt that, speaking generally for the moment, the Federal Court has jurisdiction to enforce the terms of an agreement made to settle or compromise an action properly instituted in this Court. The Court's jurisdiction, that is both its federal and pendent jurisdiction, is to decide any issue necessary to the disposition of a case properly before it. If an action is compromised by terms of settlement those terms can be given effect by consent orders. If the settlement breaks down and the wronged party requires the assistance of the court to enforce the settlement so as to bring the litigation to its intended conclusion, the court can make the appropriate order. It will make no difference if the enforcement of the settlement agreement is sought, as it is here, in the action itself or by a separate proceeding: compare Re Wakim; Ex parte McNally (1999) 198 CLR 511, 586. In each case the necessary federal element is in the "matter" or controversy the subject of the underlying action. The position might be different if the terms of settlement travel far beyond the settlement of the action. Enforcement of the extended aspects may or may not be within the court's pendent jurisdiction and each case will have to be looked at separately. 16 The decision of the Full Court in Darling Downs Investments Pty Ltd v Ellwood (1998) 18 FCR 510 is consistent with this view. In Pallas v Finlay (1985) 61 ALR 220, it was suggested that the Court could not enforce the compromise of an action within jurisdiction if enforcement was required against third parties. The reasoning was that the compromise agreement was not based in federal law. However, the court failed to consider whether the relevant federal aspect was the action itself. In any case that view may no longer be correct in light of recent decisions in the High Court. The case of Macteldir Pty Ltd v Dimovski (2003) 202 ALR 83, a different case, appears to have been decided on other grounds. There, the point in issue was whether the court had "jurisdiction" (the judges probably meant "discretion") to enforce terms of settlement by summary procedure. 17 The second preliminary issue concerns procedure. We Two says that it is not appropriate for an application to enforce the compromise to be brought by motion in the action itself. The correct procedure, so the argument goes, is to sue out a new action. I disagree for the following reasons. 18 It has always been the case that a court has jurisdiction on motion in the action to enforce terms of settlement. The practice dates back to the Chancery Court. In Daniell's Chancery Practice, 8th ed (1914) vol 1, 646, the practice was described in this way: "When an action is compromised by agreement out of Court, it was formally necessary to institute an action for specific performance of the agreement in the event of any party refusing to carry it out. But since the Judicature Act such a compromise may be converted into an order of the Court upon a motion by any party interested and enforced like a judgment. But a consent order, embodying a new agreement between the parties beyond the scope of the action, can only be enforced in a fresh suit, which is also the proper method of determining the validity of the compromise, if disputed." Things have progressed since then. The modern practice is discussed by the Full Court of the Supreme Court of Victoria in Roberts v Gippsland Agricultural and Earthmoving Contracting Co Pty Ltd [1956] VLR 555. I will not burden these reasons with extensive quotations from the well known judgment of Smith J. I will content myself by citing one passage (at 564) where the judge summarised the current position: "(i) The Court will now enforce the agreement of compromise upon motion in the action whenever the circumstances are such that it would have been enforced in a corresponding manner in the old Court of Chancery. (ii) In addition the agreement may be so enforced notwithstanding the fact that it involves matters extraneous to the action, and notwithstanding that there is a substantial question raised as to the terms or validity or enforceability of the agreement, provided that the Court is clearly satisfied that justice can be done under the summary procedure." 19 The adoption of a summary procedure is apt in the current circumstances. The validity of the terms of settlement is not called into question. No contested question of fact need be decided. All that is required is to determine what the parties meant by the settlement agreement. From start to finish this is a question of construction. 20 This brings me to the claim for declaratory relief. The first thing to do is to determine the effect of the settlement. According to the common law a cause of action will only be released or discharged for a valuable consideration which is in law an accord and satisfaction. The distinction was explained by the former Chief Justice of the High Court, Sir Owen Dixon, in McDermott v Black (1940) 63 CLR 161 at 183-184. There he said: "The essence of accord and satisfaction is the acceptance by the plaintiff of something in place of his cause of action. What he takes is a matter depending on his own consent or agreement. It may be a promise or contract or it may be the act or thing promised. But, whatever it is, until it is provided and accepted the cause of action remains alive and unimpaired. The accord is the agreement or consent to accept the satisfaction. Until the satisfaction is given the accord remains executory and cannot bar the claim. The distinction between an accord executory and an accord and satisfaction remains as valid and as important as ever. An accord executory neither extinguishes the old cause of action nor affords a new one." 21 In my opinion it is clear beyond doubt that the terms of settlement were entered into for the purpose of achieving, and did in fact achieve, a discharge of the claims made by We Two in both the Australian action and the US action. By cl 9 the claims by We Two in each action were expressly released and forever discharged. That is the accord. In return We Two agreed (in cl 2) to accept the following acknowledgments and promises: (1) An acknowledgment that We Two is the owner of the trade mark "Little River Band" in both Australia and the United States; (2) An acknowledgment that We Two is entitled to use in Australia and the United States the marks "LRB" and, what is described as "the platypus logo"; (3) A promise that the applicants will not use the trade mark and the "Proposed Trade Marks" or the "Respondent's Logo" (as defined) as their name or in the name of their band; (4) A promise that the applicants will not carry on trade or business using a variety of defined marks and names; and (5) A promise that the applicants would not represent in the course of trade that their activities are connected or associated with We Two. It is undoubted that We Two accepted these acknowledgments and promises, and not the performance of them, in discharge of its causes of action, for the promises are perpetual. That is a sufficient satisfaction. 22 I should note in passing that I drew counsel's attention in argument to the opening words of the release clause (cl 9) and raised the possibility that those words "Subject to clause 8 herein" qualified the release given. On further reflection I am satisfied that this is not a good point. The purpose of the opening words is to make clear that We Two had reserved the right to move in the Australian action for a permanent injunction if the applicants were in default under the terms. It may also have been thought (wrongly in my opinion) that in the absence of a provision permitting the reinstatement of the action for the purposes of enforcing the terms by a summary procedure, that step would not be available. 23 The claims in the two actions having been released, it is necessary to imply a term that the parties would take steps to have the Australian action and We Two's claim in the US action discontinued or dismissed. I think that on this point there was little dissent, at least so far as the Australian action is concerned. Indeed both sides seem to have assumed that this action had in fact been dismissed. The failure by the parties to seek an order of dismissal does not prevent me now from making such an order. And I propose to do so both in relation to the claim and the counterclaim. 24 There is, as I have said, an implied term of the settlement agreement that We Two would discontinue or have dismissed its claim in the US action. In this connection I have assumed that We Two was able to discontinue its claims in that action or approach the District Court to have those claims dismissed. By taking its action to final judgment We Two is in clear violation of the settlement agreement. 25 Nonetheless, I do not propose to grant the declaration sought. No purpose would be served by it. I have determined the construction question and the parties are estopped from re-litigating that issue in any other proceeding. The more important question is whether there should be an order requiring We Two to take steps to vacate the judgment obtained in the District Court. 26 A not uncommon approach is to defer making any order that affects foreign litigation in favour of allowing an appropriate application to be made to the foreign court. There is no purpose in taking that course here. As the High Court noted in CSR Limited v Cigna Insurance Australia Limited (1997) 189 CLR 345, 396, where the foreign proceeding is brought in breach of contract there is no need out of comity to see whether the foreign court will stay or dismiss the foreign proceeding. Likewise, I would add, where the entry of final judgment is in breach of contract. 27 We Two points to the applicant's long delay in bringing this application and claims that by reason of that delay no order should be made. This submission ignores established authority, the most important of the cases being Muir v Jenks [1913] 2 KB 412. There the plaintiff had signed a judgment in default of appearance for a sum of money in excess of that which was due to him. In the circumstances the defendant was entitled to have the judgment set aside ex debito justitiae. He delayed making the application and the plaintiff sought to resist the order on account of that delay. The Court of Appeal rejected this argument out of hand. Buckley LJ explained (at 415): "Both the master and the [trial] judge appear to have thought that the debtor himself ought to have taken steps to get the judgment collected and that for default in so doing he was now precluded by delay from having the judgment set aside. In my opinion that is wrong. It is the duty of the creditor if he obtains a wrong judgment to have it set right. It is not the duty of the debtor against whom he has obtained the judgment to do so. The question therefore does not turn upon delay by the debtor." 28 We Two also says that because the applicants have acted in defiance of the permanent injunction their application for discretionary relief (for that is the nature of the order) should be refused. More colloquially the argument is that the applicants do not come to court with clean hands and so are not entitled to the court's assistance. I think this consideration can also be put to one side. If the applicants have acted in breach of the permanent injunction they will be sanctioned accordingly. If the facts justify it, I presume they will be found guilty of contempt even if the injunction is discharged. That is the position in Australia (as to which see Attorney-General (NSW) v Mayas Pty Ltd (1988) 14 NSWLR 342, 357, dealing with inferior courts, and a fortiori in the case of a superior court) and I have no reason to believe that the position is any different in the United States. In any event, it is important to get rid of an order that should never have been sought and may have been improperly obtained according to United States law: see generally 12 Moore's Federal Practice, s60.43 (3rd ed). 29 Finally, We Two says that immediately following the settlement agreement the applicants breached its terms and this justified it moving for judgment. I reject this argument. The agreement does not contemplate that We Two may move for judgment in default in the District Court if the agreement is breached. If there was a breach We Two could have moved for judgment on notice if that process was available in the District Court or might have instituted separate proceedings seeking appropriate relief. 30 So far everything points to the appropriateness of an order against We Two along the lines sought by the applicants. There is, however, a problem. There are two plaintiffs in the US action. One, Mr Housden, is not a party to the settlement agreement. His claims in the US action have not been compromised, although the settlement agreement seems implicitly to assume that they would have been discharged. This may give rise to a claim for breach of warranty of authority against We Two, but that is a matter for another day. The fact that Mr Housden's claims have not been resolved presents the problem. If his claims in the US action of themselves support the default judgment there may be no utility in making any order against We Two. On this aspect, I do not know much about Mr Housden's separate claims. The Complaint filed in the District Court states that We Two is the proprietor of the trademark in the United States and that it is the company which has "the exclusive right to use the name of the group": Complaint para 12. And yet it is also alleged (in para 25) that "the Plaintiffs [Mr Housden and We Two] are the exclusive owner of the trademark and trade name 'Little River Band'". It is not possible for me on the present state of the evidence to resolve this inconsistency. 31 In the circumstances it is, I think, appropriate to stand this application over for further hearing. The applicants can then bring in such additional evidence as they think appropriate to enable me to finally dispose of the application. It may be that the pleadings will be sufficient, but I will leave that to the applicants' advisers. 32 Accordingly, the only orders I will make at this point are to dismiss the claim and cross-claim in the principal action and otherwise adjourn this motion for further hearing. I certify that the preceding thirty-two (32) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein.