FEDERAL COURT OF AUSTRALIA

 

Quanta Software International Pty Ltd v Quanta Systems Ltd

[2004] FCA 1182

ESTOPPEL – reliance on assumed state of facts – permissibility of subsequent reliance on inconsistent facts – relevance of context to interpreting language founding estoppel claim – precise and unambiguous language – detriment or material disadvantage

 

Grundt v Great Boulder Pty Gold Mines Limited (1937) 59 CLR 641 referred to

Verschures Creameries v Hull &  Netherlands Steamship Co [1921] 2 KB 608 referred to

Thompson v Palmer (1933) 49 CLR 507 referred to

Low v Bouverie [1891] 3 Ch D 82 followed

GEC Marconi Systems Pty Limited v BHP Information Technology Pty Limited (2003) 128 FCR 1 followed

Waltons Stores (Interstate) Limited v Maher (1988) 164 CLR 387 referred to

National Westminster Finance New Zealand Limited v National Bank of New Zealand Limited [1961] 1 NZLR 548 referred to

 

QUANTA SOFTWARE INTERNATIONAL PTY LIMITED v QUANTA SYSTEMS LIMITED

N 1193 OF 2003

 

BEAUMONT J

SYDNEY

10 SEPTEMBER 2004

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N 1193 OF 2003

 

BETWEEN:	QUANTA SOFTWARE INTERNATIONAL PTY LIMITED APPLICANT
AND:	QUANTA SYSTEMS LIMITED RESPONDENT
JUDGE:	BEAUMONT J
DATE OF ORDER:	10 SEPTEMBER 2004
WHERE MADE:	SYDNEY

 

THE COURT ORDERS THAT:

 

The Amended Application be dismissed, with costs.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N 1193 OF 2003

 

BETWEEN:	QUANTA SOFTWARE INTERNATIONAL PTY LIMITED APPLICANT
AND:	QUANTA SYSTEMS LIMITED RESPONDENT

 

JUDGE:	BEAUMONT J
DATE:	10 SEPTEMBER 2004
PLACE:	SYDNEY

REASONS FOR JUDGMENT

introduction

The applicant’s Statement of Claim

1                     By its Further Amended Statement of Claim (‘the Claim’) the applicant (Quanta Software International Pty Limited) claims the following against the respondent (Quanta Systems Limited):

·                    Copyright subsists in the ‘Eunice’ software (‘Eunice’) created in 1980 by Michael Harvey and Michael Green and others, employees of the respondent (formerly Quanta Holdings Limited), a New Zealand corporation.

·                    By a written Licence, dated 2 February 1991, the respondent granted to the applicant an exclusive perpetual licence to use, copy, publish, translate and sub-licence rights to Eunice with respect to all countries except New Zealand (par [4]).

·                    The Licence provides (relevantly, for immediate purposes) as follows:

·                    The respondent granted to the applicant an exclusive perpetual licence to use copy, publish, translate and sub-licence rights to Eunice (with respect to all countries except New Zealand) its ‘software system’ (ie, Eunice), including certain integrated modules (cl 1 of the Licence).

·                    The applicant agreed to pay the respondent certain amounts in certain events.

·                    Provision was made for maintenance.

·                    The Licence was conditional upon the execution of a Shareholder’s Deed.

·                    The Licence ‘shall be effective in perpetuity’, with provision for termination for cause or for force majeure.

·                    It was an express term and condition of the Licence that the respondent would not use, copy, publish, translate and sub-licence rights to Eunice in any country except New Zealand (see cl 1) (par [5A]).

·                    It was an implied term and condition of the Licence that the respondent would not engage in any action ‘in respect to Eunice or any derivative thereof which would on the part of anyone other than the owner of Eunice have enabled the applicant to sue for infringement of copyright (par [5])’.

·                    Trilogy CSI Pty Limited (‘Trilogy CSI’) was the applicant’s agent in relation to the marketing, billing and support of Eunice (par [6]).

·                    In breach of the Licence and, in particular, in breach of the express and implied terms (see above), the respondent has (par [7]):

(a)           reproduced Eunice or a substantial part thereof;

(b)          exposed Eunice for sale;  and

(c)           distributed Eunice.

The applicant’s Amended Application

2                     In accordance with the applicant’sAmended Application, the applicant claims:

(1)               An order that the respondent be restrained in Australia from breaching the applicant’s ‘exclusive licence’ to Eunice by:

(a)                reproducing or adapting or authorising the reproduction or adaption of Eunice or a derivative of Eunice including a substantial part thereof, without the licence of the applicant.

(b)               selling, letting for hire, or by way of trade offering or exposing for sale or hire, Eunice or a derivative of Eunice including a substantial part thereof.

(c)                distributing Eunice or a derivative of Eunice including a substantial part thereof.  

(d)               Damages.

The respondent’s defence

3                     In its Defence to Further Amended Statement of Claim (‘the Defence’), the respondent says:

·                    Admits that it entered into the Licence, but otherwise denies the assertions in par [4] of the applicant’s Claim.

·                    In answer to par [5A] of the Claim, the respondent denies the existence of the term claimed as an express term of the Licence.

·                    The allegation in par [5] of the Claim is denied.

·                    The allegations in par [7] of the Claim are denied.

·                    Any loss or damage claimed by the applicant pursuant to the Claim is denied.

·                    By par [11] of its Defence, the respondent:

‘(a)      says it entered into a licence agreement with the Applicant on 2 February 1991 in relation to Eunice (‘Licence’);

(b)               says that the Licence was terminated and ceased to have any effect from on or around 24 December 1993;

(c)                says further, and in the alternative to subparagraph 11 (b) above, that to the extent the Deed did not operate to terminate the Licence (which it denies), on or about 1 December 1994 the Applicant represented to the Respondent that any agreements or liabilities flowing between the Applicant and Respondent regarding Eunice and the subject matter of the Licence were discharged and/or terminated pursuant to the Deed (the ‘Representation’).

PARTICULARS

a)         Written agreement dated 2 February 1991 between the Applicant and the Respondent.

b)        Deed of Settlement dated 24 December 1993 between Trilogy Business Systems Limited, Valley Computers Limited, Qantel Business Systems Australia (Pty) Limited, Trilogy Business Systems Australia Pty Ltd, Zivenzia Limited, Errol Stanley Williams, Trilogy Corporation Limited and Bil (NZ Holdings) Limited (‘Deed’).

c)         The Representation was made in a letter dated 1 December 1994 from the Applicant to the Respondent.’

 

·                    By par [12] of its Defence, the respondent says:

‘Acting in reliance upon the Representation, and induced thereby, the Respondent thereupon treated the Licence as terminated and the Respondent further developed Eunice with a view to marketing Eunice in New Zealand and other countries and has been sued by the Applicant in these proceedings.’

·                    By par [13] of its Defence, the respondent says that, by reason of the matters pleaded in pars [11] and [12], the applicant:

‘a)       is estopped from claiming that the Licence is subsisting and has not been terminated;

b)                  is estopped from claiming that the Respondent cannot further develop  Eunice and cannot deal in Australia in the software so developed;

c)                  is estopped from claiming the Respondent has breached the Licence;  and

d)                  is precluded from maintaining paragraphs 7, 8, 9 and 10 of the [Further] Amended Statement of Claim and seeking the relief sought therein or at all.’

The applicant’s amended reply

4                     By its Amended Reply (‘the Reply’), the applicant responds to the Defence as follows:

‘2.       In part reply to paragraph 11 of the Defence, the Applicant says that:

(a)               it denies the allegations in paragraph 11 b);  and

(b)               it denies the allegations in paragraph 11 c).

3.                  In part reply to paragraph 12 of the Defence, the Applicant denies that it had made any representation as is alleged which was capable of being relied upon by the Respondent as is alleged.

4.                  The Applicant denies the matters alleged in paragraph 13 of the Defence.

5.                              In further reply to the whole of the Defence, the Applicant says that the Respondent represented to the applicant that the Licence remained on foot and in particular that the Settlement Deed made on or around 24 December 1993 did not affect the Licence as follows:

(a)               By letter dated 7 March 1994 addressed to the applicant, the respondent requested a payment of $12,632.08 pursuant to the Licence (the ‘First Representation’).

(b)               By letter dated 4 May 1994 addressed to the applicant, the respondent requested a payment of $12,632.08 pursuant to the Licence (the ‘Second Representation’).

(c)               By letter dated 24 May 1994 addressed to the applicant, the respondent advised that it would pursue more vigorously debts incurred by the applicant, from 1991 to June 1993, which debts were pursuant to the Licence and in the main reimbursement for supplies of brochures, manuals and airfare costs (the ‘Third Representation’).

(d)               By letter dated 25 October 1994 addressed to the applicant, the respondent requested settlement of the debt referred to in its letter addressed to the applicant dated 24 May 1994 (the ‘Fourth Representation’).

(e)               By letter dated 21 November 1994 addressed to the applicant, the respondent requested a payment of $12,632.08 pursuant to the Licence (the ‘Fifth Representation’).

6.                  Acting in reliance upon the First Representation the Applicant continued to act upon the Licence as if it was in full force and effect and expended money on that behalf.

7.                  Acting in reliance upon the Second Representation the Applicant continued to act upon the Licence as if it was in full force and effect and expended money on that behalf.

8.                  Acting in reliance upon the Third Representation the Applicant continued to act upon the Licence as if it was in full force and effect and expended money on that behalf.

9.                  Acting in reliance upon the Fourth Representation the Applicant continued to act upon the Licence as if it was in full force and effect and expended money on that behalf.

10.              Acting in reliance upon the Fifth Representation the Applicant continued to act upon the Licence as if it was in full force and effect and expended money on that behalf.

11.              The Applicant would suffer great detriment if the Respondent was now permitted to claim in these Proceedings that either the Licence was terminated in 1993 or that the Applicant by its actions in 1994 is itself estopped from claiming that the Licence is subsisting.

 

12.       Accordingly, the Respondent is estopped:

(a)               from claiming that the Licence was terminated on or around 24 December 1993;  and

(b)               from claiming those matters contained in paragraph 13 of its Defence.

The preliminary question

5                     On 4 August 2004 I ordered, by consent, as follows:

‘Any Question (as defined in Order 29 rule 1) raised by paragraphs 11-13 of the Defence to the Further Amended Statement of Claim, filed 30 July 2004, denied or not admitted by the Applicant in its Amended Reply, filed 4 August 2004, and paragraphs 4, 5 and 5A of the Further Amended Statement of Claim, filed 8 March 2004 (‘Preliminary Questions’), be determined prior to and separately from the other issues in question in the proceedings.’

the licence

6                     Some parts of the Licence have been summarised above, but it is necessary to provide the details, as follows:

7                     The Licence bearing date 2 February 1991 is entitled:

‘EXCLUSIVE PERPETUAL SOFTWARE LICENCE AGREEMENT’

8                     The recitals to the Licence were expressed thus:

‘This agreement is between Quanta Software International ("QSI"), a company doing business in Australia and Quanta Holdings Ltd ("QHL"), a New Zealand Company. QHL wants to license to QSI the exclusive rights to use, and sub-license rights to its software system (EUNICE) outside of New Zealand. QSI wants the exclusive rights to use, market, and sub-license rights to QHL's software system outside of New Zealand. therefore, QHL and QSI agree as follows:’

 

9                     The Licence commences with this definition provision:

‘ “Software System” refers to the EUNICE software as developed by QHL and includes the following integrated modules: accounts receivable, general ledger, accounts payable, inventory, purchasing, advanced inventory, import costing, sales analysis, PDE input, retail point of sale, order processing etc. and cash book.’

 

10                  The software licence is granted by cl 1 in these terms:

‘QHL grants to QSI an exclusive perpetual license to use, copy publish, translate, and sub-licence rights to its software system with respect to all countries except New Zealand, (the 'Territory"). QSI will have the exclusive rights to market and distribute the software system in the Territory, including the rights to prepare promotional material, advertising, and undertake any other activities necessary to the marketing of the software system in the Territory. QSI will use its best efforts to ensure that the software system, under any name is not sold or made available through any action of QSI in New Zealand. Upon execution of this Agreement, QHL shall provide to QSI master copies of all programs, source codes, and operator manuals constituting the software system, including the latest version/release of tape(s) containing the source for the applications, tape(s) containing documentation for the applications, printed user manuals for the applications, printed implementations manuals with sample forms, and printed file documentation.’

 

11                  Payment terms are provided by cl 2:

‘In consideration for the rights granted QSI under this Agreement, QSI shall pay QHL the sum of one thousand dollars ($1,000.00) AUD upon this Agreement becoming unconditional, or the conditions precedent (refer Article 7) being waived, and the annual maintenance fees described in Article 3 of this Agreement.’

 

12                  Maintenance of the software is dealt with by cl 3:

‘For a term of five (5) years, on the anniversary of the execution of this Agreement, QSI shallpay the sum of one thousand dollars, ($1,000.00) AUD to QHL in exchange for one (1) EUNICE release incorporating all changes, improvements, modifications and enhancements together with the most current documentation, during the previous year, and one (1) copy of current EUNICE sales materials. Upon the expiration of this initial five (5) year term, QSI may renew this maintenance provision for a second five (5) year term at its sole option upon sixty (60) days prior written notice to QHL.

 

Within six months of the date hereof QSI and QHL will enter into agreements to cover the support of QSI by QHL and development to be undertaken by QHL for QSI.’

 

13                  Adaptations and improvements are provided for by cl 4:

‘QSI shall have the right to make such changes in the software system and any other related material as are appropriate and as may be required by the local law to adapt the software system and related materials, including translation of written documentation, for use in the Territory. QSI shall further have the right to modify and improve the software system and related materials in such a manner as it so wishes. QSI warrants that any and all such changes shall not infringe any intellectual rightsheld by any third party, and QSI shall indemnify QHL from any claim of third parties with respect tosuch changes or improvements.’

 

14                  By cl 5 the respondent agreed to provide:

‘… training in sales and programming support to qualified software personnel and qualified sales personnel designated by QSI. The travel, lodging, and related expenses of the personnel designated by QSI for training by QHL shall be borne by QSI.  QHL also agrees to provide such other ongoing assistance as may be required by QSI on terms to be mutually agreed upon.’

 

15                  By cl 6 the respondent:

‘… represents andwarrants that, to its knowledge, the software system does not infringe upon or violate any patents, copyright, trade secret, or other proprietary right of any third party ….’

 

16                  The Licence, by cl 7, is ‘conditional on the execution of the Shareholders Deed of even date’.

17                  Software warranties are provided by cl 8:

‘QHL represents and warrants that its software system is free from significant programming errors. Should QSI discover any defects or errors in the software system, QHL shall promptly correct such error or defect.’

 

18                  Confidentiality is dealt with by cl 9:

‘QSI shall exercise its best efforts to protect the proprietary rights of QHL in the software system and to co-operate in QHL’s efforts to protect its proprietary interests in the software system. All copies of software and documentation published or distributed by QSI will bear appropriate copyright notices.

QSI agrees to comply with all reasonable requests by QHL for amendments to QSL’s agreements (support, escrow etc) to better protect the proprietary rights of QHL in the software.’

 

19                  The term of the agreement is provided in cl 10 as follows:

‘This Agreement shall be effective in perpetuity.

A.        Termination for Cause

Notwithstanding the perpetual term, either party shall have the right to terminate this Agreement for fraud or upon the failure of the other party to perform a material term of this Agreement if such failure is not remedied within 21 days notice thereof.

B.                 Force Majeure

In the event that either QHL or QSI is unable to perform under this Agreement due to causes beyond its reasonable control, including without limitation fire accident, acts of God or other natural disasters, war, insurrection, sabotage, transportation delays, export licensing delays, shortage of raw materials, energy or machinery (a “force majeure event”) the party who has been so affected shall immediately give notice to the other and shall do everything possible to resume performance.  Upon receipt of such notice, all obligations under this Agreement shall be immediately suspended.  If the period of non-performance exceeds fifteen days from the receipt of notice of the force majeure event, the party whose ability to perform has not been so affected may, by giving written notice, terminate this Agreement.  Delays in delivery, however, due to force majeure events shall automatically extend the delivery date for a period of the duration of such event.’

20                  Clause 11, dealing with miscellaneous provisions,  includes the following:

‘D.       Modification

This Agreement constitutes the complete Agreement between the parties.  This Agreement may be modified upon the mutual agreement of the parties as expressed in writing and signed by both parties.

E.                No Waiver

The failure of either party at anytime to require performance of any provision of this Agreement shall not effect [sic] its right to require such performance at any time thereafter.

F.                Reformation/Severability

If any provision of this Agreement is declared invalid by any tribunal, then such provisions will be enforced to the maximum extent possible and the remaining portions of this Agreement will remain in full force and effect.’

the shareholders deed

21                  As mentioned, the Licence was conditional upon execution of the Shareholders Deed (‘the Deed’).

22                  The parties to the Deed were:

·                    Trilogy Corporation Pty Limited, a New South Wales corporation, having its registered office at 444 Gardiners Road, Alexandria (‘Trilogy’).

·                    Christopher Collins, of Sydney (‘CC’).

·                    Michael Creed, of Auckland (‘MC’).

·                    Michael Harvey, of Auckland (‘MH’) and

·                    The applicant, an Australian corporation (‘QSI’).

23                  The Deed is expressed (by cl 3) to be subject to several conditions, as follows:

‘3.1.1  the allotment of 1 T share to Trilogy and 1 Q share to each of CC, MC and MH;

3.1.2        the execution and completion of the Software Marketing Agreement;

3.1.3        the execution of the VAR Agreement by the parties thereto;

3.1.4        the execution of the Employment Agreements by the party thereto;

3.1.5        the execution of a transfer of all of the shares in QSI owned by Quanta Consulting Limited to Trilogy for consideration of one dollar ($1.00) each;

3.1.6        the execution of the Perpetual Software Licence Agreement.’

24                  The ‘Software Marketing Agreement’ was defined (cl 1.1) to mean ‘the agreement of even date granting distribution rights in the software by [the applicant] to Trilogy ...’

25                  The ‘VAR Agreement’ was defined (cl 1.1) to mean the agreement for the sale of Trilogy products between Trilogy and the applicant.

26                  Trilogy was to purchase from the respondent two ordinary shares in the capital of the applicant, to be converted to ‘T’ shares (cl 4).

27                  Allotments of shares were provided for by cl 5 and Schedule One, providing that of a total of six shares, Trilogy would hold three ‘T’ shares, and CC, MC and MH would hold one ‘Q’ share each.

28                  By cl 8, unless otherwise determined by special resolution, the number of directors shall not exceed six, three to be nominated by the ‘T’ and ‘Q’ shareholders respectively (cl 8).

29                  By cl 13, a non-competition clause, each of the shareholders (defined in cl 1.1 to mean Trilogy, CC, MC and MH) covenant that certain information, including information relating to the Eunice system, should be kept confidential.

30                  Complex provisions are made for the resolution of deadlocks (cl 15).

the settlement deed dated 24 december 1993

31                  It will be recalled that by par [11] of its Defence, the respondent relied upon this deed.

32                  The parties were:

·                    Trilogy Business Systems Limited, Auckland (‘Trilogy’);

·                    Valley Computers Limited, Lower Hutt (‘VCL’);

·                    Qantel Business Systems Australia (Pty) Limited, Sydney (‘Qantel’);

·                    Trilogy Business Systems Australia Pty Limited, Sydney (‘Trilogy Australia’);

·                    Zivenzia Limited, Christchurch (formerly Southcorp Investments Limited) (‘Zivenzia’);

·                    Errol Stanley Williams (‘Williams’) of 444 Gardiners Road, Alexandria (a consultant to the applicant);

·                    Trilogy Corporation Limited, Wellington (‘Trilogy Corporation’);  and

·                    BIL (NZ Holdings) Limited, Wellington (‘BIL’).

33                  The interpretations provision (cl 1) defines ‘The Trilogy Australia Group’ so as to include each of the companies described in the Second Schedule and ‘any company or person related to or associated with them’.  The Second Schedule states:

‘The Trilogy Australia Group

Trilogy Business Systems Pty Limited

Trilogy Business Systems Australia Pty Limited

Trilogy Group Pty Limited

Trilogy Corporation Australia Pty Limited

Trilogy Corporation Pty Limited

Trilogy South Australia Pty Limited’

34                  The recitals state:

‘A.       Various actions claims and disputes have arisen between the parties

B.                 The parties have agreed to settle all actions, claims and disputes between them

C.                As part of the settlement:

(i)                 Trilogy and BIL have agreed to pay the sum of ONE HUNDRED AND EIGHTY THOUSAND DOLLARS ($180,000.00)

(ii)               VCL and Qantel have agreed to discontinue their proceedings against Trilogy and Trilogy Corporation

(iii)             Trilogy has agreed to discontinue its proceedings against Williams and Zivenzia

D.                This Deed records the terms of settlement’

35                  Clause 2 deals with VCL claims against Trilogy.

36                  Clause 2.1 deals with the ‘background’.

37                  It was recited that VCL had sued Trilogy Corporation in the High Court of New Zealand, claiming $216,000 in relation to a certain Computer Bureau Services Agreement made in May 1988 (cl 2.1.1).  The claim was disputed.

38                  It was further recited that VCL had commenced further High Court proceedings against Trilogy Corporation, claiming $A159,186.53 allegedly assigned to VCL by Trilogy Business Systems Pty Limited of New South Wales, Australia (‘the Assigned Claim’) (cl 2.1.3).  Trilogy Group denied liability for the Assigned Claim either to VCL or to Trilogy Business Systems, or to any other company or person.

39                  It was further recited that Trilogy had invoiced VCL for various sums alleged by Trilogy to be owing by VCL in respect of a Maintenance Agreement made in May 1987 (‘the Maintenance Claim’).  VCL denies liability for the Maintenance Claim.

40                  Clause 2.2 deals with ‘settlement’ as follows:

‘2.2      Settlement

2.2.1        VCL will forthwith discontinue the proceedings referred to in Clauses 2.1.1 and 2.1.3 (‘the VCL Proceedings’).

2.2.2        Trilogy will release VCL from the Maintenance Claim.

2.2.3        The Trilogy Group and the VCL Group acknowledge that this Deed is in full and final satisfaction of all claims actual or potential which any of them have or may have against any other of them arising out of any events, acts or omissions which occurred prior to the date of this Deed including (but not limited to) the VCL Proceedings, the Maintenance Claim and any matters relating to the Bureau Agreement, the Assigned Claim and/or the Maintenance Agreement and each of them hereby releases the others from all costs, claims, suits, demands and liabilities of whatever nature which have arisen or might but for this Deed have arisen including costs, claims, suits, demands and liabilities which might be or have been assigned by any of the Trilogy Group or the VCL Group to other parties or which might or have been assigned to the Trilogy Group or the VCL Group whether before or after the execution of this Deed.

2.2.4        The Trilogy Group and the VCL Group acknowledge that the Bureau Agreement, the Assigned Claim and the Maintenance Agreement and any other Agreement between the Trilogy Group and the VCL Group are hereby cancelled and all rights, duties and obligations actual or potential, including rights, duties and obligations which might otherwise have arisen on cancellation or termination of any of those Agreements, are satisfied by the terms of this Deed.

2.2.5        Within five (5) days of the performance of the obligations contained in Clause 6 of this Deed, the Trilogy Group will package, in a manner safe for air freighting purposes, and allow VCL to collect from the Auckland office of Trilogy the Qantel Computer Equipment owned by VCL and more particularly described in the Third Schedule, upon receipt by Trilogy of reasonable notice from VCL of its intention to collect the Equipment.’

41                  The Settlement Deed next dealt (cl 3) with proceedings brought by Qantel (including its associated company, Sussex Limited).

42                  The Settlement Deed next dealt (cl 4) with Trilogy’s claim against Williams, alleging breaches of a certain Agreement for Sale and Purchase made in June 1991 as follows:

‘4.1      Background

            Trilogy has commenced proceedings against Zivenzia (previously called Southcorp Investments Limited) and Williams in the High Court of New Zealand, Auckland Registry, under CP No 77/92 (‘the Trilogy Proceedings’) alleging breaches of a certain Agreement for Sale and Purchase entered into on or about 7 June 1991 (‘the Agreement for Sale and Purchase’).

4.2             Settlement

4.2.1        Trilogy will forthwith discontinue the Trilogy Proceedings.

4.2.2        The Trilogy Group, Williams, the Zivenzia Group and the Trilogy Australia Group acknowledge that this Deed is in full and final satisfaction of all claims actual or potential claims which any of them have or may have against any other of them arising out of any events, acts or omissions which occurred prior to the date of this Deed including (but not limited to) all matters relating to the Agreement for Sale and Purchase and each of them hereby releases the others from all costs, claims, suits, demands and liabilities of whatsoever nature which have arisen or might but for this Deed have arisen including any costs, claims, suits, demands and liabilities which might be or have been assigned by the Trilogy Group, Williams, the Zivenzia Group or the Trilogy Australia Group to any other parties or which might be or have been assigned to the Trilogy Group, Williams, the Zivenzia Group or the Trilogy Australia Group whether before or after the execution of this Deed.

4.2.3        The Trilogy Group hereby agrees to allow the Trilogy Australia Group to use the name ‘Trilogy” in Australia.

4.2.4        Williams, the Zivenzia Group and the Trilogy Australia Group severally covenant and agree:

(a)               Not at any time, directly or indirectly, to trade or conduct any business in New Zealand or in relation to the New Zealand market under the ‘Trilogy’ name or any Trilogy logo or any combination thereof, or hold themselves out as being able to do so;

(b)               On the Settlement Date to deliver to the Trilogy Group notifications addressed to the Registrar of Trademarks abandoning irrevocably the Applications for Registration of Trademarks filed under numbers 213272 to 213275 (inclusive);

(c)               That no other application for registration of any trademark the same or similar to the ‘Trilogy’ name or logo has been or will be made in New Zealand by any of them and if after execution of this Deed it is discovered that any such application has been made, they will immediately upon request by Trilogy, provide an irrevocable abandonment of that application;  and

(d)               On the Settlement Date to deliver to the Trilogy Group a withdrawal by Sussex Limited of its objection to the trademark applications lodged by Trilogy Business Systems Limited;  and

(e)               Not at any time to make or lodge any objection to the registration by any member of the Trilogy Group of any trademark in New Zealand incorporating the word ‘Trilogy’ or the Trilogy logo or any combination.

4.2.5        The Trilogy Group covenants and agrees:

(a)               Not at any time, directly or indirectly, to trade or conduct any business in Australia or in relation to the Australian market under the ‘Trilogy’ name or any Trilogy logo or any combination thereof or hold themselves out as being able to do.

(b)               Not to apply for the registration of any trade mark the same or similar to the ‘Trilogy’ name or logo in Australia and if after execution of this Deed it is discovered that any such application has been made, the Trilogy Group will immediately upon request by the Trilogy Australia Group provide an irrevocable abandonment of that application;  and

(c)               Not at any time to make or lodge any objection to the registration by any member of the Trilogy Australia Group of any trade mark in Australia incorporating the work ‘Trilogy’ or the Trilogy logo or any combination.’  

43                  Warranties and indemnities were provided for in cl 5 of the Deed.

44                  Clause 5.1 states:

‘5.1     VCL warrants that it has not assigned and will not assign any claim or right in respect of any of the matters referred to in Clause 2.2 of this Deed and each member of the VCL Group indemnifies the Trilogy Group against any cost, claim, suit, demand or liability of whatever nature arising directly or indirectly in respect of any of those matters whether brought by any member of the VCL Group or any other person.’

45                  Payment and performance were dealt with by cl 6 as follows:

‘6.        PAYMENT AND PERFORMANCE

6.1              Payment

Subject to compliance with the obligations under Clause 6.2 of this Deed, on the Settlement Date BIL and Trilogy Corporation shall pay or procure payment of the sum of ONE HUNDRED AND EIGHTY THOUSAND DOLLARS ($180,000.00) by bank cheque or cheques made up as follows:

6.1.1        ONE HUNDRED AND FIFTY THOUSAND DOLLARS ($150,000.00) to be paid to VCL;  and

6.1.2        THIRTY THOUSAND DOLLARS ($30,000.00) to be paid to Qantel.

6.2              On the Settlement Date Williams shall deliver or procure the delivery to Trilogy of:

6.2.1        Notices of Discontinuance of the VCL Proceedings.

6.2.2        Notice of Discontinuance of the Qantel Proceedings.

6.2.3        The Notices of Abandonment referred to in Clause 4.2.4(b) of this Deed.

6.2.4        The Withdrawal of Objection referred to in Clause 4.2.4(d) of this Deed.

6.3              On the Settlement Date the Trilogy Group shall deliver or procure the delivery to Williams of:

6.3.1        Notice of Discontinuance of the Trilogy Proceedings.’

46                  Authority was dealt with under cl 7, relevantly as follows:

‘7.1     By its execution of this Deed, Valley Computers Limited covenants that it is authorised to bind each member of the VCL Group and indemnifies each member of the Trilogy Group and BIL against any cost, claim, suit, demand or liability arising directly or indirectly as a result of any member of the VCL Group alleging that VCL was not so authorised at the date of this Deed.

…

7.4       By its execution of this Deed Trilogy Corporation Australia Pty Limited covenants that it is authorised to bind each member of the Trilogy Australia Group and indemnifies each member of the Trilogy Group and BIL against any cost, claim, suit, demand or liability arising directly or indirectly as a result of any member of the Trilogy Australia Group alleging that Trilogy Corporation Australia Pty Limited was not so authorised at the date of this Deed.

7.5             By its execution of this Deed Trilogy Corporation Limited covenants that it is authorised to bind each member of the Trilogy Group and indemnifies each member of the VCL Group, the Qantel Group, the Zivenzia Group and the Trilogy Australia Group against any cost, claim, suit, demand or liability arising directly or indirectly as a result of it not being so authorised at the date of this Deed.

…’

the letter dated 1 december 1994 from the applicant to the respondent

47                  It will be recalled that in par [11] of its Defence, the respondent relied upon this letter.

48                  By facsimile dated 21 November 1994, the respondent wrote to the applicant stating:

‘Please advise when payment of your outstanding debt of $12632.08 will be made.’

49                  By letter to the respondent, dated 1 December 1994, Mr Grant Friis, the appellant’s Managing Director, replied:

‘re:      YOUR FACSIMILE DATED 21^ST NOVEMBER, 1994

            TO CHRISTINE PEARS

 

I believe there are no monies owing to your company, for two reasons:

1.         There is a valid dispute on a number of payments which were made to Quanta Systems Limited which were not authorised by the Board of Directors and as such, should be off-set against any other valid monies which may be owing by Quanta Australia to Quanta New Zealand.

2.                  A settlement agreement was reached dated 24^th December, 1993 which encompasses all associate and related companies of both organisations and as such, this would clearly come within the ambit of that agreement.’

50                  In its Reply, the applicant referred to certain correspondence from the respondent to the applicant as follows:

(a)               The letter dated 7 March 1994:

‘Our records show that Quanta Software International Pty Ltd has an overdue account amounting to $12632.08, would you please advise when we can expect payment of this.’

(b)               The letter addressed to Mr Friis dated 4 May 1994:

‘Please advise when we can expect payment of outstanding accounts amounting to $12632.08.’

(c)               The letter dated 24 May 1994. 

This letter (referred to below) was written in response to a fax from the applicant to the respondent as follows:

‘re:      YOUR FACSIMILE TO GRANT FRIIS ON 4 MAY 1994

Further to your facsimile of 4 May 1994, we advise that until such time as we receive substantiating evidence of your claim for the Outstanding [sic] account, we will not be able to give it any consideration.

In order to substantiate your claim, we require copies of all invoices outstanding, a copy of our authorised purchase order to you for each invoice, proof of service or delivery of product, and copies of the invoices where we are being recharged for expenses incurred (if any).

It should also be noted that Mr Collins, who was previously a common director of both companies, represented the accounts of our Company prior to the sale of his shares and no such debt was disclosed.  Accordingly, if such an amount shall be proven to be validly owing, we will require recompenses from Mr Collins.’

(d)               The respondent’s letter responded:

‘Thank you for your fax to Margaret on the 4^th May 1994.  We were somewhat surprised at your statement regarding the outstanding account.

Enclosed are copies of the remaining outstanding invoices as well as summary statement, which shows the last payments received against these amounts.  You will notice that these invoices date from 1991 through to June 1993 and are in the main for reimbursement for supplies of brochures, manuals and airfare costs.

We note that your December 1993 accounts show a liability to Quanta Consulting of $10257 (AUD), so your statement regarding the debt not being disclosed is surprising.  Additionally you have been responsible for the Quanta Software financial accounts for some time, so you must have been aware of the outstanding invoices to Quanta Consulting.  Any agreement you have with Chris Collins regarding the sale of his shares has no bearing on the matter of outstanding amounts to Quanta Systems.

Quanta Systems have been very patient in not pursuing the debt from Quanta Software, however given the recent changes in Quanta Software and the complete failure of Quanta Software to make any attempts to reduce the debt in the last 12 months leave us with little option but to pursue the matter more vigorously and in whatever manner that will have the best chance of success for Quanta System.

You will note that Quanta Consulting has changed its name to Quanta Systems.  Enclosed is a notice which you would have previously received with a debtors statement.

The fax we received from you has neither a return fax number nor a return address.  You also do not sign the letter with any title.  Is this deliberate or an oversight?

Once again we request immediate payment or we shall be left with no option but to pursue recovery.’

            The summary statement annexed was as follows:

‘Quanta Software International

Summary of the account as at 17/05/94.

Date	Inv #	Brief Description	Amount
23/06/93	012081	Brochures	$350.00
31/03/93	011865	Airfare	$800.00
09/03/93	011791	Slides	$953.50
17/02/93	011718	Brochures	$856.00
20/10/92	011447	Airfares	$800.00
25/08/92	011234	Brochure/Courier	$1005.70
16/10/92	Contra of QSI invoice #2415 A$460		$615.00-
05/08/92	011221	Brochures	$320.00
02/07/92	011134	Brochures	$210.00
19/05/92	010989	Brochures	$210.00
31/03/92	010863	RingBinders	$159.50
31/03/92	010859	Airfares	$805.00
21/02/92	010723	Brochures	$630.00
16/12/91	010563	Reece Project	$2,380.00
31/12/91	010643	Brochures	$934.50
15/11/91	010555	Reece Project	$11,900.00
01/07/92		Payment	$1566.37-
18/08/92		Payment	$2279.00-
16/02/93		Payment	$5221.25-
		Total	$12,632.08

 

All amounts in NZ$

Last Payment received of $NZ5,221.25 (AUS$4,000) on 16/2/93.’

(e)               Letter dated 25 October 1994:

‘Further to our letter of 24 May 1994 regarding the status of the outstanding account, we have yet to receive either a reply or payment against the debt.

Please advise urgently when we can expect this debt to be settled.’

(f)         Letter dated 21 November 1994:

‘Please advise when payment of your outstanding debt of $12632.08 will be made.’

the respondent’s case in chief on the preliminary question

51                  In essence (as submitted by the respondent in its written submissions dated 16 August 2004), the respondent submits:

‘10.     The respondent submits that the applicant, by the 1994 Letter and by its conduct leading up to and consequent upon that letter, induced the respondent to believe and act on the basis that the Licence was no longer on foot, that the parties’ rights in Eunice had reverted to those existing before entry into the Licence and that as the Licence was no longer on foot the respondent could not enforce payment of any sums owed it under the Licence or which may fall due in the future.  The respondent, acting in reliance upon that assumption and to its detriment did not pursue payment of any amounts owed under the Licence, did not exercise its rights to require remedy of breaches of the Licence or to terminate the Licence, did not further communicate with the applicant regarding Eunice and developed and dealt with Eunice and later computer programs including by entry into territories outside New Zealand.  The respondent was further induced to adopt and act on the assumption by the applicant’s silence after 1 December 1994, including that the applicant did not pay any of the further instalments due under clauses 2 and 3 of the Licence and did not request copies of further releases of Eunice and accompanying documentation.

11.              The respondent submits that the applicant is estopped from now claiming that the Licence is subsisting and from bringing the claims in these proceedings.’

52                  Although in its pleading the respondent relied upon two documents, the 1993 settlement and the letter dated 1 December 1994, the respondent called several witnesses in this connection, as did the appellant.

53                  The respondent submits:

‘16.     The 1994 Letter and the assumption thereby induced must be viewed in the context of the parties’ and their related entities’ evolving relationship since the establishment of the applicant as the Australian arm of the respondent in 1989.  In the period 1989-1991 the applicant acted as Australian distributor and sub-licensor of its parent’s, the respondent’s, software products, including Eunice.  The Licence extended the applicant’s rights to deal in the software;  however, the applicant did not perform its obligations under the Licence, in particular as to payment, and by the end of 1993 the parties had in effect ceased dealings with each other.  The respondent pursued payment of certain of the amounts owed it during 1994 and was advised by the 1994 Letter that its attempts were misconceived following the 1993 Deed, to which neither was a party.  The parties thereafter had no further dealings with each other.’

54                  The respondent contends that their chronology of events supports this conclusion, as follows:

‘(a)      The computer program known as Eunice was written by employees of the respondent in New Zealand in the 1980s.  The respondent is the owner of copyright in Eunice.

(b)        In 1989 the applicant was incorporated by a director of the respondent, Chris Collins, to market and distribute Eunice in Australia.  The applicant became a subsidiary of the respondent.

(c)        At that time the respondent provided master copies of Eunice to the applicant and the applicant undertook the marketing and distributing in Australia of Eunice on behalf of the applicant.  The applicant continued to receive updates and brochures for Eunice until June 1993.

(d)        From January 1989 the respondent received royalties from the applicant further to the applicant’s provision of copies of Eunice to Australian customers.  The respondent provided services to the applicant and its end users in Australia and sought payment for those services. 

(e)                    In April 1990, Trilogy Software Limited, a New Zealand company, acquired 50% of the respondent.  In late 1990 Errol Williams, representing himself as being executive chairman of Trilogy Business Systems Pty Limited, an Australian entity related to Trilogy Software Limited, approached the respondent’s directors and shareholders, M Creed and M Harvey, with a plan to restructure the respondent’s ownership of the applicant …

(f)        On 2 February 1991, a shareholder’s deed was entered into by Trilogy Corporation Pty Limited (an Australian company), C Collins, M Creed and M Harvey (all shareholders in the respondent and, through the respondent, ultimate controllers of the applicant) and the applicant.  As a result of this shareholders deed, Collins, Creed and Harvey and Trilogy Corporation Pty Limited each became a shareholder in the applicant.  Harvey, a director and shareholder of both the applicant and respondent, did not perceive any problem with the change in structure as he could monitor both company’s operations, and to his knowledge the ultimate owner of the [Trilogy companies in] NZ and Australia … was Brierley Investments Limited or related companies.

(g)        Pursuant to clause 3.1 the shareholders deed was subject to and conditional upon a number of conditions, one of which was the execution of the Licence.  The Licence was duly executed.

(h)        In March 1991 the parties informally agreed that the applicant was to pay the respondent AU$6000 per month for research and development of Eunice.  This arrangement was unilaterally cancelled by the applicant later that year.

(i)        By sale agreement with settlement date of 7 June 1991 (‘1991 BIL Sale agreement’), … Trilogy Corporation Ltd sold the shares in Trilogy Corporation Pty Limited (a shareholder in the applicant) and Valley Computers Limited to Southcorp Investments Limited, ….  That agreement sought to ratify a number of agreements, including the Licence.

(j)                …  By letter of 8 November 1991 the respondent proposed that the debt be converted to an interest bearing loan.  In response the applicant unilaterally cancelled the R&D charge of $6000 per month.

(k)              By May 1992 the applicant had still not made the initial payments in part performance of its obligations under clauses 2 and 3 of the Licence.  The respondent identified these defaults in letter dated 22 May 1992.  On 25 May 1992, in accordance with clause 10A of the Licence, the respondent sent a notice of default requiring remedy within 21 days.

(l)                In June 1992 the applicant proffered A$2000 (the amount of the first 2 payments due under clauses 2 and 3 of the Licence) which the respondent banked on a ‘without prejudice’ basis. … 

(m)            During 1992 and 1993 there were numerous disputes arising from the 1991 BIL Sale agreement, and by mid 1993 settlement negotiations were on foot.

(n)              In September 1993 the respondent accepted that the applicant and respondent would cease further joint R&D of Eunice and would separately develop and market their software products.  This acceptance was recorded in the respondent’s board minutes of 23 September 1993.

(o)              The 1993 Deed was executed on 24 December 1993 in settlement of the numerous disputes that had arisen among the parties to the 1991 BIL Sale agreement and related parties.  Neither party was a signatory.  Clause 2.2.4 stipulated that ‘any other Agreement between the Trilogy Group and the VCL Group are hereby cancelled …’, and clause 4.2.2 acknowledged that the Deed was in final satisfaction of claims arising out of any events, acts or omissions which occurred prior to the Deed including all matters relating to the 1991 BIL Sale agreement.

(p)              From at least 7 March 1994 the respondent sent demands to the applicant seeking payment of outstanding amounts (NZ$12,632.08/AU$10,257) due under the Licence.  The applicant acknowledged its debt by recording in its balance sheets the liability to the respondent.

(q)              The 1994 Letter was the last correspondence received from the applicant by the respondent.  As at 1 December 1994 the applicant owed the respondent NZ$12,632.08 and the applicant had failed to pay the second and third [maintenance] payments due under clause 3 of the Licence and being consideration in part for the grant of licence.

(r)               From at least the receipt of the 1994 Letter, and consistently with the representations made thereby, the parties had no further dealings with each other regarding further releases of Eunice or the payment of any sums due or which subsequently became due under the Licence or in performance of the terms of the Licence.

(s)               In addition, although Harvey and Creed remained minority shareholders in the applicant and requested information from the applicant, the applicant did not accede to any requests or communicate with them in the period 1994-2001.  Even as at 2003 the applicant’s sole director, Mr Cable, didn’t respond to a simple request for information from Mr Harvey, he didn’t want to give him information.’

55                  In its submissions in respect of the inducement of assumption by the 1994 Letter, the respondent submits:

‘18.     The 1994 Letter denies the applicant’s liability for payment on two independent bases.  The second basis put is clear and unequivocal:  the 1993 Deed cancelled the applicant’s obligations to pay the respondent under the Licence.  It did so, the applicant asserts, because the settlement agreement ‘encompasses all associate and related companies of both organisations and as such, this would clearly come within the ambit of that agreement.’  ‘This’ is clearly the obligation of the applicant to pay the respondent for debts incurred further to the respondent’s performance of its obligations under the Licence, in particular, under clause 5.

19.              It is reasonable to infer that the applicant intended by its statements in the 1994 Letter to dissuade the respondent from further pressing for payment of the identified debts and from any further dealings with the applicant, including any claim for payment of the remaining instalments of the consideration for the Licence.  As at 1 December 1994, the applicant had paid only the initial amount and the first instalment of the consideration, albeit late and only after demands in mid 1992.  The 1993 and 1994 instalments had not been made, although due, and the 1995 and 1996 instalments were still to fall due.

20.              That the applicant intended the respondent to assume that it could not demand the existing debts owed or the future instalments of the consideration for the grant of Licence yet to fall due is apparent from the conversation attributed to Mr Friis by Mr Williams at Williams 27.05.04 #14  [Mr Williams said that Mr Friis (who is deceased) showed him the 1 December 2004 letter.  Mr Friis said:

                        “This is about the royalty update fees.  Christine [Pears] [from the respondent] has been arguing with them about the remaining software update fees which they say are still owing.  I have written this letter to clear up the situation once and for all.”]

            ‘Royalty update fees’ clearly refers to the obligations in clauses 2 and 3 (1^st para) of the Licence.  Contrary to the position it asserted in the 1994 Letter, that the applicant accepted it was liable for the then existing debts is clear from the applicant’s financial records, even into 1995.’

56                  With respect to the 1995 Deed, the respondent accepts (par [21]) that the present parties are not privy to the Deed.  But the respondent contends that the 1994 Letter induced the respondent to accept that the respondent was ‘nonetheless encompassed’ by the Deed, and that the Licence could no longer be enforced and was ‘at an end’.  The respondent’s directors looked at the 1993 Deed.  This was the first time that they:

‘21.     … had cause to consider the Deed as applicable to the respondent, indeed this was the first that Harvey or Creed had seen the Deed.  They identified at least clauses 2.2.4 and 4.2.2 as encompassing them and thus the Licence.  They concluded that Friis’ assertions in the 1994 Letter were right, that the respondent could not enforce its rights to require payment under the Licence and that the Licence was cancelled.

22.        By the definitions of the various corporate groups in clause 1.1, the Deed seeks to ‘capture’ related and associated parties of the parties to the Deed.  Thus the “Trilogy Group’ includes the New Zealand companies in schedule 1 (including Trilogy Corporation Limited and Trilogy Software Limited) and any company or person related to or associated with any of those listed companies.  The respondent is a related company as Trilogy Corporation Limited held 100% of the shares of Trilogy Software Limited which in turn held 50% of the shares of the respondent in the period 19 April 1990 to 30 November 2000.

23.                   By clause 2.2.4, agreements between any member of the Trilogy Group and the VCL Group are cancelled.  The ‘VCL Group’ is defined as Valley Computers Limited and any company or person related to or associated with VCL:

Clause 2.2.4 provides that ‘the Trilogy Group and the VCL Group acknowledge that [certain computer services and maintenance agreements and a debt claim] and any other Agreement between the Trilogy Group and the VCL Group are hereby cancelled and all rights, duties and obligations actual or potential, including rights, duties and obligations which might otherwise have arisen on cancellation or termination of any of those Agreements, are satisfied by the terms of this Deed.’

24.              Further to the shareholders deed entered 2 February 1991, Trilogy Corporation Pty Limited owned 50% of the shares in the applicant.  Under the 1991 BIL Sale Agreement, Trilogy Corporation Pty Limited and Valley Computers Limited (VCL) each became fully owned subsidiaries of Southcorp Investments Limited which company was associated with and represented by Williams in 1991 and again in 1993 (by December 1993 Southcorp was called Zivenzia Limited).

25.              Thus, when the 1993 Deed was drawn to its attention by the applicant’s 1994 Letter, so far as the respondent was aware, the applicant, through its now majority shareholder, Trilogy Corporation Pty Ltd, and Trilogy’s parent, Southcorp Investments Limited, was related to, or associated with, Valley Computers Limited.  Exhibit EW2 to Williams discloses that the first time any change in shareholding in Trilogy Corporation Pty Ltd was lodged at ASIC was not until the 1994 annual return in April 1995, over a year after the 1993 Deed and after the 1994 Letter.

26.              It was thus reasonable for the respondent to read clause 2.2.4 of the 1993 Deed as cancelling the Licence, being an agreement between a Trilogy Group related company and a VCL Group related company.  The applicant did not disabuse the respondent of that assumption, indeed, by drawing attention to the 1993 Deed without specifying any particular provision, and by arguing that the debts it owed the respondent further to the respondent’s performance under the Licence were cancelled, it intimated that it relied on the cancellation provision of the Deed.’

57                  In support of its case that it suffered reliance and detriment, the respondent contends:

‘27.     The respondent was induced by the conduct of the applicant by the 1994 Letter and subsequently to treat the Licence as cancelled and it did so, both in its cessation of communications with the applicant regarding payments due or subsequently falling due and by its separate development and marketing of Eunice and later developed software products and seeking of custom in Asia and in Australia as well as New Zealand.  Reasonably, given its experience in trying to deal with the applicant in the immediate period up to the 1994 Letter, and shareholders and sometime directors Harvey’s and Creed’s experience in trying unsuccessfully to obtain information from the applicant relevant to their position as shareholders and directors …, the respondent did not concern itself with the activities, if any, of the applicant regarding Eunice.

28.       The applicant did not pay the consideration expressed in the Licence.  In addition, the applicant did not pay the respondent the amounts it owed for the assistance provided further to its obligations under clause 5, despite the demands made prior to and during 1994.  By reason of its reliance on the 1994 Letter, the respondent forwent the opportunity to require remedy for those breaches and for the future breaches when the further instalments of the consideration remained unpaid in 1995 and 1996 and to terminate the Licence when those breaches remained not remedied.

29.             In 2003, consistent with its understanding that the Licence was determined and in good faith, having no reason to believe that the applicant would cavil at the respondent’s desire to trade in its software in Australia, the respondent approached the applicant with a proposal for the applicant, or a company in the applicant’s group of companies, to act as reseller in Australia of the respondent’s software.’

58                  On the question of unconscionability, the respondent submits:

‘30.     The applicant did not pay the sum of NZ$12,632.08/AU$10,257 it owed the respondent nor the 2 instalments of consideration due under the Licence.  After the 1994 Letter the applicant did not make any payments of the remaining instalments of consideration for the Licence that subsequently fell due.  It did not request any future releases of Eunice, copies of current documentation or current sales material as it was entitled to do by clause 3 of the Licence.  If it dealt with any customers, it did so without calling on the assistance of the respondent.  It did nothing to disturb the assumption that it had engendered in the respondent that the parties’ rights and obligations under the Licence were cancelled.  It would be unconscionable for the applicant to now resile from the assumption it engendered.

31.       The respondent further submits that the applicant and its representatives have behaved unconscionably in their dealings with the respondent concerning Eunice.  The applicant has been deliberately secretive in its dealings and sought to deflect enquiries from its minority shareholders.  The applicant has no written agreements dealing with Eunice with any other of what it terms the ‘Trilogy companies’.  Any dealings in Eunice appear to have been moved out of the applicant and into another company in the Trilogy Australia group of companies, thereby ensuring that they were beyond the reach and inspection of the respondent’s directors Creed and Harvey who remain minority shareholders in the applicant.  The applicant’s activities were wound down, by mid 1995 it had only 4 employees and by August 1996, only one employee.  The applicant has not produced any financial statements since 30 June 1997.

32.             The applicant did not respond to enquiries from its minority shareholders.  In 2003 the applicant’s sole director and secretary, Mr Cable, was extremely reluctant to respond to a simple enquiry as to the financial status and operations of the applicant from the minority shareholder Harvey.  Mr Cable referred the enquiry to Mr Williams, a Hong Kong resident and neither a director nor employee of the applicant or its shareholder Trilogy Corporation Pty Ltd, or any other company in the Trilogy companies.

33.             The applicant did not join the respondent, the copyright owner, in its proceedings commenced in 2000 for infringement of copyright against Computer Management Services Pty Limited:  cf 120 Copyright Act 1968.  It brought the proceedings on its own account.  It relied on a clause of its contract with CMS that acknowledged the applicant was the copyright owner of Eunice.  The applicant thought the damages might be quite substantial.  It had no intention of sharing any moneys received from those proceedings with the respondent:  cf s 123 Copyright Act 1968.

34.             The respondent submits that it would be unconscionable for the applicant to now be able to enforce the Licence as against the respondent and its licensees and future licensees in Asia and Australia. …’

59                  In disputing the applicant’s claims of additional terms in the Licence, the respondent submits:

‘34.     The Licence is concerned with granting the applicant certain specific rights and ensuring that the applicant does not trade in New Zealand in Eunice:  see clause 2.

35.             The express term asserted by the applicant in paragraph 5A of the [Claim] is not apparent on the face of the Licence.  The respondent submits that it is relevant that no counterpart obligation is imposed on the respondent in the express terms of the Licence to the obligation imposed on the applicant to use its best efforts to ensure that Eunice is not sold or made available in New Zealand through any action of the applicant.

           

36.       The respondent submits that the implied term asserted in paragraph 5 of the [Claim] is not so obvious that it goes without saying, reasonable, equitable or necessary to give business efficacy to the agreement between the parties expressed in the clear words of the Licence.  The term sought to be implied goes much further than necessary to support the express grant of licence.  Further, nowhere in the Licence is there any provision that permits the exclusive licensee to sue for infringement of copyright.’

the applicant’s written response (23 august 2004)

60                  With respect to the respondent’s reliance on the Deed of Settlement, the applicant submits:

‘9.       Notwithstanding that the respondent has pleaded in its Defence that the Deed of Settlement has terminated the Licence, it does not make that claim in its closing submissions.

10.              There is no evidence that the Deed … has terminated the Licence, in fact the evidence is quite to the contrary as follows:

(a)              The applicant and the respondents are not parties to the Deed … which is an instrument in which various companies purport to bind their related companies.

(b)              There is no evidence that the applicant ever agreed to be bound by the Deed …

(c)              There is no evidence that the respondent ever agreed to be bound by the Deed … and the respondent’s witnesses knew of no such resolution on the part of the respondent.

(d)              It is submitted that the undertakings given by the various parties as to their related companies in the Deed … are no more than warranties to procure compliance and are not enforceable against, nor do they bind, the non party related companies.

(e)              Even assuming that the applicant and respondent had agreed to be bound by the Deed … and there is no such evidence, there are only two sections in the … Licence which deal with the cancellation of any agreements – clauses 2.2.4 and 3.2.4.

(f)               The parties affected by clause 2.2.4 are the Trilogy Group and the VCL Group.  Trilogy Corporation Pty Limited is part of The Trilogy Australia Group as defined in the Deed of Settlement.  On what appears to have been 12 June 1991, Southcorp Investments Limited acquired all the shares of Trilogy Corporation Pty Limited from Trilogy Corporation Limited, (a member of The (New Zealand) Trilogy Group and all of the share sin Valley Computers Limited also from Trilogy Corporation Limited (the ‘BIL Sale Agreement’)).  Also on 12 June 1991, Southcorp Investments Limited transferred 3,099,999 of its shares in Trilogy Corporation Pty Limited to Sussex Investments Limited.  The remaining one share is held by a Mr Naisbitt.  Thus as at 24 December 1993, the applicant was not in any way a company forming by definition any of the Groups in the Deed ….  It is therefore submitted that clause 2.2.4 would not have operated to terminate the Licence, even if the applicant was a party, which it was not.

(g)              There is no evidence that clause 3.2.4 of the Deed … would in any way have bound the applicant and thereby terminated the Licence, even if the applicant was a party to the Deed … which it was not.

(h)              … [Mr Stitt] made no attempt to explain why the respondent contends that the applicant is bound by the Deed ….

11.         It is submitted that paragraph 11(b) of the Defence must fail.’

61                  With respect to the respondent’s reliance on estoppel, the applicant contends:

‘13.      In the 1 December 1994 letter, Mr Friis, deceased March 2000, stated his belief that there was no money owing to the respondent by the applicant for two reasons.  The first reason is said to relate to a valid dispute, and the second given reason is as follows:

                        A settlement agreement was reached dated 24^th December, 1993 which encompasses all associate and related companies of both organizations [sic] and as such, this would clearly come within the ambit of that agreement.

            Prior to that letter, there was a number of letters from the respondent to the applicant seeking payment of money.  In the context of those letters, it is clear that Mr Friis was referring to clause 4.2.2 in the Deed of Settlement which would clearly have operated to extinguish any debts between the applicant and the respondent, assuming that they were parties to the Deed of Settlement, which they were not.  It is clear that Mr Friis was not referring to clause 2.2.4 of the Deed of Settlement.  There is nothing inconsistent with clause 4.2.2 extinguishing any payments to be made under the Licence without extinguishing the Licence.  In fact the Licence anticipates modification.

14.       Following receipt of the 1 December 1994 letter, Mr Harvey and Mr Creed considered the Deed of Settlement with Mr Stitt who holds a degree in law with honours.  Mr Harvey admitted under cross examination that he, Mr Stitt and Mr Creed considered clause 4.2.2, but was unable to remember that clause at the time of swearing his affidavit, and that Mr Creed had an input into the preparation of his affidavit.  Mr Harvey, who stated that he could remember which clauses in the Deed of Settlement he considered with Mr Stitt in 1994, stated that Mr Creed was not present when he and Mr Stitt first went through the Deed of Settlement.  Mr Creed stated under cross examination that he was in fact present at that first meeting with Mr Stitt and Mr Harvey, and that since the commencement of these proceedings, he and Mr Harvey discussed their evidence and decided what clauses were the determining clauses for their beliefs.

15.              Given that the respondent has not made out its pleaded defence that the Deed of Settlement extinguished the Licence, its entire defence is based on a so called estoppel arising from the 1 December 1994 letter.  It is submitted that that clamed defence of estoppel is unsound for the following reasons:

(a)               The 1 December 1994 letter, authored by Mr Friis, clearly referred to extinguishment of monetary payments under clause 4.2.2 of the Deed of Settlement, and not to any extinguishment of the Licence under clause 2.2.4 (see paragraph 13 above).

(b)               Mr Friis was not a lawyer, rather a businessman, while Mr Stitt was the holder of an honours degree in law.

(c)               Mr Harvey and Mr Creed consulted with Mr Stitt in order to assess the effect of the Deed of Settlement.

(d)               Mr Stitt considered the Licence.

(e)               The Licence referred to the Shareholders Deed in clause 7.

(f)                In order for Mr Stitt to properly assess the effect of the Deed on the Licence, he would have had to have considered the Shareholders’ Deed referred to in clause 7 of the Licence as being ‘of even date’.

(g)               Not only did Mr Stitt fail to do that, he stated under cross examination that he did not know about the Shareholders’ Deed until months after the meeting with Mr Harvey and Mr Creed concerning the Deed of Settlement, notwithstanding that the Shareholders’ Deed was referred to expressly in the Licence, to which on his evidence he had regard.

(h)               It must follow that Mr Stitt did not take steps reasonably available to him in order to determine whether in his view the Deed of Settlement had extinguished the Licence.

(i)                 Remarkably, Mr Stitt endeavours to found his conclusion that the Deed of Settlement had terminated the Licence, both on his reading of the Deed of Settlement and on his reading of the 1 December 1994 letter.

(j)                It is further submitted that:

When evidence of subsequent conduct contains a party’s view of the meaning of the contract, it is not generally permissible to use it to persuade the court what the parties really intended.  (See R v Hanson:  R v Ettridge [2003] QCA 488 (6 November 2003) para 21),

            and the applicant was not even a party to the Deed of Settlement.

(k)               Mr Stitt instructed solicitors in the preparation of the Deed of Settlement and in the preparation of the BIL Sale Agreement in about June 1991.  Clause 12 of the BIL Sale Agreement deals with Related Companies’ Obligations.  There are no such provisions in the Deed of Settlement.

(l)                 Under cross examination, Mr Creed admitted that the decision that the Licence had been terminated was not because of what was said by Mr Friis in the 1 December 1994 letter, but was based on discussions held with Mr Stitt.

16.              It is submitted that there was no representation made by the applicant which was relied upon by the respondent, but that in fact the respondent made its own enquiries and formed its own conclusions as to any termination of the Licence through discussions with Mr Stitt.

17.              It is submitted that paragraph 13 of the Defence must fail.

62                  With respect to the conduct of Mr Friis subsequent to the 1 December 1994 letter, the applicant submits:

‘19.     Mr Friis was a director and general manager of the applicant from 11 February 1991 to his death in March 2000.  Mr Friis was also the managing director of the applicant.

20.        Mr Williams gave evidence that the signatures on [quotes] are those of Mr Friis, and that Pirtek Fluid System was a customer of the applicant’s.  Eunice is referred to [in the quotes] which are dated 28 January 1997 and 31 January 1997 respectively.  It is submitted that Mr Friis was acting as if the Licence was on foot during that period.

21.              During the period 8 May 1995 until 6 August 2004, to the knowledge of Mr Cable, the sole activities of the applicant were the development of the Eunice software.  It is submitted that Mr Friis as managing director and general manager of the applicant was acting as if the Licence was on foot, at least from 8 May 1995 until his death in March 2000.’

63                  With respect to the respondent’s conduct subsequent to 1 December 1994, the applicant submits:

‘[On 29 May 2000 Mr Creed sent an email to Mr Cross (Ex C)]

24.              Relevantly, Mr Cross was the principal shareholder and managing director of Computer Management Services Pty Limited (now in liquidation) (‘CMS’).  In October 2001, the applicant had gained a judgment in this Court against CMS which was found to have infringed the copyright of the applicant in the Eunice software.

25.              Preliminary discovery proceedings against CMS were filed in this Court on 19 May 2000.  Subsequent to the preliminary discovery proceedings, substantive proceedings were commenced in this Court by the applicant against CMS also in 2000.

26.              There was a meeting with Mr Cross in New Zealand on 26 May 2000.  At that meeting attended also by Mr Creed, Mr Cross told Mr Harvey that about two weeks before that meeting, he had received a letter from the applicant’s solicitors threatening legal action for infringement of copyright of the Eunice software by CMS in Australia.  Mr Harvey stated that Mr Cross had come to New Zealand in order to obtain some leverage in the threatened litigation.  Mr Harvey says that at that meeting, the respondent would have been free to offer a licence in Eunice to CMS but did not, as there was no other licence between the parties.  Mr Creed stated that Mr Cross had come to New Zealand to ask if the respondent owned the intellectual property in the Eunice software and that the answer given was yes.  When questioned about the contents of Exhibit C, where Mr Creed suggested that it may have helped Mr Cross if Mr Cross purchased the shares in the applicant owned by Mr Harvey and Mr Creed, and in particular why, if the Licence had been terminated, did Mr Creed think that it would help Mr Cross to purchase shares in the applicant which Mr Creed said had no licence in Eunice, Mr Creed said that they did not see the Licence like that.  He stated that the respondent was not interested in shutting down the applicant or preventing it from trading.  The respondent was no longer sending product or any revisions to the applicant.  It is submitted that this attitude on the part of the respondent had not altered from September 1993, when at a meeting in Sydney, the applicant and the respondent agreed that the parties would go their separate ways as far as research and development was concerned, but the applicant could still retain an exclusive licence in the Eunice software.  It is submitted that that agreement is seminal to the way in which the parties then proceeded to treat the Licence.

27.              Mr Williams deposes to a conversation with Mr Creed in about September or October 2001 … concerning the CMS litigation, in which Mr Creed made no reference to any termination of the Licence.  Mr Creed admits that he made no such reference in that conversation.  It is submitted that this, once again, is consonant with the September 1993 agreement.

28.              By letter dated 25 June 2003 to the applicant, Mr Harvey noted that the applicant was still active with the Eunice software, hoped that the company was going well, and that he, (as a shareholder in the applicant), could expect some good news.  That letter from Mr Harvey makes no mention of any termination of the Licence.  It is submitted that this, once again is consonant with the September 1993 agreement.’

64                  With respect to the estoppel now pleaded in its Reply by the applicant, the applicant claims that detriment, an essential element in making a case of estoppel, has been established here, for these reasons:

‘30.     The applicant alleges that a series of letters from the respondent to the applicant during 1994 after the execution of the Deed of Settlement on 24 December 1993, which letters continued to seek money from the applicant under the Licence and which were never withdrawn by the applicant, give rise to an estoppel against the respondent such that the respondent is estopped from denying the existence of the Licence.

31.       The representations made in the letters referred to in paragraph 30 above were reinforced by the subsequent actions of the respondent in which the respondent took no steps to deny the existence of the Licence (see paragraphs 26, 27 and 28 above).

32.             In reliance on those representations, the applicant has acted to its detriment as follows:

(a)              See paragraph 20 above, which would clearly expose the applicant to a claim for damages from Pirtek Fluid System if the respondent was now permitted to deny the existence of the Licence.

(b)              See paragraph 21 above, which would make the money spent on the development of the Eunice software money thrown away, if the respondent was now permitted to deny the existence of the Licence.

(c)              The applicant spent money stamping the Licence, which would make that money spent, money thrown away, if the respondent was now permitted to deny the existence of the Licence.

(d)              See paragraphs 24 and 25 above.  The applicant acted to its detriment in going to the expense of engaging in litigation against a company now in liquidation while the respondent by its own admission was aware that the applicant was about to embark on that litigation, but said nothing (paragraph 26 above).

(e)              … Mr Williams has given evidence that Trilogy CSI Australia Pty Limited (‘Trilogy CSI’) acts as the agent for the applicant in all of its business.  The agreement [in evidence] between Trilogy CSI and Pirtek USA Pty Limited (‘Pirtek USA’) … is to do with the Eunice software (p 472).  The applicant would be exposed to a claim for damages from Pirtek USA if the respondent was now permitted to deny the existence of the Licence.

33.             It is submitted that the applicant is estopped from denying the existence of the Licence.’

65                  As pleaded in par [5A] of the Claim, the applicant seeks to support the express term alleged as follows:

‘34.     Clause 1 of the Licence grants an exclusive perpetual licence in the Eunice software to the applicant.  As to the construction of the term exclusive licence, Lord Denning held in Murray (HM Inspector of Taxes) v Imperial Chemical Industries Limited (1967) 44 TC 175 (CA) at 211:

                       An ordinary ‘licence’ is a permission to the licensee to do something which would otherwise be unlawful.  It leaves the licensor at liberty to do it himself and to grant licenses to other persons also.  A ‘sole licence’ is a permission to the licensee to do it, and no-one else, save that it leaves the licensor himself at liberty to do it.  An ‘exclusive licence’ is a permission which is exclusive to the licensee, so that even the licensor himself is excluded as well as anyone else.’

 

66                  In respect of the implied term pleaded in par [5] of the Claim, the applicant submits:

·                    It is submitted that the term sought to be implied must be reasonable and equitable as the Licence was obtained for good consideration and was described by an exclusive perpetual licence.

 

·                    Mr Williams has deposed … that if he would have known at the time of signing the Licence that the respondent would deny that by the Licence it had been precluded from distributing and selling the Eunice software in Australia, then he would not have permitted the applicant to sign the Licence.  The implied term is further necessary in order to give business efficacy to the Licence for reason of certainty, because the express term pleaded in paragraph 5A of the … Claim refers only to the Eunice software.  Assuming that it was found that the express term existed, but the implied term did not, the applicant could find itself in difficult and protracted litigation in proving its case for breach of contract where the respondent has dealt with a derivative of the Eunice software outside of New Zealand, as it appears has already happened.

·                    It is submitted that the term sought to be implied is so obvious that it goes without saying.

·                    Clause 11 D of the Licence provides:

                        This Agreement constitutes the complete Agreement between the parties.  This Agreement may be modified upon the mutual agreement of the parties as expressed in writing and signed by both parties.

            It is submitted that such a clause in a contract, whilst excluding anything which is extraneous to the written contract, does not exclude implications arising out of a fair construction of the agreement itself (Russo v Resource Developments International Pty Limited [2003] NSWSC 239 (2 April 2003) para 54).’

67                  In response to the respondent’s written argument in chief, the appellant submits:

‘40.     Paragraphs 10 and 11

            There is no such assumption such as to give rise to an estoppel as is claimed by the respondent.  (See paragraphs 12-16 above, and note the evidence of Mr Creed [that his opinion was based on what Mr Stitt had said]

            Paragraph 15

            Clause 10A of the Licence [termination for cause] has been neither pleaded nor relied upon by the respondent.

            Paragraphs 16-20

            The respondent’s submissions are misconceived.  There is no such assumption such as to ground estoppel as is claimed by the respondent.  (See paragraphs 12-16 above, and note the evidence of Mr Creed [ above].

            Paragraphs 21-26

(a)              The Deed of Settlement did not terminate the Licence (see paragraphs 9 and 10 above), nor does the respondent make that submission now.

(b)              In response to paragraph 25, Mr Stitt made no attempt to refer to the Shareholder’s Deed although it was referred to specifically in the Licence of which he was aware, and indeed considering (see sub-paragraphs 15(g) and (h) above).  There is no evidence as to Mr Stitt, or indeed anyone else at all on the part of the respondent, making an enquiries [sic] of the type referred to in paragraph 25.

           

Paragraphs 27-29

There was no inducement of assumption on the part of the applicant and hence those paragraphs are otiose.  Further, an estoppel must be clear and unambiguous (Jackson v Goldsmith (1950) 81 CLR 446).  If the 1 December 1994 letter was capable of giving rise to an estoppel, and it is submitted that it was not, a clear reading of the letter in the context of those letters from the respondent which preceded it, must lead to the conclusion that the 1 December 1994 letter refers to debts and not to the Licence.

Paragraphs 30-33

(a)               The applicant did not act unconscionably.  The parties had long since agreed to go their separate ways with the applicant retaining the Licence (see paragraph 26 above and [the cross-examination of Creed]).

(b)               In further response to paragraph 30, it is obvious why the applicant did not request any further dates of the Eunice software, documentation and the like.  One could fairly ask why the respondent submits that it was unconscionable for the applicant not to request any updates of Eunice from the respondent, when in 1993, the parties had agreed to go their separate ways as to research and development.

(c)               In further response to paragraphs 31 and 32, there has been only a bare letter of enquiry from Mr Harvey in 2003.  It is not the applicant which has acted unconscionably, but rather Mr Harvey and Mr Creed in endeavouring to assist Mr Cross of CMS in his litigation against the applicant, in which those two gentlemen hold shares (see paragraph 26 above).

(d)               …

(e)               In response to paragraph 34, there is no cause of action pleaded by the respondent seeking to prevent enforcement of the Licence on the grounds of unconscionably [sic] on the part of the applicant, which is denied in any event.

Paragraphs 34 and 35

The applicant has no licence whatsoever in New Zealand and so the submissions have no force.  The applicant repeats paragraphs 34 and 35 above.

Paragraph 36

The applicant relies upon paragraphs 36 and 37 above and seeks the same relief against the respondent to which it would have been entitled had a third party infringed the Licence (s 119 Copyright Act) for the reasons set out under Condition 2 of paragraph 36 above.’

the respondent’s written reply (27 august 2004)

68                  With respect to the scope of the preliminary question, the respondent contends:

‘The respondent submits that … the preliminary questions are as set out in paragraphs 5 and 6 of its outline of its closing submissions dated 16 August 2004 (‘Respondent Subs’).  The preliminary questions do not extend to a determination as to whether the respondent is estopped by its conduct in 1994 from claiming that the Licence is terminated (cf Applicant’s submissions 24 August 2004 (‘Applicant Subs’), #7(c)).  No such issue is raised by paragraphs 4-5A of the … [C]laim, or paragraphs 11-13 of the [D]efence.  No such issue was identified by the applicant in its outline of submissions dated 21 July 2004.  The respondent further notes that the letter relied on by the respondent for its case in estoppel is dated 1 December 1994 (cf Applicant Subs #7(b)).’

69                  In regard to the 1993 Deed, the respondent submits:

‘2.       The respondent accepts that exhibit D, tendered at hearing on 6 August 2004, discloses that approximately a week after the settlement of the 1991 BIL Sale Agreement on 7 June [1991], Southcorp Limited transferred the shares it had just acquired in Trilogy Corporation Pty Ltd to the foreign company Sussex Investments Limited:  exhibit D is dated 12 June 1991. …

3.         The respondent accepts that the transfer exhibit D has the effect of breaking the chain of related and associated persons such that the applicant was not thereafter legally encompassed within the VCL Group under the 1993 Deed.  This change in shareholding first came to light in these proceedings with the unfounded assertion of Williams 27.05.04 #30, admitted as argumentative, and is now evidenced by Exhibit D, disclosed only at trial.

3.                  The share transfer was not recorded in the ASIC records of Trilogy Corporation Pty Limited for nearly 4 years:  Respondent’s Subs #25 – note that Sussex Investments Limited is identified as having an address in Hong Kong.  The respondent submits that it is a reasonable inference that neither Trilogy Corporation Pty Ltd nor Southcorp/Sussex Investments Limited wished to make public this transfer until well after the event.  The respondent refers to the extremely evasive and self serving oral evidence of Mr Williams and Mr Cable given on 6 August 2004.

4.                  The change in ownership of the shares in Trilogy Corporation Pty Limited does not affect the respondent’s case on estoppel, nor the beliefs reasonably held by the respondent as to the shareholding and relationship of the various companies.’

70                  In respect of the applicant’s submissions (pars 12-17 and 40) on estoppel, the respondent contends:

‘6.       The evidence is that at all times up to the receipt of the 1994 Letter in December 1994, and when upon acting on that letter, the respondent and its directors reasonably held the belief that Southcorp Investments Limited, having bought the shares in Trilogy Corporation Pty Limited and Valley Computers Limited in 1991, owned those shares and thus that the applicant, as a subsidiary of Trilogy Corporation Pty Limited was related and associated with Valley Computers Limited, the sister company of Trilogy Corporation Pty Limited:  Respondent’s Subs ##25-27.

7.         The respondent submits that the reference in the 1994 Letter to the settlement agreement directs the reader’s attention to the agreement and, in particular, to those provisions of the agreement that deal with determination of agreements with associated and related companies of either party.  Whilst the language on which an estoppel is founded must be clear and unambiguous, that does not necessarily mean that the language must be such that it cannot possibly be open to different constructions, but that it must be such as will be reasonably understood in a particular sense by the person to whom it is addressed:  Low v Bouverie (1891) 3 Ch 82 at 106; 113;  cf Applicants Subs page 13.  The 1994 Letter did not refer to a specific clause, and did not assert that whilst one clause applied, no other clause was relevant.  It could have easily done so.  It could readily have stated – the debt is extinguished, but the licence continues on foot.  That it didn’t is a decision the applicant is now bound by.  There is no direction in the letter to read clause 4.2.2 but not clause 2.2.4, as asserted by the applicant.  Further, any modification of the Licence was required to be in writing, signed by both parties.  There was no such writing:  cf Applicant’s Subs ##13; 15(a).

8.                 The evidence is that the 1994 letter was the first time that the respondent’s senior management and directors Messrs Harvey and Creed, were aware of the 1993 Deed and reviewed it.  That Mr Harvey first looked at the deed with Mr Stitt, and then that all three of them met and together reviewed the deed is consistent with the evidence of all witnesses, distinguishing between the initial contact with Mr Stitt by Mr Harvey, and meetings of all three.  The respondent’s witnesses clear evidence is that after receipt of the 1994 Letter, over a week or so the respondent formed the view that the 1993 Deed cancelled the Licence and that the debt owed by the applicant was unenforceable:  see references Respondent’s Subs #21;  also [the evidence of] Stitt and Creed as to timing.  It is logical that there was more than one occasion on which the respondent’s directors met and discussed the import of the 1994 Letter and the 1993 Deed.  It was a serious matter affecting the respondent’s business and its relationship with the applicant.  The reliance on clause 2.2.4 is not a recent idea.

9.         Further as to the matters submitted by the applicant in the Applicant’s Subs #15, adopting the lettering of the subparagraphs:

(a)               see above, submissions paragraph 7;

(b)               Mr Friis’ and Mr Stitt’s qualifications are irrelevant.  Mr Stitt has worked his entire life as an accountant.  He instructed lawyers, he did not act as a lawyer.  He participated in the respondent’s discussions about the effect of the 1993 Deed as a director of the respondent and working accountant.  There is no suggestion that he purported to give legal advice, or was asked to do so;

(f)-(i)   the applicant’s reliance on the Shareholders’ Deed is misconceived and a non sequitur.  All witnesses acted on the assumption that the Licence had been entered into, Messrs Harvey and Creed well knew that the Shareholders Deed had been executed.  There was simply no reason at all to review that deed in the course of review of the 1993 Deed.  Mr Stitt reviewed the 1994 Letter and the 1993 Deed as expressly directed by the 1994 Letter;  he did not say that he reviewed the Licence.  The applicant’s reliance on [Mr Stitt ‘considering’ the Licence] is misplaced.  Further, Mr Stitt was not a director of the respondent at the time of entry into the Shareholders Deed, and there was no reason for him to read that document;

(j)        R v Hanson;  R v Ettridge [2003] QCA 488 was a case concerning an appeal against convictions for offences under the Queensland Criminal Code.  It is abundantly clear from the immediately surrounding paragraphs of the extracted paragraph 21 to which the applicant refers that their Honours were concerned with the construction of a contract and the accepted principles applicable to construction of a contract, not estoppel.  The citation has no relevance to the present issues of estoppel;

(l)         Mr Creed’s discussions with Mr Stitt were around the 1993 Deed in the specific context of the 1994 Letter.  The respondent’s attention was specifically drawn to the deed by the 1994 Letter which expressly relied on the deed but did not identify any specific clause.  Mr Stitt was not giving advice as a lawyer.  Rather the three directors met several times over a week or so, considered the representation made by the 1994 Letter and looked at the document referred to in the letter.  They reviewed the deed and accepted the assertions of the 1994 Letter.  They acted on an assumption induced by the 1994 Letter, following the applicant’s assertions as to the effect of the Deed.’

 

71                  In respect of the conduct of Mr Friis and the applicant - applicant’s submission pars 18-22 – the respondent contends:

‘10.     Mr Friis’ belief as to the Licence post the 1994 Letter is irrelevant:  cf Applicant’s Subs #18-21.  The issue is did the applicant by the 1994 Letter induce an assumption in the respondent:  see Respondent’s Subs #9.

11.       The applicant may well have deliberately sought to engender in the respondent a belief that the Licence was at an end so that the applicant would not thereafter have to make any payments of instalment of the Licence consideration or pay any other debts incurred in performance of the Licence, and intended to continue exploiting the software itself.

12.              Mr Cable’s knowledge of the company of which he was a recently appointed director was perfunctory at best.  His asserted knowledge of the applicant’s activities carries no weight in circumstances where he cannot say what the sales comprising the applicant’s Profit and Loss accounts are, even in relation to business records he annexes to his affidavit.  It is clear …, that the applicant traded in hardware sales, and undertook activities it booked as ‘implementation management’, ‘customised software’, ‘installation support’, ‘package sales’ and the like, none of which Mr Cable was able to shed any light on.

72                  With respect to the conduct of the respondent, as dealt with in the applicant’s submissions pars 23-28, the respondent says:

‘13.     Messrs Harvey and Creed each gave evidence that when they met with Mr Cross in May 2000, at Mr Cross’ instigation, they told him that the respondent owned the intellectual property in Eunice, and that the exclusive licence with the applicant had been terminated.  The communications by Messrs Creed and Harvey are consistent with a continuing assumption induced by the 1994 Letter that the Licence had been terminated.  The applicant subpoenaed Mr Cross to give evidence at this hearing, but then did not require Mr Cross’ attendance.  The respondent submits that the clear inference from the applicant’s conduct is that the evidence of Mr Cross could not assist the applicant.

14.       As to the conversation between Mr Creed and Mr Williams on 28 September 2001, Mr Creed made a contemporaneous note and his recollection of the content and dating of the conversation is to be preferred to Mr Williams.  There was simply no need for Mr Creed to inform Mr Williams that the Licence was terminated, the issue was whether Mr Creed would assist in an Australian Court action by giving evidence about the writing of Eunice, not the licensing of Eunice.  Further, as the contemporaneous note makes clear Mr Williams himself referred to ‘past agreements’, not agreements presently on foot.

15.             Mr Williams was a very unsatisfactory witness, extremely self serving, selective in his recollection and evasive.  Note the regular refrain ‘I can’t comment”.  His story as to the conversation changed and was elaborated on several times during the course of cross examination, and differed from his affidavit evidence.

16.             As to the September 1993 meeting, in the arrangement to cease joint development (an arrangement not found in the Licence) there was no waiver of the consideration for the Licence, nor any other provision of the Licence.  The parties remained bound by the terms of the Licence.  Had the respondent continued to act in accordance with the arrangement reached in September 1993, rather than on the assumption induced by the 1994 Letter, at the very least it would still have required the payment of instalments of consideration.

17.             As to Mr Harvey’s letter of 25 June 2003, again, there was no necessity for him to refer to termination of the Licence, some 9 years earlier.  His concern as a minority shareholder was the present financial status of the applicant, a matter about which the applicant, its director Mr Cable, and the shadowy Mr Williams were not about to tell him.’

73                  With respect to the estoppel pleaded by the applicant in pars 24-33 of its submissions, the respondent says:

‘18.     The applicant’s recent pleading of estoppel by its reply dated 2 August 2004, after the original date set for the hearing on the preliminary questions, does not form part of this hearing on the separate question.

19.       In any event, the alleged estoppel simply cannot arise, given the assertions made in the 1994 Letter and the failure of the applicant at all times thereafter to pay any further instalments of the consideration for the Licence.

20.             Further, the applicant cannot make good its assertions as to reliance.  The applicant accepted that it owed the respondent the debt in its accounts dated 31 December 1993 (and had done so as at 31 December 1992), before the first of the respondent’s letters demanding payment, [indicating] liability to Quanta Consulting A$10,257.

21.             As to the alleged detriment, the propositions listed in the Applicant’s Subs #32 do not evince any nexus with or reliance on the letters sent during 1994 demanding payment of the debt owed by the applicant and are speculative.’

74                  As to the applicant’s ‘express’ term claim (submissions pars 34-35), the respondent says:

‘22.     By clause [11D], the written terms of the Licence are expressed to constitute the ‘complete agreement of the parties’.  See Respondent’s Subs #34.

75                  As to the ‘implied’ term (applicant’s submissions, pars 36-37), the respondent contends:

‘23.     The term sought to be implied does not meet the necessary conditions identified in Codelfa Constructions Pty Limited v State Rail Authority of NSW (1982) 149 CLR 337.  The term sought to be implied is not reasonable and equitable, necessary to give business efficacy, so obvious it goes without saying, is not capable of clear expression and is inconsistent with the express terms of the Licence given that:

(a)               the Licence clearly identifies the ‘software system’ the subject of the Licence in the Definition paragraph of the agreement, by name and by listing of modules;

(b)               the Definition does not extend to the system as may be developed in the future;  rather the applicant is permitted by clause 4 to make its own adaptations and improvements, and warrants that those changes do not infringe third party rights.  By clause 6, the respondent warrants that the ‘software system’ does not infringe any third party rights.  The warranty does not mirror that of clause 4;  in particular there is no reference to any changes the respondent may have made to the system;

(c)               clause 2 of the Licence imposes an express best endeavours restraint on the applicant dealing in New Zealand in the ‘software system under any name’ but does not impose any corresponding restraint on the respondent dealing outside New Zealand.

(d)               the applicant was not given any right under the written terms of the Licence to sue for infringement of copyright;  and

(e)               the applicant could readily exploit the Licence and grant sub-licences without recourse to the term sought to be implied.

24.              Mr Williams’ self serving views as whether he would or would not have permitted the applicant to sign the Licence conveniently ignore the facts that at the time the Licence was entered into, the shareholder he purported to represent (but was not a director or shareholder of) was not a majority shareholder in the applicant, did not have a controlling interest and that he was never a director of the applicant and was not employed by the applicant.  He had no control over the managing director of the applicant, Chris Collins and his assertions otherwise are unsubstantiated and contrary to the company records.  Mr Williams’ oral evidence is that he does not consider himself a person to understand and comment on paragraphs of commercial agreements such as clause 9 of the Licence.’

conclusions on the separate question

76                  As has been seen, the parties’ written submissions raised a multiplicity of issues.  These submissions were further explained in full oral argument on 2 September 2004.  However, except where necessary, I do not otherwise propose to refer to the oral submissions as their respective positions appear adequately from their written argument.

77                  The multiplicity of issues raised by the parties includes some collateral issues, in particular, the true scope of the preliminary questions.  It will be necessary to return to this later.  However, both parties accept that the respondent’s claim of estoppel is within the scope of the preliminary questions.  Accordingly, I turn to this question first.

The respondent’s estoppel claim

78                  It will be recalled that the applicant seeks orders in its Amended Application that the respondent be restricted, in Australia, from ‘breaching’ the applicant’s exclusive licence in Eunice, in essence by reproducing, selling or distributing the software.

79                  To that claim, the respondent pleads, relevantly, as mentioned, (Defence, par [11(c)]) that on 1 December 1994 the applicant represented to the respondent that any agreements or liabilities flowing between them regarding Eunice and the subject matter of the Licence were ‘discharged and/or terminated’ pursuant to the Deed of Settlement dated 24 December 1993.  The respondent then alleges that, acting upon this representation, the respondent treated the Licence as terminated and further developed Eunice with a view to marketing it in New Zealand and other countries.

80                  It will be remembered that, in his letter dated 1 December 1994, Mr Friis, the applicant’s managing director, responded to a claim by the respondent for monies owing ‘for two reasons’.

81                  First, there was a ‘valid’ dispute on a number of payments.

82                  Secondly:

‘A settlement agreement was reached dated 24 December, 1993 which encompasses all associate and related companies of both organisations and as such, this would clearly come within the ambit of that agreement.’

83                  At that time, the respondent believed that the appellant, through its majority shareholder, Trilogy Corporation Pty Limited and its parent, Southcorp Investments Limited, was related to, or associated with, Valley Computers Limited.  But it is clear that the first time any change in shareholding in Trilogy Corporation Pty Limited was lodged at ASIC was not until the 1994 annual returns, lodged in April 1995, more than a year after the Settlement and well after the 1 December 1994 Letter.

84                  In these circumstances, the respondent relies upon the following observations of Latham CJ in Grundt v Great Boulder Pty Gold Mines Limited [1937] 59 CLR 641 (at 657):

‘Where a person obtains advantages by relying upon rights which can exist only upon the basis of an assumed state of facts, he is not permitted thereafter to rely upon other rights in relation to the same person which are inconsistent with the existence of the rights formerly asserted.’

85                  The Chief Justice (at 657) cited Scrutton LJ in Verschures Creameries v Hull &  Netherlands Steamship Co [1921] 2 KB 608 (at 612):

‘A person cannot say at one time that a transaction is valid and thereby obtain some advantage, to which he could only be entitled on the footing that it is valid, and then turn round and say it is void for the purpose of securing some other advantage.  That is to approbate and reprobate the transaction.’

86                  Finally, the Chief Justice cited the familiar passage in Thompson v Palmer (1933) 49 CLR 507 at 547, where Dixon J explained the general principle upon which conventional estoppel is based:

‘The object of estoppel in pais is to prevent an unjust departure by one person from an assumption adopted by another as the basis of some act or omission which, unless the assumption be adhered to, would operate to that other’s detriment.  Whether a departure by a party from the assumption should be considered unjust and inadmissible depends on the part taken by him in occasioning its adoption by the other party.  He may be required to abide by the assumption because it formed the conventional basis upon which the parties entered into contractual or other mutual relations, such as bailment;  or because he has exercised against the other party rights which would exist only if the assumption were correct ...’

87                  Both parties accept the general principle that, to found an estoppel, the language relied upon must be precise and unambiguous.  But, as Bowen LJ observed in Low v Bouverie [1891] 3 Ch D 82 (at 106), the context must be considered:

‘… we come to the conclusion in this case, that in order to entitle the Plaintiff to relief, we must find here such an estoppel as would justify a claim for relief based upon the hypothesis that the Defendant is precluded from denying the truth of the fact which he is supposed to have asserted.  Now, an estoppel, that is to say, the language upon which the estoppel is founded, must be precise and unambiguous.  That does not necessarily mean that the language must be such that it cannot possibly be open to different constructions, but that it must be such as will be reasonably understood in a particular sense by the person to whom it is addressed.’

88                  In my opinion, the respondent would, acting reasonably, assume at the time that the applicant was representing to it that, at least prospectively, the Licence had been abandoned under the Deed of Settlement.  Moreover, at that time, the respondent’s management (that is, Mr Creed, Mr Harvey and Mr Stitt) did, on their evidence, which I accept, make that assumption.

89                  Both parties accept that, in order to found an estoppel, ‘detriment’ or ‘material disadvantage’ must be shown.

90                  The authorities have been fully considered recently by Finn J in GEC Marconi Systems Pty Limited v BHP Information Technology Pty Limited (2003) 128 FCR 1 at [425] to [431].

91                  In relation to equitable estoppel, Finn J cited the following observations by Brennan J in Waltons Stores (Interstate) Limited v Maher (1988) 164 CLR 387 at 428 that:

‘… [i]t is necessary for a plaintiff to prove that (1) the plaintiff assumed that a particular legal relationship then existed between the plaintiff and the defendant or expected that a particular legal relationship would exist between them and, in the latter case, that the defendant would not be free to withdraw from the expected legal relationship;  (2) the defendant has induced the plaintiff to adopt that assumption or expectation;  (3) the plaintiff acts or abstains from acting in reliance on the assumption or expectation;  (4) the defendant knew or intended him to do so;  (5) the plaintiff’s action or inaction will occasion detriment if the assumption or expectation is not fulfilled;  and (6) the defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise.’

92                  In relation to estoppel by convention, Finn J cited the following observations of the New Zealand Court of Appeal in National Westminster Finance New Zealand Limited v National Bank of New Zealand Limited [1961] 1 NZLR 548 at 550:

‘(1)      The parties have proceeded on the basis of an underlying assumption of fact, law, or both, of sufficient certainty to be enforceable (the assumption).

(2)               Each party has, to the knowledge of the other, expressly or by implication accepted the assumption as being true for the purposes of the transaction.

(3)               Such acceptance was intended to affect their legal relations in the sense that it was intended to govern the legal position between them.

(4)               The proponent was entitled to act and has, as the other party knew or intended, acted in reliance upon the assumption being regarded as true and binding.

(5)               The proponent would suffer detriment if the other party were allowed to resile or depart from the assumption.

(6)               In all the circumstances it would be unconscionable to allow the other party to resile or depart from the assumption.’

93                  Finn J noted (at [428]) that, whether one is speaking of estoppel at common law, in equity, or under a ‘single overarching doctrine’, ‘detriment’ or ‘material disadvantage’ is an indispensable requirement.

94                  It will be recalled that the Licence is expressed to exist in perpetuity.  On behalf of the respondent, it is submitted that since its receipt of the Letter dated 1 December 1994 the respondent has not only engaged in separate development of its software, but it has sought to enter the Australian market.  Moreover, after 1 December 1994 the respondent did not pursue payment of any amounts owed under the Licence or exercise its rights to require remedy of breaches of the Licence, or to terminate it.  In my opinion, this is ‘detriment’ or a ‘material disadvantage’ for present purposes.  In other words, whether the Deed of Settlement actually operated to extinguish the Licence, the applicant’s letter dated 1 December 1994 claimed that it did and the respondent acted upon that  claim to its detriment.  In my view, the applicant is now estopped from denying that the Licence is still on foot.

The evidence of Mr Ghosh

95                  The applicant relies upon an affidavit (sworn 28 May 2004) of Ajoy Ghosh, an Unisearch Consultant, who has provided expert opinion evidence in relation to software licensing.  In his affidavit,  Mr Ghosh expresses opinions on the nature of ‘exclusive’ or ‘perpetual’ licences.

96                  In my opinion, evidence of this abstract kind cannot assist the Court on the estoppel point, or any of the other matters now before the Court.  I reject the affidavit as irrelevant.

The estoppel claimed by the applicant

97                  It will be recalled that by par [5] of its Reply the applicant alleges:

5.         In further reply to the whole of the Defence, the Applicant says that the Respondent represented to the Applicant that the Licence remained on foot and in particular that the Settlement Deed made on or around 24 December 1993 did not affect the Licence as follows:

(a)                By letter dated 7 March 1994 addressed to the applicant, the respondent requested a payment of $12,632,08 pursuant to the Licence (the ‘First Representation’).

(b)                By letter dated 4 May 1994 addressed to the applicant, the respondent requested a payment of $12,632.08 pursuant to the Licence (the ‘Second Representation’).

(c)                By letter dated 24 May 1994 addressed to the applicant, the respondent advised that it would pursue more vigorously debts incurred by the applicant, from 1991 to June 1993, which debts were pursuant to the Licence and in the main reimbursement for supplies of brochures, manuals and airfare costs (the ‘Third Representation’).

(d)       By letter dated 25 October 1994 addressed to the applicant, the respondent requested settlement of the debt referred to in its letter addressed to the applicant dated 24 May 1994 (the ‘Fourth Representation’).

(e)        By letter dated 21 November 1994 addressed to the applicant, the respondent requested a payment of $12,632.08 pursuant to the Licence (the ‘Fifth Representation’).’

98                  In my opinion, these letters from the respondent dealing with monies owed in arrears before 1 December 1994, would not provide any answer to the estoppel I have found in favour of the respondent, which, as I have said, operated prospectively from 1 December 1994.

99                  I reject the claim of estoppel made in par [5] of the Reply.

The applicant’s claim as to the scope of the Licence – par [4] of the Claim

100               Paragraph [4] alleged:

‘4.       By written licence dated 2 February 1991, the Respondent granted to the Applicant an exclusive perpetual licence (the ‘Licence’) to use, copy, publish, translate and sub licence rights to the Work with respect to all countries except New Zealand.  The Applicant will refer to the Licence at the hearing as to its full meaning and effect.’

101               This allegation seems to do no more than paraphrase the provisions of the Licence.  It will provide no answer to the respondent’s claim of estoppel which I have found.

102               Paragraph [4] of the Claim does not advance the applicant’s case.

The express term alleged in par [5A] of the Claim

103               Paragraph [5A] alleges:

‘5A      It was an express term and condition of the Licence that the Respondent would not use, copy, publish, translate and sub licence rights to the Work in any country except New Zealand.’

104               In my opinion, this allegation does not, for the reasons given in respect of par [4] of the Claim, assist the applicant.

The implied term pleaded in par [5] of the Claim

105               The applicant alleges:

‘5.       It was an implied term and condition of the Licence that the Respondent would not engage in any action in respect to the Work or any derivative thereof which would on the part of anyone than the owner of the Work have enabled the Applicant to sue for infringement of copyright.’

106               As has been seen, the respondent disputes that the necessary ingredients have been made out to establish the implication alleged.  But, in any event, the term alleged by the applicant is a term of the Licence itself.  It must follow that the estoppel I have found in favour of the respondent must operate here also.

107               In my opinion, par [5] of the Claim cannot assist the applicant.

orders

108               As the respondent is successful with its estoppel defence, and since the other matters raised by the applicant cannot assist its case, the Amended Application made should now be dismissed.

109               There is no reason why the usual rule as to costs should not be applied.

110               I order that the applicant’s Amended Application be dismissed with costs.

I certify that the preceding one hundred and ten (110) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Beaumont.

Associate:

Dated:              10 September 2004

Solicitor for the Applicant:	Terence Lockyer Lee & Associates
Counsel for the Respondent:	J Baird
Solicitor for the Respondent:	Griffith Hack
Dates of Hearing:	4, 5 August and 2 September 2004
Date of Judgment:	10 September 2004