Power and PDP Group (Power) sued Paul Schembri and a company owned by his brother (Bettergrow) for patent infringement in the Supreme Court of Queensland in respect of a machine used to produce compost.
Liability was denied and a cross claim was made for revocation of the patent.
At the time of the proceedings, Bettergrow had no interest in the business which operated the machine.
The proceedings settled, inter alia, on the basis that Paul Schembri be given a licence to continue to operate the machine and would pay licence fees based on raw material passing through the machine. The claim and cross claim were to be discontinued with no order as to costs.
Mutual releases were entered into with Paul Schembri and Bettergrow agreeing not to seek revocation of the patent in the future, the proceedings to be discontinued, the parties agreed to take any necessary steps to perfect the settlement and the terms were to remain confidential.
Clause 4.5 of the settlement deed provided:
“PDP and Power reserve the right to take further proceedings against Bettergrow and Paul Schembri in order to enforce their rights under the Patent and this Deed should there be a breach of either on or after the date of execution of this Deed”.
Subsequently, Power alleged that Paul Schembri had failed to properly account for raw material and to pay licence fees under the agreement. Power sued Paul Schembri in the District Court and joined Bettergrow as a defendant, even though it had no interest in the business operating the machine the subject of the licence. This was done on the basis it was said that, under clause 4.5, Bettergrow was also liable for any breach of the settlement deed by Paul Schembri.
Bettergrow applied for summary judgement dismissing the claim against it, and was successful before Rosengren DCJ in the District Court and subsequently before the Court of Appeal.
It was found that the right to take further action by Power was limited to any breach of the settlement deed by the party being sued, no breach of the settlement deed was alleged against Bettergrow.
The parties had independent obligations, including not to seek revocation of the patent, to perfect the settlement, discontinue the proceedings and maintain confidentiality. These obligations were in addition to Paul Schembri’s obligations to comply with the licence terms. All of these obligations were covered by clause 4.5.
The Court of Appeal found that it was “elliptical” to suggest that Clause 4.5 could be construed to impose joint and several liability in respect of the licence obligations of Paul Schembri in the context of the deed as a whole and having regard to the surrounding circumstances.
The decision reminds practitioners of the utility of the summary judgement process in matters of pure contractual construction.
It is also reinforces the care that needs to be taken in drafting settlement agreements to ensure that they properly reflect the intentions of the party or parties for whom a lawyer is acting.