FEDERAL COURT OF AUSTRALIA Martech International Pty Ltd (ACN 009 022 799) v Energy World Corporation Limited (ACN 009 124 994) (No 2) [2005] FCA 41 PRACTICE AND PROCEDURE - pleadings – defence – whether part of pleading discloses defence – whether embarrassing – breach of contract of service – claimed entitlement to terminate on basis of conduct predating contract – claim incompatible with provision of contract relied upon – paragraph struck out – no point of principle Martech International Pty Ltd (ACN 009 022 799) v Energy World Corporation Limited (ACN) 009 124 994) [2004] FCA 1470 cited MARTECH INTERNATIONAL PTY LTD (ACN 009 022 799) v ENERGY WORLD CORPORATION LIMITED (ACN 009 124 994) W65 OF 2004 FRENCH J 1 FEBRUARY 2005 PERTH IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY W65 OF 2004 BETWEEN: MARTECH INTERNATIONAL PTY LTD (ACN 009 022 799) APPLICANT AND: ENERGY WORLD CORPORATION LIMITED (ACN 009 124 994) RESPONDENT JUDGE: FRENCH J DATE OF ORDER: 1 FEBRUARY 2005 WHERE MADE: PERTH THE COURT ORDERS THAT: On the Applicant's Motion filed 22 December 2004: 1. Paragraph 25 of the amended defence and first cross-claim is struck out. 2. The respondent do on or before 8 February 2005 produce for inspection the following documents referred to in paragraph 16 of the second cross-claim: (a) The Petroleum Act 1934 (Ind) (b) The Petroleum Rules 2000 (c) EXIM (Export and Import) Policy 3. The respondent to pay the applicant's costs of the motion in any event. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY W65 OF 2004 BETWEEN: MARTECH INTERNATIONAL PTY LTD (ACN 009 022 799) APPLICANT AND: ENERGY WORLD CORPORATION LIMITED (ACN 009 124 994) RESPONDENT JUDGE: FRENCH J DATE: 1 FEBRUARY 2005 PLACE: PERTH REASONS FOR JUDGMENT 1 By a motion filed on 22 December 2004, the applicant, Martech International Pty Ltd (Martech), seeks an order striking out par 25 of the amended defence and first cross-claim filed by Energy World Corporation (Energy). The motion does not identify the basis upon which the strike‑out application is brought and it should. However, in a letter sent to the respondent's solicitors, which is exhibited to the applicant's affidavit of 22 December 2004, it is said that the paragraph concerned embodies an untenable proposition that because Energy was entitled to terminate the agreement Martech was not entitled to terminate it. 2 In effect counsel for the applicant today has advanced the proposition that par 25 does not disclose any reasonable basis for a defence. Wrapped up in that is the proposition that par 25 is embarrassing in the sense it raises false issues. It is important however that counsel seeking to attack a pleading identify the basis under the rules upon which that pleading is attacked. 3 The Federal Court Rules provide that the Court may strike out in whole or in part a pleading that discloses, inter alia, no reasonable cause of action or defence or has a tendency to cause prejudice, embarrassment or delay in the proceeding (O 11 r16 (a), (b)). Order 20 r 2 (1)(a) provides that where it appears to the Court in a proceeding generally, or in any claim for relief in a proceeding no reasonable cause of action is disclosed, or the proceeding is frivolous or vexatious, the Court may order that the proceeding be stayed or dismissed generally or in relation to any claim for relief in that proceeding. 4 In this case in par 21(a) of the statement of claim as amended it is said that Mr Brand, who had been an executive director of Energy, resigned as such, and that his company, Martech, ceased to provide his services, and that this happened as a consequence of various matters which are pleaded in pars 19 to 20(k) of the statement of claim. In par 22 it is then said: 'In the premises, Martech became entitled to the Termination Payment, namely the payment of the Fee for a further 22 month period that is, the aggregate sum of $989,326.25 (exclusive of GST) (including the CPI adjustment).' The termination payment is a payment to which Martech would have been entitled in accordance with agreement pleaded in par 4 of the amended statement of claim. I will not go into the full scope of the amended statement of claim as the nature of the agreement and the issues have generally already been canvassed in my previous decision – Martech International Pty Ltd (ACN 009 022 799) v Energy World Corporation Limited (ACN 009 124 994) [2004] FCA 1470. 5 In answer to the pleading that Mr Brand resigned as a director of Energy, that Martech ceased to provide his services and that under terms of the agreement Martech became entitled to the termination payment, Energy says that the termination was without notice under cl 8.5 of the agreement. This appears in par 24(a) of the amended defence and first cross‑claim. That is, Energy says that the circumstances of Mr Brand's resignation and the termination of the provision of his services was not such as to entitle Martech to the termination payment under the agreement. 6 Alternatively, in par 24(b) it is said that Mr Brand's withdrawal of his nomination for re-election as a director of Energy, his resignation as a director and the cessation of the provision of his services as an executive director constituted a breach of the agreement. It is said that Energy thereupon terminated the agreement by reason of the breach in accordance with cl 8.1.3 on or about 20 November 2001. 7 Energy also pleads in par 24(c) that the applicant was not entitled to a termination payment as Energy was not in breach of its obligations under the agreement. Alternatively, any such breach did not continue for a period of 30 days or more and the applicant did not give the respondent written notice of the alleged breach. 8 In substance par 24 asserts either that there was no contractual entitlement, in the circumstances of the termination, to receive the termination payment and, alternatively, that the termination or resignation by Mr Brand constituted a breach of the agreement and by reason of that there was no entitlement to the termination payment. 9 Paragraph 25 of the defence, which is the paragraph under attack here, sets up a further answer to par 22 of the statement of claim and asserts the following: '(a) as at 19 November 2001, the applicant was not carrying out the services in a manner satisfactory to the respondent.' And then particulars of that want of satisfaction are set out: '(b) the respondent was accordingly entitled to terminate the Agreement pursuant to the term pleaded in subparagraph (2)(d)(iii), and would have done so had the applicant not ceased to provide the services; (c) in the premises, the applicant was and is not entitled to the Termination Payment.' The particulars of the basis upon which it is said that Martech was not carrying out its services in a manner satisfactory to the respondent all relate to conduct which occurred in a period from August 1997 up to and including 1999, but prior to the formation of the pleaded agreement. That is to say, the conduct relied upon occurred under an earlier arrangement or agreement in respect of which Mr Brand was providing services to Energy. 10 The particular clause upon which Energy now relies to assert that it had an entitlement to terminate at the time that Mr Brand resigned is cl 8.1 of the agreement which is exhibited to Mr Sheiner's affidavit of 1 July 2004 and which provides, inter alia: '8.1 The Company may (subject to clause 8.3 hereof) by notice in writing to the Manager terminate summarily the engagement of the Manager under this Agreement if: 8.1.1 in the reasonable opinion of the Company the Manager is not carrying out the Specified Services in a manner satisfactory to the Company;' The term 'Specified Services' is defined in the agreement as ' ... the services to be provided by the Manager to the Company during the Term as set out in Item 1 of the Schedule' and the 'Term' is identified in the schedule as 'Four (4) years commencing on the 1st day of July 1999 and thereafter renewable by mutual agreement of the parties hereto'. 11 There are two issues that arise in relation to whether or not par 25 raises any reasonable basis for a defence. The first is that it asserts a mere entitlement to terminate at the time that Martech ceased to provide Mr Brand's services, that is, at the time that Mr Brand resigned. The second is that it relies upon conduct which predated the formation of the agreement, albeit it may have had consequences referred to in par E and F of par 25(a) in terms of the share price of Energy and its financial difficulty. In my opinion, the invocation of conduct predating the formation of the relevant contract as a basis for dissatisfaction with the performance by Mr Brand of the specified services, being services performed during the currency of the agreement, cannot set up any arguable basis for an entitlement to terminate in accordance with the provisions of cl 8.1.1, which is relied upon in this case. 12 In that sense, it also brings in a significant number of what would appear to be false issues - matters which are not, at least in this context, relevant to any entitlement to terminate. I think, therefore, that par 25 cannot stand. It discloses no basis for defence. Moreover, it is potentially embarrassing and vexatious. Paragraph 25 will be struck out. I certify that the preceding twelve (12) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice French. Associate: Dated: 24 February 2005 Counsel for the Applicant and First and Second Cross-Respondents: Mr TJ Carmady Solicitor for the Applicant and First and Second Cross-Respondents: Williams and Hughes Counsel for the Respondent and First and Second Cross-Claimants: Mr PA Sheiner Solicitor for the Respondent and First and Second Cross-Claimants: Christensen Vaughan Date of Hearing: 1 February 2005 Date of Judgment: 1 February 2005