Supreme Court New South Wales Medium Neutral Citation: Polo Enterprises Australia Pty Limited v Pinctada Hotels and Resorts Pty Limited & Anor [2012] NSWSC 1518 Hearing dates: 16 November 2012 Decision date: 10 December 2012 Jurisdiction: Equity Division Before: Bergin CJ in Eq Decision: Amended Summons dismissed with costs Catchwords: [CONTRACT] - construction of Joint Venture Agreement to hold an Event - whether party who offers an unaccepted first right of refusal has an exclusive right to hold the Event in the future - where acceptance of "option" a mechanism to revive the joint venture relationship - whether party who did not take up option is restrained from holding the Event. [WORDS AND PHRASES] - "at liberty" - "consecutive" - "exclusive first right of refusal". Cases Cited: BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (1991) 24 NSWLR 1 Codelfa Construction Pty Limited v State Rail Authority (NSW) (1982) 149 CLR 337 Manchester Ship Canal Company v Manchester Racecourse Company [1901] 2 Ch 37. McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579 Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd (1968) 118 CLR 429 Category: Principal judgment Parties: Polo Enterprises Australia Pty Ltd (Plaintiff) Pinctada Hotels and Resorts Pty Limited (1st Defendant) Gazmedia Temp Pty Ltd (now known as Cable Beach Polo Pty Ltd) (2nd Defendant) Representation: L V Gyles SC/A Oag (Plaintiff) W A D Edwards (Defendants) Gilbert & Tobin (Plaintiff) John De Mestre & Co agent for Jarman McKenna (Defendants) File Number(s): 2012/306533 Judgment 1The issue for determination in this litigation is the construction of a Joint Venture Agreement (the JV Agreement) between the plaintiff and the defendant pursuant to which they staged a Beach Polo Event on Cable Beach in Broome, Western Australia (the Event). The plaintiff, Polo Enterprises Australia Pty Limited (PEA), claims that it has the exclusive right to conduct the Event in April 2013 and that Pinctada Hotels and Resorts Pty Limited (PHR) (the defendant) and Gazmedia Temp Pty Limited (now known as Cable Beach Polo Pty Ltd), an associated entity of the defendant, the second defendant (Gazmedia), should be restrained from conducting the Event. Background 2The plaintiff was established in 2006. Its directors, John Janek Gazecki (a keen amateur polo player) and Ruki Baillieu (Australia's equal highest ranked polo player) established the company to promote the sport of polo in Australia and to operate as a vehicle through which they would provide and market corporate client entertainment opportunities and obtain sponsorship. They together conceived what has been described as the "Polo in the City" series (PITC) consisting of events (two games of polo interwoven with other entertainment including live bands, fashion parades and other activities involving the attendees) staged within close proximity to the CBD of Australian capital cities. Typically PITC is staged on a Saturday in November or December each year during the lead up to Christmas. Polo in the City 3The first PITC was held in Sydney in Centennial Park on 9 December 2006. Since then the plaintiff has successfully staged twenty-four PITC events around Australia, raising sufficient sponsorship funds and sales to meet the budget and costs of staging the events. The plaintiff now conducts an annual PITC event in all Australian capital cities except Hobart and it is the only nationally co-ordinated polo series in Australia. The promotion and staging of the PITC enabled the plaintiff to develop and foster relationships with "premium brands" and companies including the internationally recognised brand, Paspaley Pearls. In fact PITC has been known as the "Paspaley Polo in the City" series. It was through that sponsorship relationship that Mr Gazecki met Marilynne Paspaley, the sole director and shareholder of the defendant. Beach Polo 4In 2008 Mr Gazecki (on behalf of the plaintiff) contacted the organisers of the annual Miami Beach Polo Event and the International Beach Polo Association based in the United States of America with the intention of eventually including Australia in an international beach polo events calendar. In about January 2008 Mr Gazecki (once again on behalf of the plaintiff) commenced research into suitable beaches across Australia to stage a beach polo event. On 14 January 2008 the plaintiff registered the domain name www.beachpolo.com.au. 5Critically important to an appropriate site for a beach polo event is an appropriate mix of natural elements, including sand type (appropriate for horses), specific beach gradient, extensive tidal movements and sufficient beach area. While Cable Beach in Broome is not the only location where a beach polo event can be staged, the plaintiff assessed it as the most suitable site because of the optimum surface conditions. However the plaintiff was concerned that Broome did not have a local or closely based polo community and did not have the necessary resources to stage a beach polo event. Consequently it decided not to stage a beach polo event at that time. The parties agree 6On 12 December 2009 the plaintiff staged the PITC in Perth. During that event Ms Paspaley approached Mr Gazecki with a suggestion that a similar event could be held in Kununurra in the north east of Western Australia, where the defendant operated an hotel. It was at this time that Mr Gazecki informed Ms Paspaley that the plaintiff had been doing some research into a beach polo event at Cable Beach in Broome. Ms Paspaley suggested that they (the plaintiff and the defendant) could do it together "as a joint-venture". She advised Mr Gazecki that she had contacts in Broome that "may help it happen". 2010 Cable Beach Event 7In about January 2010 the plaintiff and the defendant informally agreed to jointly stage a polo event on Cable Beach in Broome. In preparation for the staging of the event Mr Gazecki and Ms Paspaley attended the Miami Beach Polo event between 22 April and 25 April 2010. 8On 7 May 2010 the plaintiff drafted and submitted a "Final Event Application" (the Application) to the Broome Shire Council (the Council) in respect of which approval was granted. The Application included the following: 30. The Event introduces a proposed new event to Cable Beach, although the elements and activities which combine to form the Event are not entirely foreign to the foreshores of Cable Beach. The Event entails the erection of hospitality facilities on the beach, together with limited infrastructure such as a marquee, fencing, generator and a PA system. 31. Although the Paspaley Marquee will only accommodate between 200 to 300 patrons in its inaugural year, it is recognised that the Event itself may attract greater numbers of spectators, whose potential impact on the beach and adjacent sand dune areas, must also be considered. Last, but not least, the event will also involve the presence of horses upon the beach. ... 33. The Event will bring together and concentrate some existing uses along various stretches of the beach, into a single location and event. Although there are measures already in place to individually accommodate and control these existing uses, the combination and concentration of them into a single time and place, and their potentially larger aggregate scale, requires separate and careful consideration to ensure that the balance of environmental and safety factors is maintained, in delivering the proposed public event. ... 36. The chosen Event date is partly based on tidal movement, to ensure that a requisite portion of the beach will be exposed for a sufficient period of time to bump-in, stage and bump-out the Event, without being affected by water. Between Saturday 22 May 2010 and Sunday 23 May 2010, Broome will experience falling 'neap tides' in accordance with the table 5 below. 9That Event, known as the "Paspaley Beach Polo event", was held on Cable Beach on Sunday, 23 May 2010. The Media Release of 28 May 2010 included the following: Australia's first Beach Polo event - the initiative of Marilyn Paspaley AM, Founder of Pinctada Hotels & Resorts, and Janek Gazecki of Polo Enterprises Australia - attracted 2500 spectators and Australia's top professional polo players, led by Australian team captain Glen Gilmore. Broome Shire Council President Graeme Campbell has invited organisers to approach Council with a view to establishing Beach Polo as an annual event on Broome's sporting, social and tourism calendar. "The inaugural Paspaley Beach Polo event, in my opinion, was highly successful, well run and well supported," Cr Campbell said. "I am amazed that the organisers were able to achieve such a successful event in the short time - just three months - between conceiving the idea and staging the event. The event also introduced a different perspective for the use of Cable Beach and, given its success, I would think we would need to seriously consider making it an annual event." 10The Media Release also included statements by Ms Paspaley about approaches for sponsorships for the event the following year. It was also noted that the "naming rights sponsor Paspaley" strongly supported the event becoming an annual attraction. 2011 11After the success of the 2010 Event the plaintiff and the defendant agreed to jointly stage a further Beach Polo event on Cable Beach and to formalise their agreement. On 12 October 2010 the plaintiff and the defendant submitted a joint application to the Council to stage a further Event in 2011. The application referred to the intention to "grow the event in 2011 into a truly world class international event". The application also included the proposal to extend "Paspaley Beach Polo into a seven day tournament" for the stated reason of ensuring that "the investment by the event organisers is warranted". Joint Venture Agreement 12The parties (referred to respectively as "PEA" and "PHR") executed the JV Agreement on 28 March 2011, the provisions of which included the following: RECITALS: A. PEA and PHR have agreed to enter into this Agreement to reduce to writing the terms of their unincorporated joint venture (Joint Venture) for the conduct of the "Beach Polo" event to be staged in Broome, Western Australia (Event) between May 8 and May 15, 2011. B. This Agreement sets out all the terms and conditions governing the operation and conduct of the Joint Venture. THE PARTIES COVENANT WITH EACH OTHER AND AGREE AS FOLLOWS AGREEMENT PART 1: PRELIMINARY 1. TERM 1.1 This agreement shall commence on the date of the execution of the Agreement and conclude on 12.00am 30 June 2011 unless terminated earlier in accordance with the provisions of Clause 18 below of this Agreement (Term). 1.2 Following completion of the Event in May 2011 and depending on the outcome of the Event, PEA and PHR agree to negotiate in good faith as to the basis and terms on which the Term might be extended to 2015. The terms and conditions of such extended term are subject to agreement between the parties and the execution of a formal agreement recording the terms as may be agreed, including but not limited to: 1.2.1 Governance of the Joint Venture, including: (a) the decision making process of the Joint Venture, including something more formal, in terms of meetings, between the Joint Venture Partners, or their representatives; (b) management of the Joint Venture and dealings with third parties; (c) financial administration; 1.2.2 the respective roles and obligations of the Joint Venture parties in planning, promoting and executing the annual event; 1.2.3 the respective financial and other contributions to be made by each party; 1.3 Notwithstanding clause 1.2 above, and subject to clause 1.6, if either PEA or PHR (directly or indirectly, or through any interposed body corporate, related company, trust, principal, agent, shareholder, beneficiary or in any other capacity) wish to conduct a consecutive Event, or any other polo related event within 50km of the City of Broome, in the subsequent year, or years, that party must offer the other party to this Joint Venture the exclusive first right of refusal to again conduct such an event pursuant to the Joint Venture, upon terms the same as, or substantially the same as, contained in this Agreement. 1.4 The party which intends to conduct a consecutive Event pursuant to clause 1.3 above must express that intention to the other party in writing, and the other party has 30 days within which to accept the option in writing, and thereby revive the Joint Venture. 1.5 Upon the parties agreeing to continue the Joint Venture pursuant to clause 1.4 above, the parties will execute a subsequent Agreement, in which the roles of the parties are substantially as provided for in this Agreement, and the terms are otherwise in accordance with the terms as provided for in, or agreed pursuant to, clause 1.2 1.6 If either PEA or PHR, whichever is applicable, fails to exercise the option referred to in clause 1.3 and 1.4 above, the other party will be at liberty to conduct the Event in that year and any subsequent years, independently, or with such other third parties as it deems appropriate, and the terms of clause 1.3 and 1.5 inclusive will cease to bind either party. ... 3. EVENT 3.1 The Event will take place in Broome between 8 May 2011 and 15 May 2011, and on proximate dates, as agreed by the Joint Venture, in May each following year for the duration of the Term, subject to and conditional upon the parties agreeing to extend the Term in accordance with clause 1.5. 3.2 The format of the Event will be agreed by the Joint Venture, taking the following into consideration: (a) the desires of the Shire of Broome, relevant government organisations and other local interest groups; (b) benefit to the local community; (c) the desires of Event sponsors; (d) the desires of the polo patrons and players; (e) the desires of the parties to the Joint Venture; (f) costs of the Event; and (g) the need for the Joint Venture to operate profitably. 13The JV Agreement specified the hospitality options as the VIP Marquee (with a maximum capacity of 350 persons); the Polo Lounge Marquee (with a maximum capacity of 400 persons; and any other hospitality option as agreed between the parties (clauses 4.1 to 4.3). It specified that ticket prices inclusive of GST as $300 for the VIP Marquee; $88 for the Polo Lounge Marquee; $175 for the Broome BBQ Brunch; and $250 for the Moonlight Dinner (clause 5). It included provisions in relation to Sponsorship, Merchandise and Marketing with an acknowledgement that both parties agreed that the Event was to be developed, operated and promoted "to the highest standards" (clauses 6 to 9). It recorded that the defendant had been appointed as the Event Manager to organise and manage the Event by the performance of the services included in the JV Agreement (clause 10). The parties agreed to approve the budgets for the Event and that they would "negotiate in good faith and seek to agree" upon the respective budgets within a timeframe that allowed adequate preparation for the Event (clause 11.1). The defendant was also appointed as the caterer for the Event (clause 12). The parties also agreed that revenue "excluding sponsorship revenue" would be derived from sales of tickets, food and beverage and Event merchandise (clause 13). 14The plaintiff was appointed as the Event Producer (clause 14) and certain "sponsorship benefits" were provided to the defendant for the Event including that it would be referred to as the "Official Hotel of Paspaley Beach Polo" (clause 15). It was agreed that the plaintiff and the defendant were each entitled to a fee of $15,000 for the provision of the services as Event Producer and Event Manager respectively. The defendant was also entitled to an additional amount for the provision of services as caterer and both parties were entitled to a 50% equal share of any of the profits after expenses (clause 16). 15The Agreement also included the following: 17 INTELLECTUAL PROPERTY 17.1 "Intellectual Property" means all intellectual property including, without limitation, all copyright, registered and unregistered trademarks (including service marks), registered and unregistered designs, confidential information (including trade secrets and know how), contracts, web site design, layout and content, marketing material; sponsorship material; public relations material, series program content and design, databases, customer lists and details, and all other rights resulting from intellectual activities in the literary, commercial or artistic fields, as well as the Event concept. 17.2 Each party to this Agreement, acknowledges and agrees that all Intellectual Property in relation to the services provided by each party pursuant to this Agreement is and will remain the property of that party. 18 TERMINATION 18.1 Either party shall have the right to terminate this Agreement by notice in writing to the other party upon the happening of any of the following events: (a) the other party fails to perform and observe its obligations under this Agreement and fails to remedy the failure within thirty (30) days of service on it by the other party of a notice of the failure, unless the failure arises as a result of an event or circumstance beyond the reasonable control of the other party; (b) if the other party has a Receiver appointed of the whole or any substantial part of its assets or if any order is made or resolution passed for the winding up of the other party; (c) if the other party becomes insolvent or makes an assignment for the benefit of creditors; (d) if any drafts, notes or cheques drawn or endorsed by the other party pursuant to this Agreement had been dishonoured. 18.2 Termination of this agreement does not effect; (a) any accrued rights or remedies of either party; and (b) the operation of any clause, which is expressly stated to continue to operate after termination of the agreement. ... 20 RESTRAINT 20.1 It is essential to this agreement: (b) to protect the parties' business interests, including its investment into the Event and managing polo events and/or polo sponsorships in Australia; and (c) to protect the parties' future and present business including employee skills, customers, goodwill, suppliers and Intellectual Property 20.2 PEA and PHR agreed to the restraints in this clause. 20.3 From the date of this Agreement until 3 years after this agreement is terminated, or expires, PEA agrees not to, without written permission from PHR (directly or indirectly, or through any interposed body corporate, related company, trust, principal, agent, shareholder, beneficiary or in any other capacity), use any information concerning the business or affairs of PHR which may have been acquired by PEA for PEA's own benefit to the detriment or intended or probably detriment of PHR. 20.4 From the date of this Agreement until 3 years after this agreement is terminated, or expires, PHR agrees not to, without written permission from PEA (directly or indirectly, or through any interposed body corporate, related company, trust, principal, agent, shareholder, beneficiary or in any other capacity), use any information concerning the business or affairs of PEA which may have been acquired by PHR for PHR's own benefit to the detriment or intended or probably detriment of PEA. 20.5 Each of the restraint obligations imposed by this Agreement is a separate and independent obligation from the other restraint obligations imposed (although they are cumulative in effect). 20.6 The parties agree that each of the restraint obligations imposed by this clause: (a) is reasonable in its extent (as the duration and restrained conduct) having regard to the interests of each party to this agreement; (b) extends no further (in any respect) than is reasonably necessary; and (d) is to protect the goodwill of the Licensor's business. 20.7 If any of the restraint obligations imposed by this clause is judged to go beyond what is reasonable in the circumstances and necessary to protect the goodwill of the business of either party but would be judged reasonable and necessary if any activity were deleted or a period were reduced, then the restraint obligations apply with that activity deleted or area reduced by the minimum amount necessary. ... 24.3 Nothing herein contained shall constitute or create or be deemed or construed so as to constitute or create any partnership, agency or trust between the parties and neither party shall commit or incur any liability on the part of the other party, nor pledge or attempt to pledge its credit in any way whatsoever. 16Although the Agreement provided that the governing law was that of the State of Western Australia and the parties agreed to submit themselves to the jurisdiction of the Courts of that State, no objection was raised to these proceedings being commenced and continued in this Court. 2011 Event 17The "Event" defined in the JV Agreement as the "'Beach Polo' event to be staged in Broome, Western Australia", was promoted as the "2011 Paspaley Beach Polo Event" and was held on Cable Beach on 14 and 15 May 2011. It was reported as having introduced the "concept" of a Broome Beach Polo Festival with some activity by local restaurants, retailers and shopping centres supporting the festivities through the creation of signature menus or store décor and a special welcome to visitors during the week. The Event program included a welcome cocktail party, a Saturday polo picnic and the introduction of the second day of polo matches on Cable Beach. It was described as "the beginning of a journey to create a genuine beach polo tournament of international standard over the coming years". The Event also included a Moonlight Dinner and the Sunday Paspaley Pro-Am League Cup. It also introduced an international beach polo match between Australia and New Zealand. 18The Final Event Report (the Report) for the 2011 Event included the following: State your events visions/purpose and describe how this vision was achieved and the outcomes; include any new initiatives undertaken. The introduction of the concept for a week-long festival is the ongoing development of Australia's only beach polo tournament, which was initially held as a one-day event at Broome's iconic Cable Beach in May 2010. Our vision is to establish Broome as the world's major centre for Beach Polo and create a festival, around the two-day beach polo event, which attracts international and domestic tourists, media exposure and sponsorship to Australia's north west. The Broome beach polo event and subsequent festival concept was specifically planned to be held in the month of May with the aim of extending Broome's high tourism season that traditionally had commenced in June. 19The Report referred to each of Ms Paspaley and Mr Gazecki as "co-owner and co-founder of Broome Beach Polo". Ms Paspaley was also described as the "Festival Director for the Broome Beach Polo Festival, creator of events surrounding the polo". Ms Paspaley's husband, Garry Grbavac, was described as the "event Production Manager responsible for the staging of the two-day event on Cable Beach and all associated hospitality activities surrounding it, as well as related Polo activities during the week". Mr Grbavac is the co-director (with Ms Paspaley) of Gazmedia. 2012 20On 20 June 2011 Ms Paspaley wrote to Mr Gazecki advising that "we are planning to hold a beach polo event in 2012". Ms Paspaley recommended the particular dates and advised that she had discussed the question of whether there was any danger in playing at night. That communication also included the following: This also sits well with the calendar of the polo tournaments in WA, and will not clash with Peter Prenderville's match in April for example. It will become the final match of the season in WA. Also, it is not too long after their series to keep the horses in condition. ... I suggest we agree to this now, so that we can begin planning for 2012. 21On 2 August 2011 Ms Paspaley wrote again to Mr Gazecki referring him to her communication of 20 June 2011 and referring to the words "we are planning to hold a beach polo event in 2012". That communication included the following: At that time, I acted in good faith that PEA and PHR would follow the agreement signed this year that we would negotiate a continued JV by end of September, failing which one or other would give notice of intention to hold the event. If you have no intention of negotiating a revised JV agreement, please note that I gave you notice of intention to hold the event and the dates on 20 June. I formally invite you to accept the option to join Pinctada Hotels & Resorts in holding the Broome Beach Polo event on May 12 & 13, 2012. I hope we don't need to spend a lot of time going backwards and forwards between solicitors. It would be such a waste of positive energy. The key matters to be considered in the agreement are the matters of Governance, Financial Management, agreed responsibilities and timelines by which to achieve the established milestones. 22On 2 August 2011 Mr Gazecki wrote to Ms Paspaley advising that he did not regard the email of 20 June 2011 as formal notice under clauses 1.3 and 1.4 of the JV Agreement. However he advised that as they both "mutually intend to proceed together" the next step was to address the terms of the JV Agreement. This appears to have been in recognition of the terms of clause 1.5 of the JV Agreement that provided for the parties to "execute a subsequent Agreement" after they had agreed to continue in Joint Venture. Mr Gazecki asked Ms Paspaley whether she was happy with the existing terms or whether she would like to make any suggested changes. He suggested that because the Council required the preliminary application for approval for the Event by 2 September 2011 they should address and finalise those matters soon. 23On 10 August 2011 Ms Paspaley responded to Mr Gazecki in terms that included the following: I am pleased we agree to proceed together in the staging of the Broome Beach Polo event. Regarding the current JV agreement, there are areas which we noted in our original JV agreement that do require our attention prior to embarking on the 2012 event, as follows. 24Ms Paspaley then referred to the main focus being on the "governance" of the Event. She advised that she thought it was critical that they established protocols prior to making any financial commitment to any third party. Those matters included the budget for the Event; confirmation of responsibilities by each party; a timeline for key milestones; and financial management and accounting matters. Ms Paspaley advised Mr Gazecki that these points required discussion prior to them being put into any agreement. 25Unfortunately disputation arose between the plaintiff and the defendant in particular in relation to finalising the budgets for the 2011 Event and the prospective 2012 budget. Ms Paspaley advised Mr Gazecki that the defendant had no faith in the budgets that he had prepared because they did not recognise the "true costs" of the Event which Ms Paspaley claimed included "in-kind sponsorship and assistance" from the defendant and its related companies and many other third party suppliers. The parties had involved Eventscorp, a Western Australian Government agency and a division of Tourism Western Australia that actively bids for and funds major international events that attract significant numbers of international and interstate visitors with a positive economic impact for Western Australia (Ex 3). Although for Eventscorp's purposes the plaintiff was not required to value any "in-kind" contributions, Ms Paspaley rejected Mr Gazecki's proposal to ignore the sponsorship value. 26The communications between the parties reached an apparently low point on 13 February 2012 when Ms Paspaley wrote to Mr Gazecki's co-director, Mr Baillieu, suggesting that Mr Gazecki had a personal negative bias against her and her companies. Ms Paspaley demanded that Mr Gazecki be removed immediately from representing the plaintiff in all matters regarding the Broome Beach Polo event. 27In the course of correspondence about these matters on 6 March 2012 Ms Paspaley wrote as follows: We are currently operating under the terms of the resurrected JV agreement from 2011, as provided for in that agreement and in the absence of a new agreement. We believe that both parties are still bound to that agreement. 28It is not in issue in the proceedings that the terms of the 2011 JV Agreement applied up to 30 June 2012. 2012 Event cancelled 29As events happened the plaintiff and the defendant were not able to agree on a number of aspects of the 2012 proposed Event and it did not go ahead. On 29 March 2012 the plaintiff published on electronic social media the following messages: It is with great regret we advise that Broome Beach Polo 2012 has been cancelled due to unfavourable tides. This news is as devastating to us as it is to fans, however, we hope to be back in 2013 so stay tuned! 30On 3 April 2012 the plaintiff sent a letter to "stakeholders", the Western Australian polo patrons, advising that amongst other things the "budget situation" had not improved and the "deficit" could be well in excess of $137,591.85. That letter recorded that the plaintiff had withdrawn its support and authority for the Event to proceed in 2012 because it was concerned not to proceed with a possible insolvent business enterprise. It also included notification that the plaintiff and the defendant were in dispute regarding a number of matters; that the defendant and Ms Paspaley had failed to agree to a mediation until after the Event was cancelled; that there was an uncertain future for various reasons; that a number of key sponsors had withdrawn their support; that there was limited time to prepare for the Event; and there was a lack of marketing necessary to justify sponsor investment. It also recorded that the plaintiff hoped that the Event could return in 2013 and thanked the stakeholders for their patience to date. 31On 4 April 2012 the defendant's solicitors wrote to the plaintiff's solicitors claiming that the plaintiff's representation that the 2012 Event had been cancelled due to unfavourable tides was "clearly false". The defendant's solicitor's letter also included a complaint that the plaintiff had made statements that were defamatory of Ms Paspaley and/or the defendant and had breached its obligations of good faith and loyalty. There was also a claim that the plaintiff had repudiated the 2012 Agreement, which it was claimed, the defendant accepted. The letter concluded, "The 2012 Agreement is at an end". The claim of repudiation was not pressed in these proceedings. 32On 5 April 2012 the plaintiff's solicitors responded to the defendant's solicitor's letter rejecting the suggestion that the JV Agreement had been repudiated. Unfortunately this letter made allegations of serious misconduct by the defendant. However it included the following: The Agreement is still in place and the parties must now undertake the task of resolving the various issues which have paralysed the Joint Venture. If the issues cannot be resolved, and considering clause 1.3 of the Agreement, the parties must now undertake the arduous task of reaching agreement on how the Broome Beach Polo asset is to be dealt with in the future so that, despite the breakdown of the Joint Venture, the event can be reinstated in 2013 for the benefit of the Broome community. In light of this, and having now obtained instructions from our client within the 14 days prescribed in clause 19.4(a) of the Agreement, our client is able to meet with your client on 18 April 2012 to start the process of resolving the various matters in dispute. Please advise if that date is suitable, as well as preferred time and venue. 33That letter also invited the defendant to undertake that it would not seek to stage the 2012 Broome Beach Polo Event without the plaintiff's authority. 2013 Event 34On 21 April 2012 the plaintiff wrote to the defendant as follows: Pinctada Hotels & Resorts Pty Limited is a Joint Venture partner with Polo Enterprises Australia Pty Limited (PEA) in relation to an event known as Broome Beach Polo. As you may be aware, the 2012 Broome Beach Polo has been cancelled. PEA intends to stage the next Broome Beach Polo event on Saturday 18 May 2013, and it hereby offers Pinctada Hotels & Resorts Pty Limited (PHR) the first right of refusal to conduct the event with PEA, pursuant to clause 1.3 of the Joint Venture Agreement. This letter constitutes notice under s1.4 of the Joint Venture Agreement. Please note that this notice is issued without prejudice to PEA's existing rights in relation to PHR's breaches of the Joint Venture Agreement. 35The defendant's solicitors responded by letter dated 4 May 2012 that included the following: We consider that it would be an implied term of the Joint Venture Agreement that any ongoing relationship between the parties would be subject to the parties having mutual trust and confidence. It cannot be disputed that mutual trust and confidence no longer exists. In that respect we refer to: 1. The assertions against our client as detailed above. 2. The baseless allegations of insolvency against our client. 3. Statements made by your client to third parties which have undermined, or had the potential to undermine, the integrity of our client and the event. It could never have been contemplated by the parties that a situation could arise whereby: 1. One party could make various allegations against the other party and thereby undermine the requisite trust and confidence. 2. That party could give notice to the other party of its intent to conduct the event in a year thereby offering to the other party the first right of refusal to conduct the event with that party. 3. Because of the situation created by that party the other party would not exercise the option. 4. That party would thereby create for itself the right to conduct the event itself "in that year and any subsequent years" [which, we add, would also be created because that party happened to be the first to give notice.] Further, even if the parties prima facie continue to be bound by the terms of the Joint Venture Agreement, we are of the view that the first right of refusal could not now arise under clause 1.3 because there cannot be a "consecutive Event", there not having been an event in 2012. As a result the right under clause 1.6 would not arise. Applications to Council 36Both the plaintiff (on 29 June 2012) and Gazmedia (3 May 2012) made application to the Council for approval to hold the Event in 2013 (the 2013 Event) and by 22 August 2012 at the latest, each was aware of the other's application. No application was made to restrain Gazmedia from continuing with its application and, although the plaintiff requested that the application be withdrawn, the Council was not advised that the plaintiff had the exclusive right to stage the 2013 Event. 37On 11 October 2012 the Council approved Gazmedia's application to stage the 2013 Event. Proceedings 38The plaintiff commenced these proceedings by Summons filed on 3 October 2012. The matter was expedited and was heard on 16 November 2012. Mr LV Gyles SC leading Mr A Oag, of counsel, appeared for the plaintiff. Mr WAD Edwards, of counsel, appeared for the defendants. 39The plaintiff seeks orders restraining the defendant and Gazmedia from conducting the 2013 Event and/or from conducting a polo event within 50km of the City of Broome in 2013. No issue is taken in respect of the fact that Gazmedia is not a party to the JV Agreement. It is accepted for the purpose of the proceedings that if the plaintiff is entitled to relief against the defendant, the same relief is available against Gazmedia. Issue for determination 40The real issue for determination in the proceedings is whether by reason of the defendant's failure to "accept the option" as provided for in clause 1.3 of the JV Agreement, and on a proper construction of clause 1.6 of the JV Agreement, the plaintiff has the exclusive right to stage the 2013 Event. Construction of the JV Agreement 41Clause 1 of the JV Agreement is not a model of clarity. However it has not been suggested that it is void or unenforceable by reason of uncertainty. Although there are some peculiarities of expression that make it difficult to discern the parties' intentions, it is necessary for the Court to "do its best" to ascertain the contractual intention of the parties and not adopt a narrow or pedantic approach, particularly having regard to the fact that this is a commercial contract: Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd (1968) 118 CLR 429 per Barwick CJ at 436-437. The JV Agreement governed a commercial relationship and should be given a businesslike interpretation with "attention to the language used by the parties, the commercial circumstances which the document addresses, and the objects which it is intended to secure": McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579 per Gleeson CJ at 589 [22]. 42There was no definition of "Joint Venture" in the JV Agreement although the "Event" was defined in Recital A as "the 'Beach Polo' event to be staged in Broome, Western Australia". There is no doubt that the purpose of the "Joint Venture" was for the plaintiff and the defendant to jointly stage the Event. By the time the parties entered into the JV Agreement, they had already combined their respective business acumen, skills and expertise to successfully jointly stage the 2010 Event. However they expressly eschewed any notion that they were partners in the staging of the 2011 Event (clause 24.3). 43Although there was reference to "the Event concept" in the definition of "Intellectual Property" (clause 17.1) there was no definition of such concept. It appears that the nature of the Event evolved over time, moving from a day of polo to two days and then to a week long "festival" around the polo competition. There is nothing in the JV Agreement suggesting that there were capital injections by the respective parties that had to be reconciled or brought to account on the termination of the Joint Venture. Rather the parties' entitlements were limited to their $15,000 management fees, the catering fees to the defendant and the parties' 50% of the profits after payment of expenses. 44The "Term" of the JV Agreement was defined as the period from the date of its execution (28 March 2011) to 12 am on 30 June 2011. However the parties agreed in clause 1.2 that depending upon the outcome of the 2011 Event they would negotiate in good faith as to the basis and terms on which the "Term" of the JV Agreement "might be extended to 2015". The parties clearly intended to await the outcome of the 2011 Event before they considered binding themselves to a further Term of four years to 2015. Although they turned their minds to the topics or areas upon which they might agree (including governance of the Joint Venture, the respective roles and obligations of the parties and the respective financial and other contributions to be made by the parties) they were careful to ensure that they would not be bound to an extended Term to 2015 until they had reached agreement on all matters (including the abovementioned topics or areas) and had executed a formal agreement. This was an agreement to negotiate: Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (1991) 24 NSWLR 1. However it was conditional, "depending on the outcome of the Event". This condition did not identify the particular "outcome" (such as profitability or a level of endorsement or sponsorship) that had to be reached, upon which the parties' obligations to negotiate was dependent. In any event the parties did not proceed to negotiate for a further term of four years to 2015. 45I am satisfied that the words "notwithstanding clause 1.2 above" at the commencement of clause 1.3 were used because the parties intended that they could proceed to stage another Event in Joint Venture notwithstanding that they had not completed their good faith negotiations to extend the Term to 2015 or notwithstanding that they had decided not to extend the Term to 2015. The parties intended that the mechanism in clauses 1.3 and 1.4 could be adopted irrespective of (or notwithstanding) the status of their good faith negotiations referred to in clause 1.2. The parties clearly envisaged that they might wish to have a lengthy relationship to 2015. On the other hand they made provision for a shorter relationship (or a series of shorter relationships) whereby they might propose working together on a further single Event (or more). 46According to the terms of the JV Agreement, the Joint Venture terminated on 30 June following the staging of the relevant Event unless it was revived by the offer and acceptance mechanism in clauses 1.3 and 1.4. If neither party offered an "exclusive first right of refusal" (clause 1.3) then the Joint Venture would be at an end on 30 June following the particular Event. If one party offered the exclusive first right of refusal but the other party did not "accept the option" (clause 1.4), the Joint Venture would terminate at 30 June following the Event or alternatively at the expiry of the 30 day period from the date the exclusive first right of refusal was made, whichever was the later. 47The expression "exclusive first right of refusal" is somewhat unusual. The fact that it is a "first" right of refusal probably means that the word "exclusive" is superfluous. It is necessary to identify what it was that was the subject of the right of refusal by construing the terms of the Joint Venture: Manchester Ship Canal Company v Manchester Racecourse Company [1901] 2 Ch 37. What was to be offered under clause 1.3 was the opportunity to conduct another Event, a consecutive Event, in accordance with the same or substantially the same terms as the JV Agreement. The offeror had to make that offer to the other party to the JV Agreement before staging the Event on its own or offering the opportunity to anyone else. The "exclusive right of first refusal" provided the parties with the security that neither party could stage a consecutive Event without the other party before the other party had the opportunity to take up "the option" of staging the Event in Joint Venture. 48The parties' use of the expression "consecutive Event" evidences their intention that the mechanism was to apply if either party wished to stage another Event subsequent to the 2011 Event. That did not mean that the Event had to be staged annually to make it consecutive (albeit that there was an expectation that if the Term was extended to 2015 there would be an Event held annually (cl 1.2.2)). The use of the expression "in the subsequent year, or years" accommodated the prospect that the Event may be staged after 18 months or two years or more, but it would be the next one in a series following the 2011 Event (as the 2011 Event was consecutive to or followed the 2010 Event). The defendant submitted that because the 2012 Event was cancelled, the 2013 Event would not be a consecutive Event. I do not accept that submission. The next in line in the series is the 2013 Event. The fact that there was no Event in 2012 does not matter. The 2013 Event is consecutive, that is the next Event, after the 2011 Event. 49I am satisfied that the parties intended that if they did not reach agreement to extend the Term to 2015 (or irrespective of the status of their negotiations in that regard) they could still "revive the Joint Venture" for a shorter Term, being for the next Event. That revival by use of the mechanism in clauses 1.3 and 1.4, in which the offer was made and accepted, was described in clause 1.5 as the parties "agreeing to continue the Joint Venture pursuant to clause 1.4 above". The parties further agreed, pursuant to clause 1.5, that if such revival or agreement occurred they would execute a "subsequent Agreement". 50The parties agreed that the "subsequent Agreement" would provide that "the roles of the parties" would be "substantially the same as provided for" in the JV Agreement. However they also agreed that the "terms" of the "subsequent Agreement" were "otherwise in accordance with the terms as provided for in, or agreed pursuant to, clause 1.2". This latter aspect of their agreement is problematic because there were no express "terms provided for in clause 1.2". Rather the clause included areas upon which the parties may agree including governance of the Joint Venture (decision making; meetings (both internal and external to the Joint Venture); management; financial administration; the parties' respective roles in planning, promoting and executing the Event; and the detail of the parties' financial and other contributions. The inclusion of the reference to clause 1.2 in clause 1.5 is peculiar having regard to the fact that the mechanism for revival and agreement in clauses 1.3 and 1.4 operates "notwithstanding clause 1.2". 51In any event, although the parties agreed pursuant to clause 1.5 to execute a "subsequent Agreement", they proceeded to revive the Joint Venture for 2012 in a more informal manner. The defendant offered the plaintiff the first right of refusal to conduct the 2012 Event pursuant to clause 1.3 of the JV Agreement. Albeit that such offer was not accepted within 30 days, that time was mutually extended by the further correspondence in August 2011 and the parties operated on the basis that the 2011 JV Agreement applied to the 2012 Event. Accordingly the Term of that JV Agreement expired at 12 am on 30 June 2012. 52The parties also addressed what was to happen if the other party did not accept "the option". The parties agreed in clause 1.6 that in such a circumstance, the party offering the first right of refusal: [W]ill be at liberty to conduct the Event in that year and any subsequent years, independently, or with such other third parties as it deems appropriate, and the terms of clause 1.3 and 1.5 inclusive will cease to bind either party. 53It is clause 1.6 in particular upon which the plaintiff relies to contend that it has the exclusive right to conduct the 2013 Event. In paragraph 6 of the Statement of Claim it is contended that it was an express term, or alternatively an implied term, of the 2011 JV Agreement that a party who failed to exercise the option referred to in clauses 1.3 and 1.4 would not be at liberty to conduct the Event in the year to which the option related. That term was defined in the pleading as "the Restraint term". 54The use of the expression "will be at liberty" (clause 1.6) was used in the same clause in which the expression "exclusive first right of refusal" (clause 1.3) was used. If the parties had intended that the party who made the unaccepted offer of the first right of refusal would have a "right" or indeed an "exclusive right" to conduct the consecutive Event, it is probable that such an expression would have been used. Even taking into account that the JV Agreement uses some curious language, there is the added difficulty that the "liberty" applies to the Event not only in "that year", meaning the year the subject of the offer of the first right of refusal, but also "and any subsequent years". 55Mr Gyles recognised that the expression "and any subsequent years" in clause 1.6 presented difficulties for the plaintiff's contentions. However he submitted that the parties really intended that the "liberty" only applied to the Event in the year that was the subject of the offer of the first right of refusal. The acceptance of that submission would mean that the words "and any subsequent years" have no meaning or are superfluous. I am satisfied that the parties are experienced, sophisticated and successful commercial entities. They operated without a detailed written agreement for the staging of the 2010 Event. When it came to the 2011 Event they decided to record their respective obligations and entitlements in writing. When they decided to revive the Joint Venture for the 2012 Event, the defendant turned its mind to what might need to be addressed in the subsequent Agreement (clause 1.5) and communicated its thoughts to the plaintiff in this regard. There was no mention of clause 1.6 or any suggestion that the words "and any subsequent years" should be deleted because they were meaningless or superfluous. This absence is, of course, not decisive. I am conscious that in construing the JV Agreement I am doing so by reference to its terms. I am not satisfied that these words are superfluous. The clause must be construed having regard to those words. 56The concept of being "at liberty" in the context in which that expression is used in clause 1.6 of the JV Agreement means that the plaintiff is free to proceed without having to be in a joint venture with the defendant. It is free to proceed in the future, in 2013 and any subsequent years, either alone or with others. That conclusion is supported by the concluding words of clause 1.6 that "the terms of clause 1.3 and 1.5 inclusive will cease to bind either party". In other words, the plaintiff is not obliged or bound to advise the defendant of its future intentions in relation to conducting any further Events. It is at liberty (it is free) to conduct an Event without reference to the defendant. 57The plaintiff submitted that the defendant misunderstood the nature of the claim it was making in respect of clause 1.6. It was submitted that the Restraint term as pleaded in paragraph 6 of the Statement of Claim is not a term to be implied into the JV Agreement, but rather an express provision of the Agreement. In other words the plain meaning of clause 1.6 in context is that the party who does not take up the option is restrained from holding the Event the following year. I do not accept that it is an express term. It would have to be implied from the use of the words "at liberty" in clause 1.6 and in the context of the whole of the JV Agreement, but in particular clause 1. The alleged term to be so implied is that the party who has made the unaccepted offer of the first right of refusal has the exclusive right to conduct the Event the subject of the offer in that years and any subsequent years and that the party that did not accept the option is prohibited from conducting the Event in that year and any subsequent years. 58The defendant submitted that the alleged implied term fails the classic test identified in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 282-283 (as adopted in Codelfa Construction Pty Limited v State Rail Authority (NSW) (1982) 149 CLR 337 at 347 per Mason J). I agree with that submission in that it is not so obvious that it goes without saying; and it is not necessary to give business efficacy to the JV Agreement. Clauses 1.3 to 1.6 provided: (1) a mechanism whereby the parties could "revive" their Joint Venture and proceed to conduct another Event together; and (2) to free each other from being bound to conduct another Event together in Joint Venture. The JV Agreement had ample business efficacy without the need for an exclusive right being granted to one party to conduct the Event in any subsequent years. 59Clause 20 of the JV Agreement prevents either party from using any information concerning the business or affairs of the other to their own benefit or to the detriment of the other for a period of 3 years after the agreement is terminated or expires. That clause contains the express statement that both parties agree to the restraints within it and acknowledge them as reasonable. If a restraint as contended for by the plaintiff had been intended, it is reasonable to expect that it would have been an express provision to which the parties stated their consent and in respect of which the parties acknowledged its reasonableness. The absence of such an express provision militates against the parties having intended such a restraint. 60If the plaintiff's contentions were correct, it would mean that the defendant could never stage the Event again because the plaintiff has the exclusive right to do so for "any subsequent years". I am satisfied that the parties did not intend that outcome. Conclusion 61I am not satisfied that clause 1.6 of the JV Agreement can be construed as a restraint (express or implied) as pleaded in the Statement of Claim. 62Paragraphs 1 and 2 of the Amended Summons are dismissed with costs. The defendant is released from the undertaking given to the Court in respect of the 2013 Event. *************************** Amendments 10 December 2012 - Paragraph 62 now reads "Paragraphs 1 and 2 of the Amended Summons" DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 10 December 2012