Apple and Pear Australia Ltd v Pink Lady America LLC

[2016] VSCA 280

SUPREME COURT OF VICTORIA
COURT OF APPEAL

S APCI 2015 0127

APPLE AND PEAR AUSTRALIA LIMITED (ACN  101 551 348)	Applicant
v
PINK LADY AMERICA LLC	Respondent

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JUDGES:	TATE, FERGUSON and McLEISH JJA
WHERE HELD:	MELBOURNE
DATE OF HEARING:	8 February 2016
DATE OF JUDGMENT:	23 November 2016
MEDIUM NEUTRAL CITATION:	[2016] VSCA 280
JUDGMENT APPEALED FROM:	[2015] VSC 617 (Croft J)

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CONTRACT – Trademark licensing agreement – Scope of contract – Whether trademarks identified in schedule to the contract include a refreshed mark subsequently adopted by industry body or future marks – Whether failure to include refreshed mark would lead to absurdity or futility – Admissibility of surrounding circumstances for purpose of construction of commercial contracts – Whether variation by subsequent conduct – Repudiation – Termination – Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337, Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640, Mainteck Services Pty Ltd v Stein Heurtey SA (2014) 89 NSWLR 633 and Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104, discussed.

INTELLECTUAL PROPERTY – Trademark licensing agreement – PINK LADY trademarks – Trademarks assigned to recipient in consideration for exclusive licence to use trademarks in territory – Whether implied term that recipient has obligation to re-assign trademarks following termination of licence.

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APPEARANCES:	Counsel	Solicitors
For the Applicant	Mr R M Garratt QC with Mr M D Tehan	Hall & Wilcox Lawyers
For the Respondent	Mr M W Wise with Mr A F Solomon-Bridge	Arslan Lawyers

Tate JA:

table of contents

Introduction and Summary…………………………………………………………………….….2

Multiple agreements and a consistent marketing strategy…………………………………….3

PLA’s application to register PINK LADY trademarks in Chile……………………………..12

The refreshed mark………………………………………………………………………………....16

The Option Deed ……………………………………………………………………………….….17

Subsequent conduct – APAL’s application to register the refreshed mark in Chile…… .….29

The judge’s reasons………………………………………………………………………………...30

Grounds of appeal……………………………………………………………………………….…36

Legal principles for construing commercial contracts………………………………………....40

Does the cl 5.1 licence extend to the refreshed mark or other future marks?...........................64

Did either PLA or APAL repudiate the Option Deed?................................................................81

Did APAL have an obligation to re-assign Schedule 1 trademarks to PLA?..........................83

Does the cl 5.1 licence survive termination?.................................................................................84

Conclusion on the application for leave to appeal………………………………………….…85

Conclusion on the appeal…………………………………………………………………………85

Notice of Contention………………………………………………………………………………85

1. Should the Court entertain the Notice of Contention?.................................................................86

2. Was the Option Deed varied to include the refreshed mark?....................................................... 90

Conclusion on the Notice of Contention………………………………………………………..99

Appendix……………………………………………………………………………………….......100

Introduction and Summary

1. The PINK LADY brand is a brand which was first used in the 1990s in connection with the Cripps Pink variety of apple that was bred in Western Australia.  The Cripps Pink apple variety, and some other apple varieties, have since been developed and successfully marketed under the PINK LADY brand around the world. Chile is now the largest southern hemisphere exporter of PINK LADY branded apples.  A number of PINK LADY trademarks have been registered in many countries throughout the world.  The central issue in contest before the Court concerns who has the right to the ownership and control of PINK LADY trademarks in Chile.

1. The issue raised is to be answered by means of the construction of an option deed dated 12 June 2007 (‘the Option Deed’) between Apple and Pear Australia Ltd (‘APAL’), and Pink Lady America LLC (‘PLA’) to determine what trademarks were encompassed by the Option Deed.  The Option Deed provides, subject to certain conditions, for an option to be granted by PLA to APAL to acquire ownership of trademarks that might be issued to PLA as a result of pending trademark registration applications made by PLA in Chile.  Should the option be exercised, APAL would grant to PLA an exclusive licence to use the trademarks on products in respect of trade between Chile and North America, royalty free, in perpetuity.  The trial judge, from whom APAL seeks leave to appeal, held[1] that upon a proper construction of the Option Deed, the exclusive licence from APAL to PLA to use ‘the Trade Marks’ with respect to all products between Chile and North America encompassed not only those trademarks listed in a schedule to the Option Deed but also encompassed a trademark later adopted internationally for the PINK LADY brand, that is, a refreshed mark adopted subsequently to the execution of the Option Deed and to which no reference is made in the Option Deed.  More generally, the judge found in favour of PLA by holding that the exclusive licence granted to PLA by APAL under the Option Deed ‘would include any such logo that became the mandated logo to be used internationally’.[2]

   [1]Apple and Pear Australia Ltd v Pink Lady America LLC [2015] VSC 617 (‘Reasons’) [142]. The trial was confined to the question of liability alone.

   [2]Reasons [142].

1. The applicant, APAL, seeks leave to appeal primarily on the ground that the Option Deed encompasses only those defined trademarks listed in the schedule to the Option Deed and does not extend to the later refreshed mark.  PLA is the respondent.

1. For the reasons that follow, I would grant leave to appeal and allow the appeal.[3]  I consider that the judge erred in his construction of the Option Deed.  In my view, the Option Deed does not apply to PINK LADY trademarks beyond those identified in the schedule to the Option Deed.  In particular, the Option Deed does not extend to those which may in the future be developed for use and become registered.

   [3]In what follows I refer to the application for leave to appeal in most instances as simply ‘the appeal’.

1. PLA raises, by means of a Notice of Contention,[4] that the orders of the judge could be affirmed on a different and alternative basis, namely, that the Option Deed had been varied to extend the range of trademarks encompassed by that deed to include any future mandated logo.  The judge considered the issue unnecessary to decide.[5]  I consider that there was no variation of the Option Deed with respect to the range of trademarks within its scope.

   [4]PLA seeks leave for an extension of time to file and serve its Notice of Contention. This was opposed by APAL. This issue is dealt with at [194]–[207] below.

   [5]Reasons [2], [149], [219] (Question B.5). The parties identified the issues before the judge in a ‘Joint Statement of Issues’ which the judge addressed by way of question and answer.

Multiple agreements and a consistent marketing strategy

1. The Cripps Pink apple variety was developed by the Department of Agriculture for the State of Western Australia (‘AGWA’) in the 1970s by crossing Golden Delicious and Lady William apple varieties.  AGWA owned the Cripps Pink plant patent and plant breeder rights certificates in a number of foreign countries.  AGWA also developed the PINK LADY word mark for use with the Cripps Pink cultivar[6] and filed trademark registrations in many countries.[7]  The PINK LADY brand has since been used in relation to other apple varieties derived from the Cripps Pink cultivar, including the Rosy Glow variety.  Chile has significant plantings of Rosy Glow apple trees. 

   [6]A cultivar is a plant variety that has been produced in cultivation by selective breeding.

   [7]Reasons [20].

1. In addition to the PINK LADY word mark, there had been use of a ‘flowing heart’ logo in combination with national symbols such as a kangaroo as part of the PINK LADY brand.  Between about 2005 and the end of 2008 the export trade in apples bearing the PINK LADY brand was conducted by reference to the composite device of the flowing heart with kangaroo.  In particular, the flowing heart and kangaroo composite device was the principal trademark in use for the PINK LADY brand in 2006 and 2007.[8]  PLA conducted its commercial activities in Chile at that time by issuing export licences to Chilean exporters of PINK LADY apples using the composite device of the PINK LADY flowing heart with kangaroo, although this mark was not registered in Chile at that time.  Relevantly, this composite mark is one of the defined trademarks included in the schedule to the Option Deed.  Specifically, as described below,[9] Schedule 1 to the Option Deed lists the following:

[8]Reasons [22].

[9]See [48] below. See also Figure 1 in the appendix to this judgment.

1. Other marks in use were flowing heart composites with the springbok in South Africa and the ring of stars of the European Union in Europe.

1. AGWA assigned all its rights in the PINK LADY trademarks and in all foreign trademark registrations to the Australian Apple and Pear Growers’ Association Inc (‘AAPGA’).  APAL, a not-for-profit company, is the successor in title to AAPGA and is the peak representative body in Australia for commercial apple and pear growers.  

1. AGWA exclusively licensed foreign patent rights to entities in a number of territories, and in particular to Brandt’s Fruit Trees Inc (‘BFT’) in the United States of America and Mexico.  It also exclusively licensed foreign trademark rights to a number of entities, including to BFT in respect of Canada under what is referred to as ‘the Canada Agreement’.  BFT is also the registered proprietor of PINK LADY trademarks in the United States and Mexico.  PLA, a United States company under common ownership with BFT, was granted an exclusive licence by BFT to manage its PINK LADY trademarks in the United States and Mexico.

1. With respect to Chile, AGWA granted an exclusive licence for the patent rights to Viveros Requinoa Ltda (‘VR’), a tree nursery business which had assisted it in Chile over several years in promoting the growing and exporting of Cripps Pink apples under the PINK LADY brand with Chilean exporters and growers.  In 2002 VR obtained registration of two flowing heart device trademarks associated with the PINK LADY brand (‘the VR trademarks’).  These are not the same trademarks as those in dispute.[10] 

   [10]In the witness statement of Patrick Ballew (‘Ballew’) (a United States lawyer who acted for PLA and others) dated 28 July 2015 the marks are described as (a) Plain Heart Logo with the Kangaroo (Registration No 556921 (633594)) dated 29 January 2002 and (b) Plain Heart Logo (Registration No 569279 (648362)) dated 31 May 2002: [10]. Ballew says that although neither of the VR marks contained the words ‘Pink Lady’, the flowing heart logo was clearly derived from or similar to the Pink Lady logo: [11].

1. In 2002 APAL did not have any trademarks registered in Chile;  earlier attempts at registration by AGWA of the PINK LADY trademarks in 1995 to 1998 had been unsuccessful.  APAL’s inability to obtain registration of the PINK LADY trademarks in Chile had been an impediment to its ability effectively to manage the PINK LADY brand in Chile.  APAL regarded the acquisition of PINK LADY trademarks in Chile as a matter of considerable value.[11]  From 2003 APAL and VR were in negotiations for the transfer of the VR trademarks to APAL.  Ultimately, the ownership of the VR trademarks was assigned to APAL[12] on 6 October 2008. In exchange for the assignment of proprietorship, APAL exclusively licensed certain trademark rights to VR in respect of Chile.[13] 

   [11]Reasons [53].

   [12]Reasons [121].

   [13]See [17] and [27] below.

1. In about 1999 the International Pink Lady Alliance (‘IPLA’), a company limited by guarantee which is incorporated in Australia, was established

to provide a forum for key parties with interests in the international ‘PINK LADY’ business, for the exchange of information, to assist in the development of policy surrounding the ‘PINK LADY’ brand (to deal with matters such as royalties, quality standards and branding arrangements) and to provide recommendations to the owners of the intellectual property.[14]

[14]Reasons [17].

1. The members of IPLA were APAL and its master representatives,[15] including BFT and VR, as well as other Pink Lady organisations in other territories from time to time.  BFT was the master representative for North America.  PLA became a member from June 2004.  Jon Durham (‘Durham’), a senior officer of APAL, was the inaugural chairman of IPLA and has been involved in IPLA throughout.  IPLA does not own any intellectual property rights, but the members of IPLA signed an Operating Agreement (‘the IPLA Operating Agreement’) on 28 September 1999 which set out certain obligations on the parties to promote consistency in advertising and marketing strategy for the PINK LADY brand.  The judge described membership of IPLA as carrying with it a ‘requirement’ to use PINK LADY trademarks (including APAL’s) in accordance with the strategy and design resolved upon by the members of IPLA from time to time, and ‘therefore a permission or licence in respect of such use by members of IPLA’.[16]  BFT and PLA resigned from IPLA in June 2010.[17]

   [15]The ‘Master Representatives’ are identified in the IPLA Operating Agreement as being representatives from Australia, North America, Europe, Chile, Argentina, New Zealand, South Africa and Brazil/Uruguay.

   [16]Reasons [21].

   [17]Reasons n 13.

1. Clause 4 of the IPLA Operating Agreement provided for the parties to meet at least once a year,

to establish a consistent advertising and marketing strategy for use of the PINK LADY Trademarks and the methods of selling apples under the PINK LADY Trademarks, and to establish a uniform and consistent design for all packaging used to store, ship, display, and sell PINK LADY brand apples.

1. Clause 4 also imposed requirements to give effect to decisions on strategy and packaging:

The advertising and marketing strategy, and packaging design must be agreed upon by three fourths (75%) of the parties to this Agreement … Once voted upon and approved, the agreed upon strategy and packaging design shall be used by all parties to this Agreement, regardless of whether a particular party has agreed or disagreed with the approved strategy or packaging design.

1. Clause 5 required that members were to confer and reach agreements with each other with respect to the use of a mark in a territory under the control of another member:

Each Master Representative agrees and commits to permit reasonable access to their territory to every other Master Representative for sales of PINK LADY brand apples, which permission shall not be unreasonably withheld. However, in the event that any Master Representative (Selling Party) desires to sell apples under the PINK LADY Trademarks in a territory under the control of another Master Representative (Licensed Party), the Selling Party must confer with and reach an agreement with the Licensed Party as to the terms under which PINK LADY brand apples may be sold in the Licensed Party’s territory.

1. Clause 6 identified when breaches of the IPLA Operating Agreement would occur:

The failure of any Master Representative to adhere to the minimum quality standards established under the procedure set forth in Section 3 above, or the failure to adhere to the advertising and marketing strategy established under the procedure set forth in Section 4 above, or any failure to confer or breach of any agreement reached between parties under the procedure set forth in Section 5, shall be a breach of this Agreement.

1. The objective of consistent branding was promoted through the production by IPLA of a Brand Manual which set out the agreed upon marketing strategy.[18]  The Executive of IPLA determined to develop a brand manual about May 2007[19] and one was produced ‘[w]ithin a short space of time’,[20] perhaps early 2008.  The Brand Manual contained the refreshed mark.[21]  Lynnell Brandt (‘Brandt’) of PLA gave evidence that on 21 September 2008 he was sent by email from APAL a PowerPoint Template depicting the refreshed logo.  A decision was taken to implement the Brand Manual at the meeting of the directors of IPLA in New Zealand in October 2008.[22]

   [18]Reasons [36].

   [19]Ibid [138].

   [20]Ibid [139].

   [21]See [44] below for a depiction of the refreshed mark.

   [22]Reasons [149].

1. In a passage that is challenged on the appeal, the judge emphasised the significance of the desire for a consistent marketing strategy when he said:

Under the IPLA Operating Agreement, the parties were obliged to implement any strategy agreed upon by a 75 per cent majority of members as to the uniform development of trademarks for the sale of apples under the ‘PINK LADY’ brand.  There had been discussion amongst IPLA members that a single refreshed ‘flowing heart’ logo should be developed and utilised globally to enhance its consumer recognition;  discussions which had been continuing from 2007.  Significantly, in the present context, by 9 May 2007, the Executive of the IPLA had determined to develop a Brand Manual that would represent a manual of ‘do’s and don’ts’ of the ‘PINK LADY’ brand.  It is significant in the present context that the logo represented in the heading of the Minutes of this Executive meeting shows a representation of the refreshed ‘flowing heart’ logo.  Consequently, it must be accepted that it was apparent from these circumstances that both APAL and PLA knew that it was the intention of the IPLA that the refreshed ‘flowing heart’ logo would become the mandated logo to be used on all promotion, advertisement and packaging of apples under the ‘PINK LADY’ brand.  It is clear that the IPLA Operating Agreement bound both APAL and PLA to conform to that arrangement.[23] 

[23]Ibid [138] (footnotes omitted). This paragraph is referred to in ground 2 of the grounds of appeal and further proposed ground 7. See [87] and [88] below. In particular, APAL submits that the judge was in error in stating that the logo on the Minutes showed a representation of the refreshed mark. See [166]–[169] below.

1. The judge went on to highlight further the direction in the Brand Manual that all those using the PINK LADY brand were to adopt the refreshed mark:

If there was any doubt that it was APAL’s intention that all those using the ‘PINK LADY’ brand should use the updated ‘flowing heart’ logo, this was dispelled by the Chairman of APAL, Mr Dall, who wrote in the December 2008 ‘PINK LADY’ Association Newsletter that the AGM and Directors Meeting of the IPLA had been held in October 2008 in New Zealand, noting that:

The introduction of the Pink Lady Brand Guidelines manual at the 2008 IPLA AGM, which specifies globally the requirements of the Pink Lady brand and adoption of a new, refreshed Pink Lady logo, means that new packaging and labelling will be introduced in 2009.[24]

[24]Ibid [140] (footnote omitted). This paragraph is referred to in further proposed ground 7(b) of the grounds of appeal. See [88] below. The judge was mistaken in his reference to Mr Dall as ‘the Chairman of APAL’ when he was, in fact, the Chairman of IPLA. PLA accepts that this was a mistake. Nothing material turns on this.

1. APAL also entered into two Trade Mark Master Licence Agreements (‘TMMLAs’): one with PLA on or about 11 December 2006 (‘the PLA TMMLA’) and a later one with VR in May 2008 (‘the VR TMMLA’).[25] 

   [25]The judge does not make any reference to the PLA TMMLA in the Reasons although he discussed in detail the VR TMMLA. (There is a fleeting reference in [41] of the Reasons to the definition of ‘Application’ under the Option Deed and that includes an application ‘approved of by APAL in accordance with clause 12 of the Trade Mark Master Licence’ (that is, cl 12 of the PLA TMMLA: see [50] below.) It may be that the judge’s reference to ‘two previous agreements’ between APAL and PLA encompasses the PLA TMMLA and the IPLA Operating Agreement: Reasons [203]. APAL argues that this is a significant omission because in the PLA TMMLA, PLA recognises the chain of title APAL has to multiple PINK LADY trademarks. See [162] below.

1. The purpose of the PLA TMMLA was to provide PLA with the ability to manage APAL’s PINK LADY ‘Trade Marks’ (identified in Schedule 1 to the PLA TMMLA) in respect of fresh apples of the Cripps Pink variety exported from the United States, Canada and Mexico.  It also included other essentially derived varieties of Cripps Pink as approved by APAL.  This was to address a concern that markets outside the United States, Canada and Mexico were being diluted by unlicensed products being exported from those three countries.  Under the PLA TMMLA ‘Territory’ was defined to mean the United States, Canada and Mexico.  The ‘Trade Marks’ were defined as:

The registered and unregistered Trade Marks owned or filed by APAL, as set out in Schedule 1, but does not include registered and unregistered trade marks in the United States and Mexico held by owners other than APAL.

1. In addition to the PINK LADY word mark either registered, or with registration pending, in more than 60 countries, but not including Chile, Schedule 1 to the PLA TMMLA included the following two ‘flowing heart’ devices:[26]

[26]See appendix, Figure 2.

1. Relevantly, cl 12.1 of the PLA TMMLA imposed an obligation on PLA not to attempt to register or use the trademarks set out in Schedule 1 to that agreement in any country in which APAL owned, registered or filed to register those marks.  The restriction extended to the attempted registration or use of any substantially or deceptively similar marks.  Clause 12.2(a) obliged PLA to notify APAL in writing if it sought to register or use any trademark that was substantially the same as or deceptively similar to the trademarks set out in Schedule 1 to that agreement in countries other than the United States or Mexico or a country where APAL owned, registered or filed the trademarks set out in Schedule 1 to that agreement.  The notification was required so that APAL could inform PLA whether it intended to register or use the mark in the country PLA identified.  Clause 12.2(d) provided that if APAL did not intend to do so, PLA ‘may do so’.

1. Clause 12 provided:

12       Master Licensee’s obligations

12.1     Master Licensee not to register in certain territories

The Master Licensee [PLA] will not attempt to register or use, in any country in which APAL owns, has registered or has filed to register, the Trade Marks as set out in Schedule 1, any trade mark, business name, corporate name or style or get up which is substantially the same as or deceptively similar to, any of the Trade Marks.

12.2     Master Licensee may request to register in certain territories

(a)If the Master Licensee wishes to attempt to register or use any trade mark, business name or corporate name or style or get up which is substantially the same as or deceptively similar to any of the Trade Marks other than in the United States, Mexico or a country in which APAL owns, has registered or has filed the Trade Marks as set out in Schedule 1, it must first notify APAL in writing of such attempt or use.

(b)Within 30 Business Days after receiving written notice from the Master Licensee, APAL may either:

(i)notify the Master Licensee that APAL wishes to use or attempt to register that trade mark, business name or corporate name or style or get up;  or

(ii)notify the Master Licensee that it does not wish to use or attempt to register that trade mark, business name or corporate name or style or get up.

(c)Where APAL notifies the Master Licensee that it wishes to use or attempt to register that trade mark, business name or corporate name or style or get up, APAL will use its best endeavours to do so.

(d)Where APAL notifies the Master Licensee that [it] does not wish to use or attempt to register that trade mark, business name or corporate name or style or get up, the Master Licensee may do so.

(e)If APAL does not notify the Master Licensee in accordance with clause 12.2(b), then the Master Licensee may use or attempt to register that trade mark, business name or corporate name or style or get up.

1. The purpose of the master agreement with the Chilean company VR, the VR TMMLA, was ‘to consolidate ownership of the PINK LADY brand, and related trademarks, to a single entity’[27] in Chile.  As mentioned,[28] in around 2002 VR had registered the VR trademarks in Chile.[29]  An object of the VR TMMLA was to assign the VR trademarks to APAL, while also effecting a grant from APAL to VR of the master exclusive licence in Chile for the VR trademarks, the PINK LADY brand, and ‘all related trademarks’.  Thus, in return for an assignment of certain marks from VR to APAL, APAL gave VR an exclusive licence to use those same marks.

   [27]Reasons [121].

   [28]See [11] above.

   [29]As mentioned, these were two flowing heart device trademarks associated with the PINK LADY brand but they are not those in dispute.

1. VR was also to become APAL’s manager in Chile to ‘provide all professional and technical services required by APAL in [Chile] to administer the Export Licenses that APAL issues to Chilean exporters with respect to the APAL’s Extraterritorial Registered Trade Marks.’  Within its management obligations, VR was to ‘manage the use of the APAL Chilean Trade Marks and the Sub-Licensees’ in Chile.  By contrast with the Option Deed the definition of ‘the APAL Chilean Trade Marks’ included ‘all future APAL trademarks in Chile related to the PINK LADY brand’.

PLA’s application to register PINK LADY trademarks in Chile

1. In about November 2006, before the PLA TMMLA was executed in December 2006, PLA instructed its Chilean trademark attorney, Gabriela Paiva Hantke (‘Paiva’), to file three trademark applications in Chile on its behalf.  The instructions were to file the following trademark applications:

(1)        application No 753414 for the words ‘Pink Lady’ and flowing heart device with kangaroo in class 31; [30]

(2)application No 760964 for the words ‘Chile Pink’ in class 31;  and

(3)application No 770217 for the words ‘Pink Lady’ and flowing heart device with kangaroo in class 16.[31]

[30]In general terms, class 31 consists of ‘agricultural, horticultural and forestry products and grains not included in other classes;  live animals;  fresh fruits and vegetables;  seeds, natural plants and flowers;  foodstuffs for animals;  malt.’:  the International Classification of Goods and Services for the Purposes of the Registration of Marks (‘The Nice Classification’) (established by the Nice Agreement Concerning the International Classification of Goods and Services for the Purposes of the Registration of Marks (1957) (‘the Nice Agreement’).

[31]In general terms, class 16 consists of ‘paper, cardboard and goods made from these materials, not included in other classes;  printed matter;  bookbinding material;  photographs;  stationery;  adhesives for stationery or household purposes;  artists’ materials;  paint brushes;  typewriters and office requisites (except furniture);  instructional and teaching material (except apparatus);  plastic materials for packaging (not included in other classes);  printers’ type; printing blocks.’:  The Nice Classification.

1. On 28 November 2006, application 753414 was filed.  

1. At the time of entry into the PLA TMMLA, PLA did not disclose to APAL that it had already instructed its trademark attorney to file PINK LADY trademarks in Chile nor that it had applied for registration of the composite mark in Chile in class 31, 753414. 

1. On 31 January 2007 and 18 April 2007 respectively, PLA filed applications 760964 and 770217.

1. Later, on 4 January 2008 PLA filed an application for the word mark, PINK LADY, in class 31 (application no:  801979).[32] 

   [32]See Reasons [25] and n 23.  This application was not successful. 

1. As described below,[33] the pending trademarks listed in Schedule 1 to the Option Deed were identified as application nos:  753414;  760964;  and 770217;  that is, the same marks for which PLA sought registration in Chile in November 2006 and in January and April 2007.  

   [33]See [48] below.

1. The evidence before the judge was that PLA applied for PINK LADY trademarks knowing that APAL’s predecessor had been unsuccessful in obtaining registration in Chile in the past.  As mentioned,[34] PLA was the exclusive licensee of PINK LADY trademarks in the United States.

   [34]See [10] above.

1. There was evidence at trial of a telephone conversation between Durham of APAL and Brandt of PLA in early 2007 during which, according to Durham, Brandt ‘raised the possibility that he would apply for Pink Lady trademarks in Chile.  He said that the US/Chile free trade agreement, which had recently been negotiated, made his companies better placed to succeed on an application.’  Having been unaware of PLA’s intentions until this conversation, Durham said to Brandt that ‘APAL’s position was that APAL was entitled to own the trademarks, and that APAL would oppose the application unless it was absolutely confident that APAL would ultimately own the marks.’  Durham’s evidence was that in ‘response to that, Mr Brandt did not indicate any disagreement’.  Brandt’s version of the conversation was that he agreed to work with APAL so long as PLA’s and BFT’s interests in the Chile-North American trade were protected.[35]

   [35]Reasons [52].

1. On 1 March 2007, Durham was copied into an email from a consultant to APAL, Russell Soderlund, to Brandt referring to Brandt’s proposal that BFT or another entity would ‘seek to register’ PINK LADY trademarks in Chile and being supportive of that approach as in effect a ‘joint, measured application’ between APAL and BFT/PLA for Chile but with BFT/PLA ‘being the front party’.  The email went on to offer that, before BFT/PLA made its application for registration in Chile, APAL would facilitate the application by:  (1) securing the assignment of a heart shaped mark that VR had successfully registered in Chile to APAL or BFT/PLA;[36]  (2) authorising BFT/PLA to use APAL’s copyright in the PINK LADY flowing heart device;  and (3) assigning to BFT/PLA the ‘use’ rights accrued by APAL in Chile.  The email read as follows:

   [36]As noted above, the VR trademarks were ultimately assigned to APAL in October 2008. See [12] above.

Lynnell,

Jon and I have talked about your proposal that Brandts (or other entity) seek to register the PL trade mark in Chile.  We are supportive of your approach as we have invested considerably in Chile before with little return to date.

Some of the facts about Chile as we know them are:

·We believe that Juan Concha/Viveros Requinoa has registered a heart shaped logo without the Pink Lady words in Chile.  We would probably need to obtain assignment of this mark to APAL or yourself before we started a new application for the flowing heart device.

APAL owns the copyright subsisting in the Pink Lady flowing heart device.  We would need to authorise you to use that copyright in your application.

·Both Brandts and APAL have been in effect licensing PL apples from Chile (and for some time) by use of our trade mark rights in the destination countries.  In a sense both parties have accrued rights in Pink Lady through ‘use’ via export.  We would need to assign these rights to you for the application.

Given the above we very much support your idea of a joint, measured application in Chile, but with Brandts being the front party.  Also, given the complexity of the approach Jon feels that our Board would require, before we assign any of our rights, a letter from you stating than when a TM is finally granted it would be assigned (at an appropriate time) to APAL.

Again, we very much appreciate your insight and openness on this issue.

Russell

1. It is apparent that as at 1 March 2007 APAL did not know that in November 2006 PLA had given instructions for the filing of PINK LADY applications in Chile, including two applications involving the flowing heart device with kangaroo,[37] or that Paiva had carried out those instructions, with respect to application 753414 in November 2006 and with respect to applications 760964 and 770217 in January and April 2007 respectively.

   [37]See [29] above.

1. Brandt replied by email on 4 March 2007.  He did not express agreement but noted APAL’s request and suggested that a discussion occur.  He referred to a ‘present application that has been made’:  

Hello Russell,

Thanks for the email.  I am not sure that the additional points that you have mentioned will impact the present application that has been made.  I think that we need to allow this application to hopefully work through the system. We can then see what will be the best way to move forward given the political climate as well as the needs of the Pink Lady® business.

I will have the opportunity (hopefully) to see Jon in New Zealand in the next couple of weeks.  Perhaps we can have a few minutes to ourselves to talk through how we might try and satisfy all concerned.  I want to understand his suggestions as to the best way forward.

Thanks again for the help.  I look forward to catching up to Jon.

Yours truly,

Lynnell.

1. In April 2007, a trademark ‘watching’ service retained by APAL alerted APAL that PLA had applied to register PINK LADY trademarks in Chile.

1. In early May 2007, APAL advised PLA that it required an option agreement to be entered into to give APAL the right to call for the assignment of any PINK LADY trademarks PLA registered in Chile. APAL later indicated that failing such an assignment APAL would oppose PLA’s applications.

1. It was against this background that negotiations for the Option Deed commenced in or about May 2007.  The judge observed that in May 2007 APAL advised PLA that although it approved the then draft of the Option Deed, the Option Deed had not yet been finalised and so APAL intended to file opposition proceedings to PLA’s trademark applications in Chile.[38] 

   [38]Reasons [55].

1. During May 2007 APAL commenced opposition proceedings against the registration of applications 753414, 760964 and 770217.

The refreshed mark

1. At the time the Option Deed was executed, by APAL on or about 12 June 2007, and by PLA sometime before 3 July 2007,[39] the judge found that it was known to APAL and PLA, as IPLA members, that a replacement uniform ‘flowing heart’ trademark, without national references such as the kangaroo, would be introduced by IPLA.[40]  This meant that the ‘PINK LADY flowing heart with kangaroo’ composite mark, which was the subject of two of PLA’s pending applications, was to be retired.  Under the IPLA Operating Agreement, both APAL and PLA were obliged to utilise the refreshed logo agreed to by IPLA members.[41]  The ‘refreshed mark’, which was ultimately adopted by the IPLA members in October 2008[42] and introduced as mandatory in 2009[43] (albeit existing stocks of packaging were to be used up) is as follows:[44]

[39]Ibid [56].

[40]Ibid [144].

[41]Ibid [138]. See [14], [15] and [21] above.

[42]See [20] and [21] above.

[43]See [21] above.

[44]See appendix, Figure 3. It appears that it was some time before APAL applied for registration of the refreshed mark in Chile, 7 December 2012, (application No 1037024) which was opposed by PLA on 22 March 2013. See [72] below.

The Option Deed

1. The Option Deed is an agreement between PLA and APAL whereby PLA agreed to grant to APAL an option to acquire ownership of trademarks that might ultimately issue to PLA in Chile.  APAL confirmed that it had licensed and would license to PLA the copyright subsisting in the marks so that PLA could obtain registration of the marks in Chile and for the purposes of PLA exercising its rights as APAL’s exclusive licensee of the marks with respect to all trade between Chile and North America.  In effect, PLA agreed to assign to APAL ownership of the marks that might be issued to it in Chile subject to PLA receiving back an exclusive, perpetual, and royalty-free exclusive licence to use, and to license others to use, those marks in the export of Cripps Pink apples from Chile to North America, including the use of those marks in marketing and promotional material in that trade. 

1. The Option Deed contains the following recitals:

A        APAL is the owner of the copyright subsisting in the Trade Marks.

B PLA has agreed to grant to APAL an option, to be exercised after a limited period of time, to acquire ownership of any Trade Marks that might ultimately issue in the Territory to [PLA],^[[45]] subject [to] the terms, conditions, restrictions, and grant of license rights contained herein.

[45]The Option Deed refers here to ‘APAL’ but, as was conceded at the appeal hearing, this should be ‘PLA’.

CAPAL also wishes to confirm that it has licensed and will license to PLA the copyright subsisting in the Trade Marks for the purposes of:

(a) PLA applying for and obtaining registration of the Trade Marks in the Territory, and exercising ownership and control of any issued registrations for a limited period of time;

(b) PLA exercising its rights as APAL‘s exclusive licensee under Trade Marks with respect to all trade between the Territory and North America, in the event that APAL exercises the Option;  and

(c) to the extent necessary for PLA to fully exercise its rights, and to fulfil its obligations under this Deed.

D PLA wishes to confirm that it will immediately grant an exclusive licence to APAL regarding any rights that PLA has in the Trade Marks in the Territory, which exclusive licence shall cover all trade between the Territory and countries other than the United States, Canada, and Mexico (collectively referred to as North America).

1. Particular terms are defined in cl 1.1:

Products means fresh whole apples of the Cripps Pink variety, processed apples of the Cripps Pink variety in the form of fresh cut apple slices, dried apples, apple sauce, apple cider, and apple juice, and

(a) in respect of PLA, all other related promotional goods for which either PLA or Brandt‘s Fruit Trees currently have PINK LADY trademark registrations for in the United States or Mexico;  or

(b) in respect of APAL, all other goods or services for which APAL currently has PINK LADY trade mark registrations for anywhere in the world;

Territory means Chile;  and

Trade Marks mean the pending trade marks as set out in Schedule 1.

1. The pending trademarks set out in Schedule 1 are:[46]

Schedule 1 — Trade Marks

[46]These are the same marks as depicted in [7] above and described in [29] above.  See also appendix, Figure 1.

1. As noted above,[47] the pending trademarks bear the same application numbers as those for which Paiva had applied, on behalf of PLA, in November 2006, and in January and April 2007. 

   [47]See [29] above.

1. Other definitions in cl 1.1 of relevance are:

APAL Exclusive Trade Mark License means the exclusive licence that PLA grants to APAL regarding any rights that PLA has in the Trade Marks in the Territory, solely with respect to all trade between the Territory and the world, except for trade between the Territory and North America which PLA reserves solely for itself, as is more fully described in clause 5.2.

Application means any application made by PLA for registration of a trade mark in the Territory which is:

(a) substantially identical or deceptively similar to the Trade Marks or otherwise incorporates the words ‘PINK LADY’;

(b) existing at the time an Option Notice is issued in accordance with 3.2; and

(c) approved of by APAL in accordance with clause 12 of the Trade Mark Master Licence;

…

Exercise Date means the date on which APAL exercises the Option in accordance with clause 3;

Exercise Period means

(a)       the period commencing:

(i) 24 months from the date of registration of trade mark application no. 753.414 in the Territory, or

(ii) if trade mark application no 753.414 is not registered, 24 months from the date of registration of trade mark application no. 760.964 in the Territory, or

(iii) if trade mark application nos. 760.965^[[48]] and 753.414 are not registered, 24 months from the date of registration of trade mark application no 770.217 in the Territory;

[48]It would appear that the reference to ‘760.965’ may have been a mistake and reference should be to ‘760.964’.  It is not material. 

and ending 180 days later;  or

(b)       any date that is mutually agreed to by both APAL and PLA;

Option means the right of APAL to have assigned to it from PLA, and the obligation on PLA to assign to APAL, the Trade Marks and any Applications in accordance with clause 2;

Option Notice means a notice substantially in the form of the document annexed as Annexure A to this Deed which has been executed by APAL;

Pier-to-Pier Licensing System means a system of trademark licenses whereby both importing activity and exporting activity with respect to a target consuming country is licenced.  For example, a Pier-to-Pier Licensing System for a trademark used with goods exported from the Territory and imported into North America would require at least the following basic license elements:

1. Import License document in place for each company that is importing the goods bearing the trademark into North America from the Territory.  The Import License would authorize the licensed importer to receive goods bearing the trademark from any licensed exporter in the Territory.

2. Export License document in place for each company that is exporting the good bearing the trademark from the Territory to North America. The Export License would authorize the licensed exporter to ship goods bearing the trademark from the Territory to any licensed importer in North America.

3. Quality Control Agent of the owner/exclusive licensee of the trademark in the importing country, which agent would be physically located and active in the exporting country to administer the Export License documentation.

PLA Exclusive Trade Mark Licence means the exclusive licence that APAL will grant to PLA regarding the Trade Marks and all trade between the Territory and North America in the event that APAL exercises the Option as is more fully described in clause 5.1 … .

1. The grant of the option (in cl 2.1) is tied to APAL’s withdrawal of its opposition proceedings to PLA’s pending trademark applications:

2         Grant of Option and Withdrawal of Opposition Proceedings

2.1      Grant of Option

PLA hereby grants the Option to APAL, subject to the requirement that following the exercise of the Option that APAL continue to use a Pier-to-Pier Licensing System with respect to all trade in Products originating from the Territory as set out in clause 5.2.

2.2      Withdrawal of Opposition

APAL hereby agrees to withdraw all opposition proceedings filed in the Territory with regard to any of the Trade Marks at such a time and in such a manner as will be set forth in written instructions that APAL‘s Chilean counsel will receive from PLA‘s Chilean legal counsel.

1. The manner in which the option is to be exercised is governed by cl 3 which required APAL to serve on PLA an Option Notice:

3         Exercise of Option

3.1      PLA to notify APAL

PLA must notify APAL in writing immediately after any successful grant of registration in the Trade Marks in the Territory.

3.2      Exercise by APAL

APAL may, at any time during the Exercise Period, exercise the Option by serving on PLA an Option Notice.

3.3      Expiry of Option

If the Option is not exercised in accordance with the provisions of this clause 3 during the Exercise Period, and, unless otherwise agreed by the parties in writing, the rights granted to APAL by this Deed in relation to the Option shall immediately cease.

1. APAL in turn grants to PLA a licence to use the copyright subsisting in ‘the Trade Marks’ in Chile:

4         Copyright Licence

4.1       Grant of licence

APAL hereby grants to PLA a royalty free licence to use the copyright subsisting in the Trade Marks to the extent required for PLA to:

(a) apply to register the Trade Marks and Applications as trade marks;  and

(b)       use the Trade Marks and any Applications as trade marks;

in the Territory and as permitted under this Deed.

4.2      Term of licence

The licence granted under clause 4.1 will:

(a) where the Option is exercised by APAL, continue for the term of the PLA Exclusive Licence as specified in clause 5.3;  or

(b) where the Option is not exercised by APAL, continue in perpetuity.

4.3      Acknowledgment

APAL and PLA acknowledge and agree that the copyright rights that are licensed herein are in respect of the copyright in the Territory alone.

1. Clause 5.1 of the Option Deed confers upon PLA, in the event that APAL exercised the option, an exclusive licence to use ‘the Trade Marks’ in the trade between Chile and North America with respect to the defined products (‘the cl 5.1 licence’).  The cl 5.1 licence is to last in perpetuity and to be royalty free, subject to various quality control conditions:

5.1      PLA Exclusive Trade Mark Licence

In further consideration of the granting to APAL of the Option by PLA, and in the event that APAL exercises its Option rights under this Deed, APAL will hereby grant to PLA an exclusive license to use the Trade Marks with respect to all trade in Products between the Territory and North America.  This license will be royalty free, and will last in perpetuity subject only to the quality control provisions contained herein. APAL acknowledges that PLA has the unrestricted right to establish and maintain a Pier-to-Pier Licensing System regarding all trade between the Territory and North America involving the Trade Marks … [49]

[49]For the definition of a ‘Pier-to-Pier Licensing System’ see [50] above. See also Reasons [24].

1. Clause 5.1(g) confers upon APAL a right to terminate the cl 5.1 licence in the event of a breach of the quality control provisions.[50]

   [50]The right to terminate arises if a dispute over the quality control is not resolved through a reasonable and good faith effort within 60 days from the commencement of mediation.

1. PLA also granted APAL an immediate exclusive licence regarding any rights PLA had in ‘the Trade Marks’ in Chile, which would cease if and when APAL exercised the option under the Option Deed, in the following terms:

5.2      APAL Exclusive Trade Mark Licence

PLA hereby grants to APAL an exclusive license regarding any rights that PLA has in the Trade Marks in the Territory with respect to all trade between the Territory and the world, except for trade between the Territory and North America which PLA reserves solely for itself.  This license is royalty free, and will last in perpetuity subject only to the quality control provisions contained herein, or APAL‘s exercise of the Option.  The grant of this license is subject to the requirement that APAL put into place a Pier-to-Pier Licensing system to control the shipment of Products bearing the Trade Mark from the Territory to any countries within the European Union, including the UK, within three (3) years from the date of entry into this Deed, and subject to the requirement that APAL select and actively employ their own quality control agent (which agent may be, at APAL‘s choice, the same one employed by PLA) in the Territory …

1. Clause 6 relates to the assignment of ‘the Trade Marks’ from PLA to APAL in the event that APAL exercised the option.  Clause 6.1 obliges PLA to assign to APAL its rights in ‘the Trade Marks’ within 10 business days of the receipt of the Option Notice:

6.1      Terms and conditions of assignment

PLA must, within 10 Business Days from the receipt of an Option Notice, assign to APAL, free of any encumbrances, the entirety of its right, title and interest in any issued registration in the Territory of the Trade Marks and any Applications.

1. Pursuant to cl 6.2, PLA made no warranties in relation to the pending trademark applications, acknowledging that those applications might not be successful:

6.2      No Warranties by PLA

APAL acknowledges that PLA‘s attempt to register the Trade Marks in the Territory may not be successful, and that there may be information about the Trade Marks in the Territory that is unknown to both PLA and APAL.  Therefore, APAL acknowledges and agrees that PLA makes no warranties or representations of any kind regarding the validity or enforceability of the Trade Marks in the Territory, and no warranties or representations of any kind regarding any third party claim of right to use or own the Trade Marks in the Territory.  PLA does agree that it will not create though its own actions, or the actions of any person under PLA‘s control, any encumbrances in or over the Trade Marks or Applications.  PLA also agrees not to assign or licence any rights in the Trade Marks in the Territory to any party other than APAL.  And, PLA also agrees that it will have the unrestricted right and ability to assign or licence to APAL, on a quit-claim basis, whatever rights PLA may have in the Trade Marks in the Territory, although APAL acknowledges that PLA may in fact have no rights in the Trade Marks in the Territory.

1. The parties acknowledged that they undertook mutual obligations to each other, including not using in Chile a substantially identical or deceptively similar mark to ‘the Trade Marks’ without the written authorisation of APAL, after the date of the assignment:

6.4      Mutual Obligations of Parties

Both APAL and PLA undertake:

…

(b) not to do, or assist any other person to do, any act which would or might:

(i) invalidate or put in dispute PLA‘s or APAL‘s title to the Trade Marks;

(ii)invalidate, or render unenforceable, any registration of the Trade Marks in due course;  or

(iii) support an application to remove the Trade Marks as registered Trade Marks in the Territory;

…

(d) not to use a substantially identical or deceptively similar mark to the Trade Marks in the Territory without the written authorisation of APAL after the date of the assignment;  …

1. Amendment of the Option Deed can only be effected in writing signed by the parties;  cl 12 provides that:  ‘This Deed may only be altered or varied in writing signed by each party’.

1. Clause 14 is an ‘entire deed’ clause acknowledging that the Option Deed ‘contains the entire agreement between the parties about their subject matter and supersedes all previous communications, representations or agreements between the parties on the subject matter’.

1. Steps were taken to vary the Option Deed in late 2007 and early 2008 by means of a Deed of Variation.  Although the Deed of Variation was not executed, the judge held that the parties conducted themselves on the basis that it was binding.[51]  The Deed of Variation related principally to the varieties of apples concerned and the definition of ‘Products’;  it did not relate to the range of trademarks subsumed under the Option Deed.[52]  In particular, the unexecuted Deed of Variation contains the following:

   [51]Reasons [80].

   [52]PLA did not rely upon the Deed of Variation in support of its Notice of Contention.

2.        Amendment

2.1      Amendment

On and from the Amendment Date, the Option Deed is amended as follows:

(a) the following definition is added to clause 1.1 of the Option Deed;

‘Essentially Derived Varieties’ means any apple varieties which are an essentially derived variety of the Cripps Pink apple variety within the meaning of the laws of the relevant territory.

(b) the definition of Products in clause 1.1 of the Option Deed is deleted and replaced with the following definition:

‘Products‘ means fresh whole apples of the Cripps Pink variety or the Rosy Glow variety, processed apples of the Cripps Pink variety or the Rosy Glow variety in the form of fresh cut apple slices, dried apples, apple sauce, apple cider or apple juice, any fresh whole apples or processed apples of varieties that are Essentially Derived Varieties of the Cripps Pink variety as agreed to by the parties in writing from time to time, and:

(i) in respect of PLA, all other related promotional goods for which either PLA or Brandt‘s Fruit Trees currently have PINK LADY trademark registrations for in the United States or Mexico;  or

(ii) in respect of APAL, all other goods or services for which APAL currently has PINK LADY trade mark registrations for anywhere in the world.

2.2      Other terms

In all other respects, the terms and conditions of the Option Deed remain in full force and effect.

1. APAL did not exercise the option by serving an Option Notice.  The judge found, however, that the Option Deed was binding upon the parties and that APAL had exercised the option, although in a different manner to that specified in the Option Deed.[53]  APAL does not challenge that finding.[54]  The judge also made a finding that the Option Deed was varied to extend the definition of ‘Products’ to include Rosy Glow apples.[55]  This finding is also not under challenge.  He found that there was an agreement between the parties that reflected both the Option Deed and the unexecuted Deed of Variation.  He said:

The result of the dealings between the parties has been to produce an agreement in accordance with the provisions of the Option Deed and the Deed of Variation as though the option had been exercised strictly according to its terms.[56]

[53]Reasons [68], [75]. He held that the parties dispensed with the requirement for APAL to serve an Option Notice and instead, by means of an exchange of email correspondence, especially in March 2008, APAL called for the assignment of the trademark applications to it pursuant to the Option Deed, accepted the assignments and effected a sale and purchase for nominal consideration of the trademark that had already by then become registered: Ibid [46]. The question of whether APAL had exercised the option was a major issue before the judge.

[54]A large number of findings made by the judge are not the subject of the appeal. 

[55]Reasons [48], [66], [70], [2], [219] (Question B6).

[56]Reasons [48].

1. The pending applications were successful and the trademarks were registered in Chile.  On 28 May 2008 Durham (APAL) sent a letter of congratulations with respect to the registration of the trademarks to Paiva who had acted for the joint benefit of both APAL and PLA in prosecuting the applications for registration.[57]  The letter said:

Dear Gabriela,

The successful registration of the Pink Lady^TM has been a fantastic achievement by you,  please accept my congratulations on behalf of the APAL Board and all of the international Pink Lady^TM business family.  The absence of intellectual property rights in Chile has been a major issue for the Pink Lady^TM business for many years, your successful registration will certainly play a major role in our collective ability to effectively manage Pink Lady^TM in Chile.

[57]Ibid [63].

1. The commercial utility to PLA of the rights it acquired under the Option Deed, once the assignment of the pending applications took place, was explained by the judge as lying in its capacity to continue to trade as before.  As mentioned,[58] PLA had been using the composite device (PINK LADY flowing heart with kangaroo) in its commercial activities in Chile in 2006 and 2007.  The judge said:

First, PLA was able to issue export licences prior to 2007 for use of the trademarks because no-one held the registration of those marks in Chile.  Upon the trademarks becoming registered and upon APAL becoming the registered owner of those trademarks, without a licence from APAL, PLA would not be able to continue as before.  Secondly, upon APAL becoming the registered owner of those trademarks, PLA’s ability to control the trade in apples from Chile to North America, in which it was vitally interested, would become legally tenuous and, absent the clause 5.1 Licence, its position would be entirely subject to APAL’s ‘grace and favour’.  Thirdly, while it is true that PLA acknowledged in the Option Deed that the applications were speculative, it was busily engaged in the exercise of attempting to obtain the trademarks and spending money on lawyers to do so.[59]

[58]See [7] above.

[59]Reasons [89]. See also [87], [88]. See [12] above.

1. The judge said that it was not entirely clear what ‘speculative’ meant in this context.[60]  APAL had submitted that this was because PLA did not at that time own any PINK LADY marks in any jurisdiction[61] whereas APAL owned PINK LADY trademarks in many jurisdictions, APAL owned the copyright in the device, and APAL maintained that it was entitled to be registered as proprietor in Chile and had filed an opposition to PLA’s applications in Chile.[62]  Moreover, VR already owned relevant trademarks in Chile which may have created an obstacle to the registration of the pending applications on the ground that the pending applications were substantially identical or deceptively similar to the VR trademarks.  As mentioned,[63] the VR trademarks consisted of two flowing heart device trademarks associated with the PINK LADY brand.[64]  At this time APAL was negotiating for the transfer of the VR trademarks to it.[65]

   [60]Reasons [57].

   [61]As mentioned, however, it was the exclusive licensee from BFT of the PINK LADY trademarks in the United States and Mexico. See [10] above.

   [62]See also the Option Deed, cl 6.2 at [58] above.

   [63]See [11] above.

   [64]It seems that Brandt did not regard the registration of the VR heart as an impediment to the PLA applications. See Reasons [89].

   [65]As mentioned at [12] above, the VR trademarks were ultimately transferred to APAL in October 2008.

1. From 2008 to 2011, APAL and PLA issued joint export licences to exporters in Chile pursuant to joint PINK LADY Brand Export Licences.  Those licences were developed as the means by which APAL and PLA conducted their commercial activities with exporters in Chile, replacing the separate licences that they had previously issued.  In effect, APAL and PLA granted joint licences to Chilean exporters to ship apples under the PINK LADY brand to any APAL or PLA export territory.  

1. For example, in the 2010 Joint PINK LADY Brand Export Licence, both APAL and PLA were named collectively as the ‘Licensors’.  Recital A states that ‘APAL is the owner of all rights in the Trade Marks in the APAL Export Territories [including Chile] and has granted a licence to Pink Lady America to use the Trade Marks in the Territory [Chile] to the extent necessary for it to enter this Licence’.  Recital E states that ‘APAL wishes to grant to the Licensee [the exporter] a right to use the Trade Marks in the Territory on Product to be exported from the Territory’.   In similar terms, Recital F states that ‘Pink Lady America wishes to grant to the Licensee [the exporter] a right to use the Trade Marks on Product to be exported to the Pink Lady Export Territories’.  In 2010 ‘the Trade Marks’ were defined as the PINK LADY word mark, the PINK LADY flowing heart logo with kangaroo and a heart logo.

Subsequent conduct — APAL’s application to register the refreshed mark in Chile

1. Subsequent to APAL’s exercise of the option under the Option Deed, the parties fell into dispute, from early 2011.  By that time none of the marks identified in Schedule 1 to the Option Deed was in use in the apple export trade from Chile.  

1. From about April 2011 APAL first asserted that the Option Deed gave PLA no rights in respect of the Rosy Glow variety.[66]  PLA denied this.

   [66]Reasons [33].

1. By the 2012 season, the parties had discontinued issuing joint brand licences.[67] 

   [67]Ibid [82].

1. APAL applied to register in Chile the refreshed mark, the updated flowing heart logo, on or about 7 December 2012. PLA filed an opposition to APAL’s application for registration in March 2013.  PLA asserted to APAL, and to the industry more generally, that it had rescinded APAL’s rights to use PINK LADY trademarks in Chile and reassumed ownership of those marks in Chile.   

1. From about May 2013, APAL denied that PLA’s rights arising under cl 5.1 of the Option Deed extended to Canada.  The excise was effected by APAL’s issue of a standard form export licence for Chile for the 2013 season that excluded Canada from the definition of PLA’s ‘Export Territories’, and included Canada in APAL’s ‘Export Territories’.[68]  PLA denied that APAL had the right to exclude Canada.

   [68]Reasons [34].

1. The PINK LADY Brand Export Licence for the 2013 season named only APAL as ‘the Licensor’.  Recital A stated that ‘APAL is the owner of all rights in the Trade Marks in the Territory [Chile] and APAL Export Territory [including Canada]’.  Recital B stated that ‘APAL has granted a licence to Pink Lady America to use certain trademarks only in relation, and to the extent necessary, to export apples of the Cripps Pink variety from the Territory [Chile] to the Pink Lady America Export Territory’.  Recital B went on to state that ‘The trademarks applicable under this licence [the PLA licence] are set out in Schedule 4’.  Schedule 4 included the composite PINK LADY flowing heart logo with kangaroo and the word marks ‘Chile Pink’ and ‘Pink Lady’.  Recital D stated that ‘APAL wishes to grant to the Licensee [the exporter] a right to use the Trade Marks in the Territory on Product to be exported from the Territory to the APAL Export Territory’.  By contrast with the trademarks licensed to PLA in Schedule 4, the trademarks the subject of the export licence included the ‘refreshed image’, including the refreshed mark alongside the earlier composite mark of the flowing heart with the kangaroo described as ‘Image (as originally filed)’.  These were set out in Schedule 2 to the licence.  The reference to PLA was necessary because Recital E made it plain that the licence did not extend to authorise the export of the Cripps Pink variety in association with the Schedule 2 trademarks from Chile to the PLA Export Territory (defined as the United States or Mexico) and a separate licence from PLA might be required.  

1. PLA contended before the judge that since 2013 PLA and APAL had each acted on the basis that it is the registered owner in Chile of ‘the Trade Marks’ in Schedule 1 to the Option Deed and the refreshed mark.[69] 

   [69]Reasons [37].

The judge’s reasons

1. APAL contended at trial that the Option Deed only has operation in respect of the trademarks issued to PLA (and assigned to APAL) by reason of the then pending applications for registration referred to in Schedule 1 to the Option Deed, namely application nos 770217, 760964, and 753414.  As noted, application no 770217 consisted in the composite ‘PINK LADY and flowing heart with kangaroo’ mark for class 16;  760964 consisted in the ‘Chile Pink’ word mark for class 31;  and 753414 consisted in the ‘PINK LADY and flowing heart with kangaroo’ mark for class 31.[70]  Significantly, both composite marks include the Australian national reference of the kangaroo.  It is also apparent that Schedule 1 does not in its terms include the refreshed mark, the composite ‘PINK LADY and flowing heart logo’ without any national reference.[71]  

   [70]See [29] and [48] above.

   [71]See [44] above. See also appendix, Figure 3.

1. PLA argued that, given the circumstances known to the parties at the time the Option Deed was executed, it is implicit that the marks encompassed by the Option Deed include any future logo to be adopted internationally for the PINK LADY brand.  The judge accepted this approach which he based upon his finding that, at the time of entry into the Option Deed, both PLA and APAL knew that they would be required by IPLA to adopt the refreshed mark.  He then reasoned that the exclusive licence conferred by cl 5.1 of the Option Deed in PLA’s favour would subsist over any refreshed mark whenever introduced.  He said:

… [T]he fact that both PLA and APAL were aware that under the IPLA Operating Agreement they would be obliged to move to a refreshed trademark, if and when introduced, does not mean that the rights under the Option Deed were worthless.  Mr Brandt [PLA] was cross-examined in this respect and his view was to the effect that by reason of the similarity of the refreshed trademark to the registered trademarks, a refreshed trademark would be encompassed by the Option Deed.  In my view, it is clear that knowledge of this surrounding circumstance and the fact that the clause 5.1 Licence was granted in perpetuity compels the conclusion that it was an implied term that the clause 5.1 Licence would subsist over any refreshed trademark, whenever introduced.[72]

[72]Reasons [90] (emphasis added).

1. This reasoning is challenged on the appeal.[73]

   [73]Paragraph [90] is referred to in further proposed ground of appeal 8. Grounds 1 and 2 of the grounds of appeal raise similar issues. See [87]–[88] below.

1. Relevantly, the judge found that upon a proper construction of the Option Deed, the exclusive licence from APAL to PLA to use ‘the Trade Marks’ with respect to all ‘Products’ between the ‘Territory’ and ‘North America’ contained in cl 5.1 is not restricted to the trademarks listed in Schedule 1 to the Option Deed.  He referred to the principles governing the construction and interpretation of commercial contracts identified in Electricity Generation Corporation v Woodside Energy Ltd[74] and Codelfa Construction Pty Ltd v State Rail Authority (NSW),[75] emphasised the objective approach to be adopted, and noted that the scope of the ‘true rule’ described by Mason J in Codelfa (with whom Stephen and Wilson JJ agreed) is currently a matter of some conjecture.  The ‘true rule’ is to the effect that ‘evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning’.[76]  Conjecture as to the status of the ‘true rule’ is a matter PLA relies upon in the appeal.  The judge also referred to the IPLA Operating Agreement, the commercial aspects of the Option Deed, and the context of the dealings between the parties[77] and, by reference to those surrounding circumstances, concluded that unless the cl 5.1 licence in the Option Deed extends to any future refreshed mark, the licence would quickly become worthless.  He said:  

By the time the 2010 Joint Export Licence was agreed between APAL and PLA, it contained on its front cover images of both the old ‘flowing heart’ logo with kangaroo and the refreshed ‘flowing heart’ logo.  It is plain from these matters that IPLA required all parties, including PLA, to move to the use of the refreshed ‘flowing heart’ logo and it did so, with the knowledge of APAL.  By about 2012, almost all exports of Cripps Pink apples to North America under the ‘PINK LADY’ brand were using the refreshed ‘flowing heart’ logo.

For these reasons, I am of the opinion that the parties must have intended that the licence to PLA under clause 5.1 of the Option Deed would include any such logo that became the mandated logo to be used internationally.  Otherwise, the licence to PLA would become worthless within a period that was shortly contemplated to occur.  This conclusion is reinforced by the perpetual nature of the licence under clause 5.1 of the Option Deed within a landscape where the parties knew that the required trademarks may, and indeed shortly would, change.

…

As now appears to be accepted by APAL, the IPLA Operating Agreement imposed obligations on APAL and PLA to implement the Updated Flowing Heart Logo, although it denies that this has either of the effects contended for by PLA.  It follows, in my view, that the obligation on the parties to comply with the Operating Agreement, and their knowledge that the IPLA would move to a refreshed mark are surrounding circumstances to be taken into account in construing the term ‘Trade Marks’ in the Option Deed.  Having regard to these circumstances, and that the grant of the clause 5.1 Licence was in perpetuity, the construction that ‘Trade Marks’ includes any mark the parties were obliged to use as a consequence of a decision taken by the IPLA is overwhelmingly compelling; particularly in the commercial context of the Option Deed and wider commercial considerations as between APAL and PLA.

…

…  APAL’s argument runs that because the parties knew that a refreshed mark would be introduced and did not include language expressly accommodating for that mark means that they did not intend it to be included.  In my view, APAL’s submissions in this respect lead to an absurd result, particularly in the context of the commercial aspects discussed in these reasons.[78]

[74](2014) 251 CLR 640 (‘Woodside’).

[75](1982) 149 CLR 337 (‘Codelfa’).

[76]Ibid 352.

[77]See, for example, Reasons [136], [148]. 

[78]Reasons [141], [142], [144], [146] respectively (footnotes omitted) (emphasis added).

1. This reasoning is also challenged on the appeal.[79]  

   [79]Paragraph [142] is referred to in ground 1 of the grounds of appeal; [144] is referred to in further proposed ground 7 and [146] is referred to in grounds 1 and 7. See [87]–[88] below.

1. The judge noted that an alternative view contended for by PLA was that the Option Deed was varied so as to include the refreshed mark once the decision to implement the Brand Manual was taken in October 2008.  He considered that, in light of his earlier conclusions, it was unnecessary to address the issue.[80]  This issue forms the basis of the Notice of Contention.[81]

   [80]Reasons [149].

   [81]See [190] below.

1. PLA also alleged before the judge that the following conduct by APAL was in breach of the Option Deed, and repudiatory:

(1)        APAL applied to register the refreshed mark, the updated flowing heart logo, in Chile;

(2)        APAL purported to limit the geographical reach of the cl 5.1 licence to the United States and Mexico, and to exclude Canada;  and

(3)        APAL asserted that the cl 5.1 licence applies to the Cripps Pink variety of apples only, and not to the Rosy Glow variety of apples.[82]

[82]Reasons [181]. See [70]–[73] above.

1. APAL does not deny engaging in any of the above conduct; rather it denies that the conduct is in breach of the Option Deed, and denies that it was repudiatory.  In particular, it denies that there is a breach because the cl 5.1 licence does not extend to the refreshed mark.  As noted, APAL no longer contends that the cl 5.1 licence (as varied) does not extend to the Rosy Glow variety.[83]  The judge held that APAL’s conduct was in breach of the Option Deed, and was repudiatory.[84]  This finding is under challenge on the appeal.[85]  The judge held that APAL’s repudiation entitled PLA to accept the repudiation and terminate the Option Deed and the cl 5.1 licence.  He also found that APAL is obliged to re-assign the registration of the PINK LADY trademarks in Chile to PLA (including the refreshed mark) and to desist from purporting to exercise the rights of the registered proprietor over those marks.[86]  This includes desisting from ‘opposing any applications by PLA to register any further “PINK LADY” brand trademarks’.[87]

   [83]See [63] above.

   [84]Reasons [182], [188].

   [85]Ground 5. See [87] below.

   [86]Reasons [2], [189]–[192], [219], Question D2(b).

   [87]Ibid [192].

1. In turn, APAL alleged before the judge that the following conduct of PLA had breached cls 6.1 and 6.4 of the Option Deed and was repudiatory:

(1)        in March 2013, PLA filed an opposition to APAL’s application to register a PINK LADY trademark in Chile;

(2)        in September 2013, PLA filed applications to register PINK LADY trademarks in Chile, which are the same or substantially identical to APAL’s registered trademarks;

(3)        since August 2013, PLA has asserted to APAL and the relevant industry that PLA has ‘revoked’ APAL’s rights to use the PINK LADY trademarks in Chile; ‘taken back’ from APAL the ownership, management and control of the PINK LADY brand in Chile and that PLA is entitled to be registered as proprietor and to use such trademarks with respect to all trade in apples of Cripps Pink and other varieties;  and

(4)        PLA has moved to implement a ‘Royalty Simplification Plan’ for Chile, in purported exercise of its rights to own, manage and control the PINK LADY brand in Chile.[88]  As part of this plan it wrote, by letter dated 1 April 2014, to all marketers and exporters in the apple industry in Chile saying:

Few people know that Pink Lady America was the original owner of the first successful Pink Lady® trademark registration in Chile.  Since 2007, Pink Lady America had an agreement with APAL allowing APAL to administer the Pink Lady® Brand in Chile, subject to certain requirements.  APAL did not honour that agreement, and so starting in 2014 Pink Lady America has taken back control of the Pink Lady® Brand in Chile.[89]

[88]Reasons [175]. See also Reasons [173], and [175]–[177]. These paragraphs are referred to in ground 4 of the grounds of appeal. See [87] below.

[89]Reasons [176].

1. PLA does not deny engaging in the relevant conduct in respect of each of the alleged breaches;  rather, it denies that the conduct constituted breaches on a proper construction of the terms of the Option Deed, or, alternatively because of the existence of an implied term.  The judge held that because, as he had found, APAL’s conduct was in breach of the Option Deed, APAL’s allegation that PLA had breached the Option Deed could not be made out.[90]  This finding is also under challenge on the appeal.[91]

   [90]Reasons [178].

   [91]Ground 4. See [87] below.

1. Relevantly, the judge also found:

(a)        There is an implied term of the Option Deed that should APAL, in breach of the Option Deed, deny to PLA the full benefit of the cl 5.1 licence, APAL is obliged to re-assign to PLA the ownership of the trademarks the subject of the Option Deed;[92]

(b)       PLA was not in breach of cl 6.4(b) or cl 6.4(d) of the Option Deed, which, respectively, as mentioned above,[93] impose mutual obligations on the parties not to do, or assist another person to do, any act which invalidates or puts into dispute either party’s title to the trademarks, or renders the registration invalid or unenforceable, or to support an application to remove the trademarks as registered in Chile;  and not to use a substantially identical or deceptively similar mark to the trademarks in Chile without the written authorisation of APAL.[94]  There was no breach because upon APAL’s breach of the cl 5.1 licence, PLA became entitled to a re-assignment of the trademarks and could exercise the rights of the owner.[95]  

(c)        If APAL is entitled to retain registration, then the cl 5.1 licence in favour of PLA continues in full force and effect.[96]  The judge arrived at this conclusion because he considered that the cl 5.1 licence, being intended to ‘last in perpetuity’, ‘could not be brought to an end’[97] except in the event of a failure to comply with the quality control provisions contained within the Option Deed, in accordance with cl 5.1(g).[98]

[92]Reasons [179], [211]–[213].

[93]See [59] above.

[94]Reasons [172]–[180].

[95]Ibid [179].

[96]Ibid [214]–[218].

[97]Ibid [218].

[98]See [55] above.

Grounds of appeal

1. APAL seeks to rely on the following grounds of appeal:

1.The learned judge erred in construing the Option Deed, and the Option Deed as found to have been varied in accordance with the unexecuted Variation Deed (which are together in these grounds for convenience called ‘the Option Deed’), as having application beyond the marks depicted and defined by reference to the trade mark applications in Schedule 1 to the Option Deed and to include, inter alia ‘any such logo that became the mandated logo [among IPLA members] to be used internationally’ (at [142] of the reasons below), in circumstances where:

(a)       the language of the Option Deed was clear;

(b) no ambiguity or contextual uncertainty was identified or contended for;

(c) the ordinary meaning of the Option Deed did not produce ‘an absurd result’ (contrary to the holding at [146] of the reasons below).

2.In holding that the ordinary meaning of the Option Deed would lead to an absurd result, the learned judge paid no regard to the circumstances that:

(a) by an agreement between the parties entered into in December 2006, the Applicant (APAL) and the Respondent (PLA) had formally agreed that prior to applying for a Pink Lady mark in a country such as Chile, PLA would give prior notice to APAL and allow APAL to make the application itself;

and paid no adequate regard to the circumstances that:

(a)PLA's trademark applications in Chile were speculative in nature;

(b) prior to entering into the Option Deed PLA had known that the parties to the IPLA Operating Agreement were contemplating adopting a refreshed flowing heart logo exclusively for all international trade in Pink Lady branded apples concerning their respective territories as was found at [138];

(c)       the parties had legal representation throughout;

(d) the reason advanced by PLA as the sole reason for applying for the trademarks identified in Schedule 1 was not to acquire the trade marks for itself, but to prevent a third party doing so, for the benefit of IPLA members;

(e) PLA was an IPLA member, and had not needed to hold the trademarks identified in Schedule 1 in order to license the export of apples from Chile by reference to the Pink Lady marks used from time to time, either before or after entering into the Option Deed;

(f) PLA had not contended at any time that it was mistaken as to the marks to which the Option Deed was to apply;

(g) PLA had not contended at any time that the Option Deed did not express the true agreement of the parties;  and

(h) on its express terms, the Option Deed secured for PLA a continuing right to use the specified trademarks with respect to trade in apples from Chile to North America to the exclusion of all others, and an acknowledgment by APAL as to PLA's right to establish and maintain a Pier-To-Pier Licensing System for such trade involving the specified trademarks, notwithstanding the terms of the parties’ December 2006 agreement.

3.The learned judge further erred in holding that the Option Deed was to be construed, or alternatively contained an implied term, such that if PLA were denied the full benefit of the clause 5.1 licence by APAL, APAL would be obliged to assign to PLA any trade marks that had issued on the applications identified in Schedule 1, for the reasons that:

(a)the Option Deed was wholly in writing and contained no express term to the said effect;

(b) it was not contended that remedies by way of specific performance, an injunction and damages did not afford PLA appropriate redress;

(c) the construction and implication constrained the manner in which APAL as a trade mark owner could deal with its marks, consistently with the maintenance of the licence in favour of PLA, without benefit to PLA;  and

(d) the construction and implication were not necessary, reasonable, or obvious, and contradicted the premise of the Option Deed that APAL would hold title as licensor.

4.Accordingly, the learned judge further erred, having regard to the matters referred to at [173] and [175] to [177] of the reasons below and paragraphs 11-12, 15, 18 and 20 of PLA’s defence at trial, in not holding that PLA had repudiated the Option Deed in any event, and that APAL had accepted that repudiation.

5.The learned judge further erred in holding that APAL breached the Option Deed and repudiated it, and that the alleged breach is continuing and remains capable of acceptance by PLA.

Alternatively, it might be said, as PLA contends, that in compliance with their obligations under the IPLA Operating Agreement, the clause 5.1 Licence would necessarily be varied upon that happening.  It is not, however, for the reasons previously indicated, necessary to rely on the latter proposition, though this would, in my view, follow from the provisions of the IPLA Operating Agreement in the context of the express or implied agreements between APAL and PLA as found in the Option Deed.  As contended by PLA, the obligation on the parties to the IPLA Operating Agreement required the refreshed trademark to be made available by APAL to PLA.  The terms upon which that was to be done are not, however, contained within the IPLA Operating Agreement.  The Option Deed provided PLA with the clause 5.1 Licence, royalty free, in perpetuity and subject to a very limited right of termination to APAL.  The right of PLA to compel APAL to make the refreshed trademark available under the IPLA Operating Agreement is a much more limited right and, it follows, a right which must be inherent in PLA‘s rights with respect to the grant provided by the 5.1 Licence for that licence to have effect according to its terms, its very broad grant.[302]

[301]See [191]–[192] above.

[302]Reasons [90].

1. In support of its Notice of Contention, PLA seeks to expand upon the steps in the judge’s reasoning on the issue of variation.  Given the judge’s finding that the IPLA Operating Agreement bound both APAL and PLA, PLA emphasises that both parties were obliged to utilise the refreshed mark agreed to by the IPLA members.  It relies on the minutes of the meeting on 9 May 2007 of the IPLA Executive, which record the reference by APAL’s managing director to the ‘do’s and don’ts’ for the PINK LADY brand to be set out in the Brand Manual.[303]  The Brand Manual in turn prescribed the use of the refreshed mark.  The flowing heart with kangaroo logo was not a mandated mark.  The Brand Manual directed the use of the specifications and approved artwork files contained in the accompanying resources disc to ‘ensure there is no future misapplication of old or incorrect logos’.

   [303]See [20] above. See also Reasons [138].

1. PLA submits that the terms of the Brand Manual made clear the mandatory nature of the move to the refreshed logo.  For example, the introduction to the Brand Manual states:

These guidelines are intended to be used by the Pink Lady^® business as a whole, and by advertising agencies, designers, printers, consultants and manufacturers.

The system is designed to be prescriptive, directive and informative on the application of the Pink Lady^® Brand.  It is created as a powerful set of resource tools to facilitate the execution in creating Pink Lady^® as a truly great brand.

To achieve this, consistent and reliable depiction of key brand elements is essential.

The Pink Lady^® business has a continuing investment and commitment in creating a distinctive, highly visible brand that is consistent with the brand’s ‘fresh thinking’ uncomplicated approach to life.

As members of the Global Pink Lady^® team, it is vital that the Brand Guidelines are followed in all development and promotion of the Pink Lady^® Brand.

1. The Brand Manual also emphasises the need to control brand equity throughout the world:

Controlling Brand Equity

The Pink Lady^® Brand is an enormously valuable property.  To maintain control around the world, global operations are directed by … APAL in consultation with … the IPLA.  APAL takes responsibility to guide and uphold standards, set the Brand direction and facilitate effective cross-usage of the best ideas from throughout the IPLA members.  APAL and IPLA work side-by-side with Licensees and Distributors around the world to protect and enhance the Brand’s image in order to build global apple consumption appeal and increase the international sales of Pink Lady^® apples.

1. PLA also points to the importance that the Brand Manual places on the need for compliance with the guidelines it issues in order to protect the integrity and durability of the PINK LADY brand:

The logo, devices and typefaces are the foremost visual expression of the Pink Lady^® Brand and form the basis of the Brand’s identity.

…

When used, these guidelines provide specifications for the use of the Pink Lady^® logo and assist the users of the logo, devices and typefaces to comply with internal and external legislative requirements.  These guidelines also protect the integrity and durability of the Pink Lady^® trademarks and when applied, ensure familiarity and relevance among the target market worldwide.

These guidelines must be observed when creating all marketing material including print, web, electronic or other special promotional accessories.  The success of the brand application requires utmost commitment from the Pink Lady^® Team.

1. The Brand Manual highlighted the advantages of consistency in packaging:

The success of the Pink Lady^® business around the world is in a large part due to consistency in brand representation.  Familiarity of the key brand elements denoted through our packaging ensures its equity, growth and relevance to our consumer market.

Uniformity in product delivery and brand portrayal becomes critical in development of a universal global entity.

The graphics on Pink Lady^® packaging are usually the first experience the consumer has with the Brand.  Therefore consistency is of paramount importance to build familiarity and confidence.

1. PLA also points to the placement of the refreshed mark on the front cover of the 2010 Joint Export Licence granted by APAL and PLA to approved Chilean exporters.  It also relies on the finding by the judge that by 2012 the refreshed mark was being used on almost all Cripps Pink apples being exported to North America under the PINK LADY brand.[304]  PLA notes that the first time that APAL sought to restrict PLA’s use of the refreshed mark was after the parties had fallen into dispute and APAL’s solicitor sent a letter dated 9 February 2012 asserting that PLA had no rights to use that mark.

   [304]Reasons [141]. See [79] above.

1. PLA argues that this post-contractual conduct is admissible to establish that the parties agreed to vary the terms of the Option Deed.  It submits that the conduct shows that APAL required and encouraged PLA to use the refreshed mark, and that APAL was aware of PLA’s use of that mark.  PLA submits that this Court should accept that about the time the Brand Manual was issued in 2008, and certainly by the time of the 2010 Joint Export Licence, the cl 5.1 licence had been varied to include the refreshed mark.

1. In resisting the Notice of Contention, APAL submits that PLA’s case for variation of cl 5.1 of the Option Deed is without merit principally on the basis that, while it is necessary to look at the whole relationship and not only the time when the contract was formed, it is still necessary to find conduct of a promissory character to establish variation.[305]  APAL submits that there was no conduct by APAL and PLA of a promissory character that demonstrated actual agreement by the parties to alter the scope of the cl 5.1 licence to include the refreshed mark.  PLA has not sought to rely on any communication with APAL constituting or evidencing the alleged variation.  Significantly, APAL emphasises that the one attempt formally to vary the Option Deed — the draft Deed of Variation prepared in March 2008 and never executed — made no mention of including the refreshed mark within the cl 5.1 licence, notwithstanding that at about that time the Brand Manual was published.[306]  By the time the draft Deed of Variation was being prepared, work was underway for the development of the refreshed mark of which PLA must have known, through Brandt, yet there was no mention in it of the refreshed mark.

   [305]See JJ Savage & Sons Pty Ltd v Blakney (1970) 119 CLR 435, 442; Hospital Products Ltd v US Surgical Corporation (1984) 156 CLR 41, 90, 116.

   [306]See [19] above. See also [44].

1. I agree that this is a significant omission.  If there was to be a variation of the Option Deed, most particularly one that would have the effect, in substance, of extending Schedule 1, one would have expected the draft Deed of Variation to make mention of the refreshed mark or, indeed, for there to have been evidence of negotiations leading up to the draft Deed of Variation, or other dealings, as having included discussions about the refreshed mark.

1. It is open to a court to infer the existence of a contract — or in this instance, a variation to a contract — from the parties’ conduct on the basis of the objectively ascertained manifestation of mutual assent.[307]  But, as has been observed, such cases are rare and it will only be ‘in a very clear case that a promise will be implied from facts which do not involve written or oral communication from which a promise appears.’[308]  Although, as noted above,[309] McHugh J’s observed in ICS that in the ‘unrefined’ commercial context the benchmarks of the classical theory of offer, acceptance, consideration and intention to create legal relations may not readily apply, and instead courts may infer a contract from conduct, he still insisted that it is necessary to draw from those circumstances ‘a tacit understanding or agreement’ and that the parties’ conduct ‘must be capable of proving all the essential elements of an express contract’.[310] Moreover, it is ‘not enough that the conduct is consistent with what are alleged to be the terms of a binding agreement.  The evidence must positively indicate that both parties considered themselves bound by that agreement.’[311]  There was here no dealing identified by PLA which could properly form the basis of an agreed variation.

   [307]ICS (1988) 5 BPR 11,110, 11,117 (McHugh J); Vroon BV v Foster’s Brewing Group Ltd [1994] 2 VR 32, 81 (Ormiston J); PRA Electrical Pty Ltd v Perseverance Exploration Pty Ltd (2007) 20 VR 487, 489 [3], [6]; P’Auer AG v Polybuild Technologies International Pty Ltd [2015] VSCA 42 [10]‑[11].

   [308]Pacific Brands Sport & Leisure Pty Ltd v Underworks Pty Ltd (2005) Aust Contract R 90–213 [45] (Finkelstein J).

   [309]See [210] above.

   [310]ICS (1988) 5 BPR 11,110, 11,117.

   [311]Adnunat Pty Ltd v ITW Construction Systems Australia Pty Ltd [2009] FCA 499 [39] (Sundberg J) (emphasis in original).

1. Furthermore, the reliance placed by PLA on the IPLA Operating Agreement is, in my opinion, misguided.  The IPLA Operating Agreement is a multi-lateral agreement which binds all members of IPLA to give effect to 75 per cent majority decisions about marketing and advertising strategies.  It can be accepted that the IPLA Operating Agreement required both PLA and APAL to use the refreshed mark, once this was mandated, and the Brand Manual made this plain.  It can be accepted that it was in discharge of this obligation that the refreshed mark was used on the cover of the Joint Export Licence granted by PLA and APAL to approved Chilean exporters in 2010.  In particular, once the IPLA members agreed to the future use of the refreshed marks, APAL was obliged as an IPLA member to permit other members to use the refreshed logos in the export trade, including in Chile.  Both PLA and APAL, as IPLA members at the time, were simply giving effect to their obligations under the IPLA Operating Agreement.

1. But this does not mean that the rights and obligations of the IPLA Operating Agreement were to be converted into rights and obligations of the agreement under the Option Deed.  Not only is the IPLA Operating Agreement a multi-party agreement and the Option Deed bilateral, but the scope of the rights and obligations are quite distinct.  Under the IPLA Operating Agreement the rights and duties adhere to membership of IPLA.  When a member leaves IPLA, as PLA did in June 2010, the rights and obligations of membership cease.  By contrast, the rights which are the subject of the Option Deed are granted, as emphasised by PLA, and upon which the judge relied, in perpetuity.  By converting the rights under the IPLA agreement into rights governed by the Option Deed, as PLA urges, and as the judge accepted,[312] rights that are dependent upon membership are transformed into rights which are never-ending, rights which, as noted above, are incapable of being brought to an end or operating without limit of time.  The rights become independent of membership of IPLA.  In my opinion, it is not credible that such a radical alteration to the scope of the rights could arise without there being a proper foundation in the parties’ conduct to indicate that, objectively construed, the parties must have intended to vary the Operating Deed in the manner alleged.   

   [312]See [211] above.

1. The point can be made another way.  The judge emphasised that although the IPLA Operating Agreement obliges APAL to make available the refreshed mark to PLA, there is no mechanism under the IPLA Operating Agreement to give effect to that and no specification of the terms under which that was to be done.[313]  As extracted above, cl 5 of the IPLA Operating Agreement obliges members of IPLA to confer and agree upon terms when one member seeks to use a PINK LADY mark in the territory of another member.[314]  In the absence of any other relevant bilateral agreement between APAL and PLA it was perhaps natural that the judge focused upon the Option Deed as providing the necessary terms.  However, there is nothing in the terms of the IPLA Operating Agreement that obliges each master representative to grant a perpetual licence to the other members, through a bilateral agreement, to the use of a mandated mark even when they cease to be IPLA members.  Indeed, the imposition of such an obligation would appear to undermine one of the very purposes of membership of IPLA, which is, in accordance with cl 4, to bind the members to an ‘agreed upon strategy and packaging design … regardless of whether a particular party [to the IPLA Operating Agreement] has agreed or disagreed with the approved strategy or packaging design’.[315]  Once membership ceases, the ability of IPLA to impose, or enforce, its strategy or packaging design will cease.  A new strategy may be adopted in the future, together with new marks, and IPLA would have no capacity to demand that PLA, having left IPLA, adopt the new strategy.  In other words, the Option Deed does not include an obligation that reflects cl 4 of the IPLA Operating Agreement.  In my view, one ought not construe the IPLA Operating Agreement as imposing a requirement on its members to enter into bilateral agreements that confer rights to use a mandated mark in perpetuity in circumstances in which the bilateral agreement (here, the Option Deed) imposes none of the obligations of maintaining a consistent marketing strategy when consistency is a primary objective of the IPLA Operating Agreement.

   [313]Ibid.

   [314]See [17] above.

   [315]See [16] above.

1. I do not accept that the IPLA Operating Agreement provides the necessary basis for concluding that from 2008 the Option Deed was varied to include a perpetual right to use the refreshed mark, or any other mark later adopted internationally for the PINK LADY brand.  In my view, this would have the absurd consequence of treating PLA as retaining the benefits of membership of IPLA indefinitely despite its election in June 2010 to discontinue that membership.  There is nothing in the dealings between the parties from which one could infer that such an absurd consequence was intended.

1. It is a matter for speculation whether, had PLA continued its membership of IPLA, APAL would have entered into a further agreement with PLA which subsumed the refreshed mark, or extended the marks subsumed under the PLA TMMLA to include the refreshed mark and extended the operation of the PLA TMMLA to include Chile, perhaps in order to discharge its obligations under cl 5 of the IPLA Operating Agreement[316] concurrently with the permission to use the refreshed mark conferred by IPLA.  In any event, in my view, the Option Deed, as executed, does not extend to the refreshed mark (nor any other trademark later adopted internationally for the PINK LADY brand) and nor was it varied to incorporate this extension.

   [316]See [17] above.

Conclusion on the Notice of Contention

1. For the reasons above, I reject the basis of the Notice of Contention.  PLA’s claim under the Notice of Contention fails.  The appeal should be allowed.

APPENDIX

Figure 1: Trademarks listed in Schedule 1 to the Option Deed      

Figure 2:Trademarks listed in Schedule 1 to the PLA TMMLA       

Figure 3:Refreshed mark       

Figure 4:Logo appearing at the head of the Minutes of the Executive Meeting (IPLA) held on 9 May 2007       

ferguson ja

McLEISH JA:

1. We agree with Tate JA that this appeal should be allowed, for the reasons she has given, subject to what follows. 

1. It is not in doubt that when seeking to ascertain the meaning of contractual language resort to the context, at some level, in which that language is used will be necessary and desirable.  As is well-known, the High Court said as much in Electricity Generation Corporation v Woodside Energy Ltd:

The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean.  That approach is not unfamiliar.  As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract.  Appreciation of the commercial purpose or objects is facilitated by an understanding ‘of the genesis of the transaction, the background, the context [and] the market in which the parties are operating’.  As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption ‘that the parties … intended to produce a commercial result’.  A commercial contract is to be construed so as to avoid it ‘making a commercial nonsense or working commercial inconvenience’.[317]

[317](2014) 251 CLR 640, 656–7 [35] (French CJ, Hayne, Crennan and Kiefel JJ) (citations omitted). See also Grocon Constructions (Victoria) Pty Ltd v APN DF2 Project 2 Pty Ltd [2015] VSCA 190 [81] (Santamaria, Kyrou and McLeish JJA); Eureka Operations Pty Ltd v Viva Energy Australia Ltd [2016] VSCA 95 [43] (Santamaria, Ferguson and McLeish JJA) (‘Eureka’).

1. It is apparent from the High Court’s decision in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd,[318] if it was not already, that the circumstances which the contract addresses and the commercial purpose or objects to be secured by it are ordinarily able to be identified by reference to the contract alone.  French CJ, Nettle and Gordon JJ explained:

   [318](2015) 256 CLR 104 (‘Mount Bruce Mining’).

The rights and liabilities of parties under a provision of a contract are determined objectively, by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose.

In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean.  That inquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract.

Ordinarily, this process of construction is possible by reference to the contract alone.  Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning.[319]

[319]Ibid 116 [46]–[48]; see also at 132 [109] (Kiefel and Keane JJ), 134 [120] (Bell and Gageler JJ). See also Eureka [2016] VSCA 95 [45]–[47] (Santamaria, Ferguson and McLeish JJA).

1. Consistently with the foregoing, at least where the contractual language is ambiguous or susceptible of more than one meaning, evidence of events, circumstances and things external to the contract is permissible.[320]  The requirement of ambiguity was stated by Mason J in Codelfa Construction Pty Ltd v State Rail Authority (NSW),[321] and this Court is bound to apply that decision unless and until the High Court says otherwise.  As Tate JA has explained, that is this Court’s primary obligation, and it is not bound to adopt the interpretations of the High Court’s reasons propounded by other intermediate appellate judges or courts in preference to its own interpretation of those reasons.[322]

   [320]Mount Bruce Mining (2015) 256 CLR 104, 117 [50] (French CJ, Nettle and Gordon JJ).

   [321](1982) 149 CLR 337, 352.

   [322]See [139] above;  Hasler v Singtel Optus Pty Ltd (2014) 87 NSWLR 609, 631–2 [97]–[101] (Leeming JA); DPP (Cth) v Thomas [2016] VSCA 237 [132]–[133] (Redlich, Santamaria and McLeish JJA).

1. In our opinion, it is not necessary in this appeal to address the controversy that exists as to whether or not evidence of matters external to the contract may be called in aid to establish the ambiguity to which Mason J referred.[323]  That is because, as Tate JA has explained, the external material relied upon by the respondent does not give rise, in any event, to any relevant ambiguity.  It does not suggest a construction contrary to the plain meaning of the Option Deed as ascertained without reference to that material.  Nor does it suggest any commercial nonsense or inconvenience so as to cast doubt on that plain meaning.  When considerations external to a contract leave the meaning of the contract unaffected, construction is at an end.  If those considerations are to have any legal significance, it may be in the context of equitable remedies such as rectification.  No such remedies are in issue in this proceeding.

   [323]See especially Mainteck Services Pty Ltd v Stein Heurtey SA (2014) 89 NSWLR 633, 652–6 [69]‑[86] (Leeming JA); Thomas Prince, ‘Defending Orthodoxy: Codelfa and Ambiguity’ (2015) 89 Australian Law Journal 491;  Daniel Reynolds, ‘Construction of Contracts after Mount Bruce Mining v Wright Prospecting’ (2016) 90 Australian Law Journal 190.

1. We agree with the orders proposed by Tate JA.

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