Pacific Brands Sport & Leisure Pty Ltd v Underworks Pty Ltd
[2006] FCAFC 40
•23 March 2006
FEDERAL COURT OF AUSTRALIA
Pacific Brands Sport & Leisure Pty Ltd v Underworks Pty Ltd [2006] FCAFC 40
APPEAL – exclusive sub-licence of trade mark – sub-licensor sold business to trade competitor of sub-licensee – sale included assignment of the benefit of the sub-licence – no novation of sub-licence – validity of assignment of the sub-licence – sub-licensee in breach of sub-licence – whether assignee obtained the contractual right to terminate for breach
CONTRACT – assignment of contractual rights – whether all contractual rights, powers and privileges of assignee are proprietary in character and are prima facie assignable – extent to which individual rights, powers and privileges separately assignable
CONTRACT – assignment of contractual rights – whether sub-licensor’s identity was material to the contract or its performance – construction of the sub-licence – assignment precluded without the consent of the sub-licensee
CONTRACT – assignment of contractual right – whether contractual power to terminate for breach severable and capable of independent assignment – whether an integral part of the sub-licensor’s bundle of rights
CONTRACT – breach of sub-licence – whether purported termination for breach effective – whether sub-licensee’s conduct repudiatory – waiver or estoppel
TRADE MARKS – assignment of benefit of exclusive sub-licence – whether effective – construction of the sub-licence – whether it precluded assignment without sub-licensee’s consent
Conveyancing Act 1919 (NSW) s 12
Property Law Act 1958 (Vic) s 134
Trade Marks Act 1995 (Cth) s 8, s 92(4)(b)
36 and 37 Vic c.66 (‘the Judicature Acts’) s 25(6)Anning v Anning (1907) 4 CLR 1049 cited
Norman v Federal Commissioner of Taxation (1963) 109 CLR 9 cited
Loxton v Moir (1914) 18 CLR 360 cited
Don King Productions Inc v Warren [2000] Ch 291 cited
Federal Commissioner of Taxation v Everett (1980) 143 CLR 440 cited
Devefi Pty Ltd v Mateffy Perl Nagy Pty Ltd (1993) 113 ALR 225 cited
Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85 cited
Peters v General Accident Fire & Life Assurance Corporation Ltd [1938] 2 All ER 267 cited
Moore v Collins [1937] SASR 195 cited
Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd (1992) 57 BLR 57 cited
Tolhurst v Associated Portland Cement Manufacturers (1900) Ltd [1902] 2 KB 660 cited
Jack v Smail (1905) 2 CLR 684 cited
Harry v Fidelity Nominees Pty Ltd (1985) 41 SASR 458 cited
Olsson v Dyson (1969) 120 CLR 365 cited
Vickery v Woods (1952) 85 CLR 336 cited
Fightvision Pty Ltd v Onisforou (1999) 47 NSWLR 473 cited
Bruce v Tyley (1916) 21 CLR 277 cited
British Wagon Co v Lea & Co (1880) 5 QBD 149 cited
Davies v Collins [1945] 1 All ER 247 cited
Shepherd v Federal Commissioner of Taxation (1965) 113 CLR 385 cited
Yanner v Eaton (1999) 201 CLR 351 cited
Inglis v The Trustees of The Sailors’ Snug Harbour in the City of New York 28 US 99 referred to
Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 considered
Re Davies & Co; Exp Rawlings (1888) 22 QBD 193 cited
Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 cited
Tolhurst v Associated Portland Cement Manufacturers (1900) Ltd [1903] AC 414 cited
National Carbonising Co Ltd v British Coal Distillation Ltd (1936) 54 RPC 41 cited
Australis Media Holdings Pty Ltd v Telstra Corporation Ltd (1998) 43 NSWLR 104 cited
Peacocke Land Co Ltd v Hamilton Milk Producers Co Ltd [1963] NZLR 576 cited
Pacific Carrier’s Ltd v BNP Paribas (2004) 218 CLR 451 cited
L/M International Construction Inc v The Circle Ltd Partnership (1995) 49 Con LR 12 cited
Denham Bros Ltd v W. Freestone Leasing Pty Ltd [2004] 1 Qd R 500 cited
Shevill v Builders Licensing Board (1982) 149 CLR 620 cited
Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623 cited
Satellite Estate Pty Ltd v Jacquet (1968) 71 SR (NSW) 126 cited
DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 cited
Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] 1 WLR 277 cited
Summers v Commonwealth (1918) 25 CLR 144 cited
Integrated Computer Services Pty Ltd v Digital Equipment Corporation (Aust) Pty Ltd (1988) 5 BPR 11 cited
Beatty v Guggenheim Exploration Co 122 NE 378 (1919) cited
Kammins Ballroom Co Ltd v Zenith Investments (Torquay) Ltd [1971] AC 850 cited
GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd (2003) 128 FCR 1 cited
Commonwealth v Verwayen (1990) 170 CLR 394 cited
Northwestern Fire & Marine Insurance Co v Pollard 238 P 594 (1925) cited
Craine v Colonial Mutual Fire Insurance Co Ltd (1920) 28 CLR 305 cited
Motor Oil Hellas (Corinth) Refineries SA v Shipping Corporation of India [1990] 1 Lloyd’s LR 391 cited
Bay of Plenty Electricity Ltd v Natural Gas Co Energy Ltd [2002] 1 NZLR 173 cited
Walton Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 cited
Musumeci v Winadell Pty Ltd (1994) 34 NSWLR 723 cited
Torkington v Magee [1902] 2 KB 427 citedTilbury, Davis and Opeskin, Conflict of Laws in Australia, 943 (2002)
Nygh and Davies, Conflict of Laws in Australia, [32.24] – [34.28] (7th ed 2002)
Dicey & Morris, The Conflict of Laws, Vol 2, 32-023 (13th ed, 2000)
Furmston (ed), The Law of Contract, 6.286 ff (2nd ed, 2003)
Corbin on Contracts, Interim Ed, vol 9, Ch 48
Farnsworth on Contracts, Ch 11 (3rd ed, 2004)
Seddon and Ellinghaus, Cheshire and Fifoot’s Law of Contract (8th Aust ed, 2002), [8-6]
Chitty on Contracts (29th ed, 2004)
Gray and Gray, Elements of Land Law, 2.18 (4th ed, 2005)
Davison, Johnston and Kennedy, Shanahan’s Australian Law of Trade Marks and Passing Off, [17.25] ff (3rd ed, 2003)
Wilken and Villiers, The Law of Waiver, Variation and Estoppel, Chs 3 and 4 (2nd ed, 2002)
Meagher, Gummow and Lehane’s Equity: Doctrines & Remedies, 17-140 (4th ed, 2002)
Furmston, “The Assignment of Contractual Burdens” (1998) 13 Jo Contract Law 42
“Property in Thin Air” [1991] Camb LJ 252
H K Lücke, “Non Contractual Arrangements for the Modification of Performance: Forebearance, Waiver and Equitable Estoppel” (1991) 21 WALR 149
Farnsworth, Changing Your Mind: The Law of Regretted Decisions, Ch 16 (1998)
R Zimmermann, The Law of Obligations- Roman Foundations of the Civilian Tradition, Juta & Co Ltd, Cape Town, 1990
Gaius, The Institutes of Gaius, translated with an introduction by WM Gordon and OF Robinson, Duckworth, London, 1988PACIFIC BRANDS SPORT & LEISURE PTY LTD (ACN 098 742 708), PACIFIC BRANDS CLOTHING PTY LTD (ACN 098 742 655) & SARA LEE APPAREL (AUSTRALASIA) PTY LTD (ACN 052 018 836) v UNDERWORKS PTY LTD (ACN 088 861 616)
VID 420 of 2005
FINN, SUNDBERG and EMMETT JJ
MELBOURNE
23 MARCH 2006
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
VID 420 OF 2005
ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA
BETWEEN:
PACIFIC BRANDS SPORT & LEISURE PTY LTD
(ACN 098 742 708)
FIRST APPELLANTPACIFIC BRANDS CLOTHING PTY LTD
(ACN 098 742 655)
SECOND APPELLANTSARA LEE APPAREL (AUSTRALASIA) PTY LTD
(ACN 052 018 836)
THIRD APPELLANTAND:
UNDERWORKS PTY LTD
(ACN 088 861 616)
RESPONDENTJUDGES:
FINN, SUNDBERG and EMMETT JJ
DATE OF ORDER:
23 MARCH 2006
WHERE MADE:
MELBOURNE
THE COURT ORDERS THAT:
1.The appeal be dismissed.
2. The appellants pay the respondent’s costs of the appeal.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
VID 420 OF 2005
ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA
BETWEEN:
PACIFIC BRANDS SPORT & LEISURE PTY LTD
(ACN 098 742 708)
FIRST APPELLANTPACIFIC BRANDS CLOTHING PTY LTD
(ACN 098 742 655)
SECOND APPELLANTSARA LEE APPAREL (AUSTRALASIA) PTY LTD
(ACN 052 018 836)
THIRD APPELLANTAND:
UNDERWORKS PTY LTD
(ACN 088 861 616)
RESPONDENT
JUDGES:
FINN, SUNDBERG and EMMETT JJ
DATE:
23 MARCH 2006
PLACE:
MELBOURNE
REASONS FOR JUDGMENT
FINN and SUNDBERG JJ
The primary issue in this appeal is whether, if at all, any contractual rights had by Sara Lee Apparel (Australasia) Pty Ltd (“Sara Lee”) under its Sub-Licence agreement (“the Sub-Licence”) with the respondent, Underworks Pty Ltd (“Underworks”), were assigned effectively to the first and second appellants (“the two Pacific Brands companies”) and, if so, what were the actual rights so assigned. The answer to this question contrives what are consequential issues in the appeal which relate to the purported exercise by the companies of rights which it is claimed are able to be asserted directly against Underworks.
The factual setting giving rise to the parties’ dispute is distinctive and complex. Put shortly, Sara Lee was the licensee of both the “King Gee” and “Stubbies” trade marks. The proprietor of the marks, Saramar LLC, was itself a member of the Sara Lee group of companies. In November 2000, Sara Lee granted Underworks an exclusive right in Australia to use the King Gee marks in relation to men’s underwear and socks and the Stubbies mark on children’s socks and underwear for a period of five years in the first instance.
In February 2001 Sara Lee sold its Australian apparel business to Pacific Dunlop Ltd (“Pacific Dunlop”). As part of that sale, Sara Lee assigned to Pacific Dunlop the benefit of designated “Business Contracts” (which included the Sub-Licence). At about the same time Saramar assigned its trademarks to P D Licensing Pty Ltd, a company in the Pacific Dunlop group. That assignment was made subject to the rights of licensees under existing licences (including the Underworks’ Sub-Licence).
On 30 November 2001, Pacific Dunlop Ltd sold its “Business Assets” (which included its contracts and intellectual property rights) to various companies in the Pacific Brands group. The benefit of the Sub-Licence (i) as it related to the King Gee marks, was assigned to Pacific Brands Sports & Leisure Pty Ltd (“Pacific Brands Sports”) and (ii) as it related to the Stubbies mark, to Pacific Brands Clothing Pty Ltd (“Pacific Brands Clothing”). On the same day P D Licensing assigned the King Gee and Stubbies trade marks to Pacific Brands Sports. The two companies can be referred to collectively in these reasons save where differention is necessary.
Despite endeavours by Pacific Brands and by Sara Lee to have the Sub-Licence novated, Underworks would not agree to any novation on the terms offered. Pacific Brands Sports subsequently alleged that Underworks was in breach of the Sub-Licence and that it as an assignee of Sara Lee’s rights under that contract was entitled to – and did – terminate the Sub-Licence both at common law and by virtue of an express right to terminate contained in the Sub-Licence.
It will be necessary to refer in some detail below to the terms both of the Sub-Licence and of the sale agreements by virtue of which Pacific Brands purportedly exercised the rights to terminate. To foreshadow what will later be said, we have concluded that while the Sub-Licence on its proper construction did not expressly preclude an assignment by Sara Lee of its rights under it, the nature of its agreement with Underworks on its proper construction precluded Sara Lee from assigning the particular rights the breach of which were relied upon by the two companies to terminate the Sub-Licence.
THE SUB-LICENCE
Underworks was established to carry on the business of importing, distributing and supplying underwear and socks. One of its two shareholders and the controller of its other corporate shareholder, had previously held senior positions in Pacific Dunlop Ltd.
At the time the Sub-Licence was entered into, Sara Lee appears not to have been using the King Gee mark in relation to underwear or socks (save for work socks), though it was exploiting the mark extensively in relation to clothing and in particular work wear. It was not using the Stubbies mark at that time to produce socks or underwear.
The Sub-Licence was entered into on 15 November 2000 and had a commencement date of 1 January 2001. It was for a term of 5 years unless earlier terminated as provided by clause 18 of the Agreement: see below. Clause 2 of the Sub-Licence gave Underworks an exclusive Sub-Licence to use the King Gee and Stubbies marks to manufacture, sell and distribute branded underwear and socks to designated retailers and resellers in Australia and New Zealand, but “with no rights to assign (subject to clause 14), charge or Sub-Licence” the licence so given.
Clause 14 provided for present purposes that the Sub-Licensee could not, without the written consent of the Sub-Licensor, assign, sell, lease, transfer or otherwise dispose of or encumber any of its rights and obligations under the Agreement. The Agreement did not contain a like prohibition on assignment etc by the Sub-Licensor. The “Interpretation” provision of the Agreement (cl 1.2) stipulated that:
“(d)A reference to a party to this Agreement or any other agreement or document includes the party’s successors and permitted substitutes or assigns.”
The Sub-Licensee acknowledged that the Sub-Licensor was the exclusive licensee of “the Licensors” (sic), i.e. Saramar LLC: cl 3.1; it recognised the “great value of the goodwill” associated with the licensed marks: cl 3.2; it agreed to “use” the two licensed marks only as prescribed (cl 4.1), to “exploit the Products (i.e. the respective socks and underwear) … to the best advantage of the parties” (cl 4.3) and not to be a party to any act likely to prejudice the marks or commercial rights to which Saramar LLC or the Sub-Licensor were entitled (cl 4.4).
Sub-clauses 5.1 and 5.2 provided together for the payment of royalties calculated as a percentage of net sales and for a minimum royalty per annum. Clause 5 imposed a series of further obligations on the Sub-Licensee and gave rights to the Sub-Licensor which were designed in varying ways to secure both the integrity of the royalty payment regime and the Sub-Licensor’s return on the marks. These included the following:
“5.5The Sub-Licensee will keep accurate and complete books and records of account concerning its manufacture, promotion, sale and distribution of the Products and within 60 days of the end of each royalty year during the Term will send to the Sub-Licensor a certificate signed by its accountant verifying the Net Sales during that preceding royalty year. The Sub-Licensee will permit its books and records of account concerning its manufacture, promotion, sale and distribution of the Products to be examined once per annum upon reasonable notice to the extent necessary to verify records, statements and net proceeds, such inspections to be made by an independent accountant appointed by the Sub-Licensor PROVIDED THAT, if such inspection reveals an underpayment of royalties by the Sub-Licensee of in excess of 2%, the Sub-Licensee shall pay all the Sub-Licensor’s costs and expenses in conducting such inspection.
5.6In addition to all other rights and remedies which the Sub-Licensor may have, the Sub-Licensor may charge interest at a rate equal to 2% above the then current commercial lending rate of the Sub-Licensor’s bank in the Territory for overdrafts in excess of A$100,000 on all monies then outstanding on the due date for payment.
5.7In the event that in any two consecutive years the Sub-Licensee fails to achieve sales in any category which result in payments of royalty in excess of the minimums as provided for in clause 5.2 (“minimum royalties”), the Sub-Licensor may at its option and without any liability to the Sub-Licensee or compensation terminate this Sub-Licence in respect of that category by 3 month’s notice in writing to the Sub-Licensee”: emphasis added.
The royalty payments were to be made in such manner as the Sub-Licensor directed.
Under cl 6.1 the Sub-Licensor was required to furnish to the Sub-Licensee from time to time and at the Sub-Licensee’s cost, “such assistance and advice as the Sub-Licensor shall deem helpful” in the Sub-Licensee’s promotion and sale of the branded products.
Clause 8 warrants quotation in full because of its significance in this appeal. It provides:
“8 CONSULTATION AND MARKETING PLAN
8.1In order for the Sub-Licensor to assess the way in which the Sub-Licensee proposes to use the Licensed Marks, the Sub-Licensee shall prepare and submit prior to 30th November 2000 to the Sub-Licensor for its review a marketing plan for the Product containing particulars of all labels, advertising, promotional and other related material together with schedules for proposed production and sales targets, sales release dates, methods of distribution and sale, promotional expenditure and details of any other marketing programs (but not including third party trading term details). A detailed explanation of the proposed manner of representation of the Licensed Mark in the promotional and advertising program shall be included for the consideration and approval of the Sub-Licensor and pending such approval no such use of the Licensed Mark shall be made.
8.2Thereafter prior to 15 June in each year, the Sub-Licensee shall in respect of the following year prepare and submit a marketing plan in similar format for the Sub-Licensor’s consideration.
8.3The Marketing Plan is to include a description of the advertising and promotional concepts, which are not to be used pending the Sub-Licensor’s written approval.
8.4Should at any time the Sub-Licensor become aware of an actual or proposed use of the Licensed Marks on a Product or products which is inconsistent with a concept approval, or is otherwise inconsistent with the manner in which it desires the said marks to be portrayed and an identical use has not previously been approved, is shall provide written notice of its concern to the Sub-Licensee requiring that the use cease. Unless within 21 days of receipt of such notice the Sub-Licensee:
(a)obtains the Sub-Licensor’s approval to such use; or
(b)confirms in writing that the use has ceased and provides an undertaking that the use will not be repeated;
the Sub-Licensor may terminate this Sub-Licence.
8.5In order to review brand positioning and ensure that the Sub-Licensor’s reputation in its products and brands is maintained, the Sub-Licensee shall at its own cost submit to the Sub-Licensor concept samples of each line of Product to be manufactured or sold and to be marketed by the Sub-Licensor together with all related advertising, packaging, labels and promotional materials using the Licensed Marks for approval.
8.6The Sub-Licensee agrees to affix or apply to all Products labels bearing or using the Licensed Marks strictly in accordance with the Sub-Licensor’s reasonable directions. The Sub-License shall not proceed with the use of the Licensed Marks on the Products or related advertising, packaging, labels and promotional materials without first obtaining the prior written approval of the Sub-Licensor.
8.7The Sub-Licensee shall only use the Licensed Marks on products, packaging, labels, advertising and promotional materials in the form and format approved in writing by the Sub-Licensor PROVIDED THAT the Sub-Licensee may indicate its corporate name as manufacturer of the Products with the notation that it does so under sub-licence from Sara Lee Apparel (Australasia) Pty Ltd. Apart from any sub-brands which the Sub-Licensor approves may be used in association with the Licensed Marks, no other trade marks or trade marks of third parties are to be used in association with the Licensed Marks.
8.8For the purposes of the Sub-Licensor’s approvals as required for the purposes of Clause 8, if the Sub-Licensor does not object to such use within 35 days, the Sub-Licensee will provide notice in writing that the absence of receipt of a written notice of objection within a further seven (7) days that approval will be deemed to have been given. Should the Sub-Licensee receive no objection within that time, approval will be deemed to have been given.”
The agreement imposed reciprocal duties of confidentiality in respect of all commercially sensitive information made available by the Sub-Licensee, the Sub-Licensor and the Licensor: cl 9.
Clause 10 noted that the Licensor and the Sub-Licensor were committed to having their products produced in manufacturing facilities that operate under responsible, safe and humane conditions. To that end the clause stipulated that the Sub-Licensee was only entitled to manufacture products in facilities previously approved by the Sub-Licensor in writing.
Under cl 11 the Sub-Licensee acknowledged “receipt of a copy of Sara Lee Corporation’s Global Business Standards and Supplier Selection Guidelines (“the Guidelines”). We note in passing that the Sara Lee Corporation is a United States company registered in the State of Maryland; it guaranteed Sara Lee’s obligations to Pacific Dunlop under the Sara Lee-Pacific Dunlop sale agreement of February 2001; and it would appear to be the principal company of the “Sara Lee group”. The Sub-Licensee was obliged by cl 11 to provide the Guidelines to any and all vendors and manufacturers appointed under the Agreement. The Licensor was to provide the Sub-Licensee with a sufficient number of “copies of the Guidelines” at no cost to the Sub-Licensee “in the local language(s) of the management and employees producing the product”. The Sub-Licensee warranted and gave covenants, inter alia, that it was in compliance with the Guidelines and would remain so.
Clause 12 required that each facility used to produce products be independently audited by a firm approved by the Sub-Licensor “for compliance with these or such similar Guidelines as Sara Lee Corporation may require from time to time”. Audits were to be conducted annually and a report was to be provided to the Sub-Licensor. The clause authorised the Sub-Licensor to require the making of changes and improvements at any facility that were indicated in the report and if such were not completed within 120 days the Sub-Licensor was entitled to require the cessation of production at the facility concerned or, at its discretion, to terminate the Agreement. Under cl 13, the Sub-Licensor retained the independent right, with or without notice, to conduct its own or independent third party inspection and audit of any manufacturer “for compliance with the Guidelines or such similar guidelines as Licensor may establish or be subject to from time to time”.
Clause 18 provided for present purposes that:
“18 TERM AND TERMINATION
18.1This Agreement is effective from the Commencement Date for a period of five (5) years unless earlier terminated as provided by this Clause 18.
18.2The Sub-Licensor may terminate this Agreement immediately upon written notice to the Sub-Licensee:
(a)if the Sub-Licensee commits a breach of any term or condition of this Agreement and does not remedy the breach as reasonably required by the Sub-Licensor within 30 days after written notice of the breach and the required remedy has been given to it by the Sub-Licensor;
(b)if there is a change of more than 30% in the shareholding in the Sub-Licensee in any year;
(c)if there is a change in the ownership of the issued shares in the Sub-Licensee whereby in excess of 30% of such issued shares are held by or on behalf of any person or persons who the Sub-Licensor’s reasonably held opinion is or are in competition with the Sub-Licensor in any of its product markets.”
The Sub-Licence provided that no waiver of rights, powers or remedy would be binding unless in writing: cl 22.
Sara Lee’s registered office was in New South Wales. Underworks’ was in Victoria. The governing law of the Agreement was stipulated to be that of New South Wales.
THE SARA LEE – PACIFIC DUNLOP SALES AGREEMENT
Included in the assets Sara Lee sold to Pacific-Dunlop by the agreement of 26 February 2001 were all of its right, title and interest in the Underworks Sub-Licence. The following are the only provisions of this Agreement which need be noted. The Sub-Licence was a “Business Contract” for the purposes of the Agreement: cl 1.1. Clause 11, dealing with novation or assignment of business contracts, provided insofar as presently relevant:
“11.1 (a) …
(b)Assignments without consent of Non-Listed Business Contracts
The Vendor hereby assigns to the Purchaser with effect on and from Completion the benefit of those of the Business Contracts not listed in Schedule 6 in respect of which assignments are permitted without the consent of the other party to the contract.
(c)Assignments with consent of Non-Listed Business Contracts
The Vendor must use its best endeavours (excluding paying money or providing other valuable consideration to or for the benefit of any person) with the co-operation of the Purchaser to assign to the Purchaser with effect on and from Completion the benefit of those of the Business Contracts not listed in Schedule 6 in respect of which assignments are permitted only with the consent of the other party to such contract, such assignment to have effect on and from Completion.”
The Sub-Licence was not listed in Schedule 6 for the purposes of these subclauses.
Under subclause 11.4, Pacific-Dunlop assumed the responsibility of complying (inter alia) with all of Sara Lee’s obligations under Business Contracts assigned under cl 11.1 and of indemnifying Sara Lee in respect thereof.
Clause 20.8 of the Agreement specified that each parties’ rights and obligations were personal to it and that no party could assign or transfer any of its rights or obligations under the Agreement without the prior written consent of each other party.
The governing law for this agreement was that of Victoria.
Notice of the Sale Agreement was given to Underworks on or about 13 March 2001.
THE PACIFIC DUNLOP-PACIFIC BRANDS SALE AGREEMENT
Though the agreement of 30 November 2001 is the operative one under which the two Pacific Brands companies are said to have acquired their respective interests in such rights as Sara Lee assigned to Pacific Dunlop, its effect has not been the subject of dispute between the parties on this appeal. Suffice it to say for present purposes that it has been assumed that, whatever rights Pacific Dunlop acquired in the Sub-Licence in consequence of Sara Lee’s sale were Business Assets of Pacific Dunlop for the purposes of this Sale Agreement and were assigned under it (as to the King Gee marks) to Pacific Brands Sports and (as to the Stubbies marks) to Pacific Brands Clothing. While the path to that conclusion may be more tortured than has been assumed, it is not a conclusion which is in issue in this appeal. No challenge has been made to the primary judge’s conclusion that the intendment of the business sale agreements was to assign to the two Pacific Brand companies the rights that had been acquired by Pacific Dunlop in the Sub-Licence under the Sara Lee Sale Agreement.
ASSIGNMENT OF CONTRACTUAL RIGHTS – APPLICABLE PRINCIPLES
There no longer being any claim that the Pacific Brands companies became parties to the Sub-Licence in lieu of Sara Lee by reason of novation, the sole basis upon which the appellants assert any entitlement to exercise rights under or in relation to the Sub-Licence is that, in the events which have happened, they are assignees of Sara Lee’s rights as Sub-Licensor including its rights to terminate the Sub-Licence under cl 18.2 and at common law.
There is quite basic disagreement between the parties not only as to the legal effect of the Sub-Licence and the two sales agreements, but also as to the principles by which that effect is to be judged. The causes of their disagreements are various but the most fundamental relates to how one determines whether the nature of a contractual right is such that it is capable of being assigned at all.
This said, there is one preliminary matter about which there is agreement. It is that if any of Sara Lee’s rights were assigned at law, their assignment was effected under the provisions of s 12 of the Conveyancing Act 1919 (NSW) which deals with the assignment at law of debts and choses in action. The apparent reason for this agreement is that New South Wales law was the law governing the Sub-Licence so that, notwithstanding that the instrument (the Sara Lee-Pacific Dunlop sales agreement) embodying the assignment was governed by Victorian law, the assignment itself was governed by the New South Wales Act: cf Anning v Anning (1907) 4 CLR 1049 at 1061. It is unnecessary to enter upon the correctness of this notwithstanding the great uncertainty surrounding the choice of law rules to be applied to the assignment of debts and choses in action: see Tilbury, Davis and Opeskin, Conflict of Laws in Australia, 943 (2002); Nygh and Davies, Conflict of Laws in Australia, [32.24] – [34.28] (7th ed 2002). We would merely note that, for choice of law purposes, the question whether a particular contractual right is assignable is logically distinct from that whether a right which is assignable has been assigned at law: cf Dicey & Morris, The Conflict of Laws, Vol 2, 32-023 (13th ed, 2000). For present purposes the applicable common law is the common law of Australia. And there are no relevantly operative differences between the provisions of s 12 of the Conveyancing Act 1919 (NSW) and of s 134 of the Property Law Act 1958 (Vic).
In an article entitled “The History of the Treatment of Choses in Action by the Common Law” (1920) 33 Harv L Rev 997, Holdsworth observed (at 1030) that “it is probable that a branch of law which comes at the meeting place of the law of property and the law of obligation can never be anything but difficult to formulate and apply”. The assignment issue raised in this appeal is testament to this, and is made the more so by the relative absence of Australian case law on the assignment of contractual rights: cf in England, Furmston (ed), The Law of Contract, 6.286 ff (2nd ed, 2003); in the United States, Corbin on Contracts, Interim Ed, vol 9, Ch 48; Farnsworth on Contracts, Ch 11 (3rd ed, 2004).
By way of background, it is appropriate to begin with a number of relatively non-contentious propositions. First, it is well accepted that assignable contractual rights are choses in action; are a species of personal proprietary right; and can be transferred to a third party at law or in equity in accordance with the formal rules governing the transfer of such rights: see Norman v Federal Commissioner of Taxation (1963) 109 CLR 9 at 26; Loxton v Moir (1914) 18 CLR 360 at 379. Secondly, while it is not legally possible to assign the burden of a contract (i.e. the obligation to render performance), it may be possible to assign (a) the entire benefit of a contract (i.e. the right to receive performance): Don King Productions Inc v Warren [2000] Ch 291 at 318 (“Don King”); (b) if a right under a contract is separate and severable, such a separate and severable right: cf Federal Commissioner of Taxation v Everett (1980) 143 CLR 440 at 449-450; or (c) if some only of the rights under a contract are assignable, those rights. “[A]ssignability is not a matter of all obligations arising under a contract or none at all”: Don King, above, at 319. Thirdly, a contract may expressly or impliedly authorise assignment of rights in a contract which would not otherwise be assignable: Devefi Pty Ltd v Mateffy Perl Nagy Pty Ltd (1993) 113 ALR 225 at 235 (“Devefi v Mateffy”); or, conversely, may expressly or impliedly prohibit assignment of rights otherwise prima facie assignable: Don King, above, at 319. “Such contractual provisions are legally effective” as between the contracting parties: Don King, ibid; Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85 at 103 ff (“Linden Gardens Trust”). Fourthly, while the product to be derived from a contractual performance (the “fruits of performance”) may be assigned; Devefi v Mateffy, above, at 234; the right to that performance may, nonetheless, be unassignable because, having regard to the nature of the contract and the subject matter of the contractual right in question, that right is personal in the sense that the identity of the contractual obligee is material to the contractual relationship itself (i.e. it is a “personal contract”: Peters v General Accident Fire & Life Assurance Corporation Ltd [1938] 2 All ER 267 at 270; Moore v Collins [1937] SASR 195; or to the contractual performance to be rendered: Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd (1992) 57 BLR 57 at 77 (contract requiring a party to act on the other’s instructions); see generally Seddon and Ellinghaus, Cheshire and Fifoot’s Law of Contract (8th Aust ed, 2002), [8-6]; Furmston (ed), above, 6.299 ff; Chitty on Contracts, Vol 1 19-053 ff (29th ed, 2004); Farnsworth, above, §11.4. A contractual right, though, will not be personal if, construed in its setting, “it can make no difference to the person on whom the [corresponding] obligation lies to which of two persons [i.e. assignor or assignee] he is to discharge it”: Tolhurst v Associated Portland Cement Manufacturers (1900) Ltd [1902] 2 KB 660 at 668. Fifthly, seemingly, a contractual right may itself be of such a personal character that it cannot properly be characterised as property: cf Jack v Smail (1905) 2 CLR 684 at 704-705; but it is not clear whether this proposition has salience only in contexts other than assignment of such a right, e.g. insolvency, because of the proposition immediately preceding this which relates expressly to assignments of “personal” contractual rights. Sixthly, the assignee of a contractual right under a legal assignment is entitled, as owner of that right, to take action in respect of it: e.g. Conveyancing Act 1919 (NSW), s 12. Seventhly, a third party may become a “substituted contracting party” by novation of the original contract. Novation will, ordinarily, require the agreement of the original and the substituted party although the original contract itself may, on its proper construction, authorise a party to substitute a contracting party in its place without need for a further tri-partite agreement: see Harry v Fidelity Nominees Pty Ltd (1985) 41 SASR 458 at 460. On novation, though, there is no assignment of rights and obligations, but rather the creation of new rights and obligations in a new contract: Olsson v Dyson (1969) 120 CLR 365 at 388; Cheshire & Fifoot’s Law of Contract, above, [8.45] ff. Eighthly, a contractual obligation cannot be assigned without the consent of the other contracting party: Tolhurst v Associated Portland Cement Manufacturers (1900) Ltd [1902] 2 KB 660 at 668. This, for practical purposes, requires novation of the original contract; Furmston, “The Assignment of Contractual Burdens” (1998) 13 Jo Contract Law 42; see also Vickery v Woods (1952) 85 CLR 336 at 345; Fightvision Pty Ltd v Onisforou (1999) 47 NSWLR 473 at 491-493. Ninthly, the delegation of performance of contractual obligations is permissible where the obligations assumed do not require personal performance but only the producing of a result: Bruce v Tyley (1916) 21 CLR 277; British Wagon Co v Lea & Co (1880) 5 QBD 149. In such cases perfect performance by the delegate will discharge the delegating contractor’s obligation, although that contractor will remain liable unless and until such performance is rendered. “Whether or not in any given contract performance can properly be carried out by the employment of a sub-contractor must depend on the proper inference to be drawn from the contract itself, the subject matter of it, and other material surrounding circumstances”: Davies v Collins [1945] 1 All ER 247 at 250.
It will be necessary to make additional reference to legal principles relating to assignments when considering the parties contentions on the effect of the assignment of Sara Lee’s rights under the Sub-Licence.
ASSIGNMENT ISSUES
As a matter of convenience the various assignment issues raised on the appeal will be dealt with compositely under the following headings: (i) What rights under the Sub-Licence were prima facie assignable? (ii) Was the cl 18.2 power to terminate prima facie assignable? (iii) Was Sara Lee’s identity material to the contract or its performance? (iv) Was Underworks’ consent required for the assignment? (v) Was Underworks’ consent given to the assignment? We have used the description “prima facie assignable” for this reason. A right may be “proprietary” in character but may, in a given setting, not be assignable either because such is prohibited by the contract itself, or because it nonetheless is a “personal right” in that the obligee’s identity was material to the obligor.
(i) What rights were prima facie assignable?
The primary judge’s conclusion on this matter, which is challenged by the appellants, is encapsulated in [18] of his reasons. Having previously indicated that a right to rescind or terminate a contract is not a chose in action but is a personal right or privilege which can be exercised by the person in whom it is vested, his Honour held:
“To the extent that Pacific Brands founds its claim upon the assignment of the sub-licence giving to it the right to terminate the sub-licence, that claim must fail. Pacific Brands did not as a result of the assignment acquire the right or power to terminate the sub-licence, a sub-licence to which it is not a party. Put another way, while the “benefit” of the sub-licence was assigned to Pacific Brands with the result that it did acquire certain rights (such as the right to receive the royalty) the right to rescind the sub-licence for breach was not one of the ‘benefits’ that went across. In the view that I hold, the following powers or privileges were also incapable of assignment for much the same reason: the power to review the marketing plan conferred by cl 8.1; to give reasonable directions in relation to the use of product labels conferred by cl 8.6; to approve packaging and the like given by cl 8.7; to approve manufacturing facilities under cl 10; to conduct audits under cl 12; and to exercise the right of inspection and quality control conferred by cl 13.”
The parties’ disagreement in the appeal over this conclusion is in substance a disagreement as to how one determines whether contractual rights are prima facie assignable at all.
Underworks’ contention, which reflects the primary Judge’s conclusion, is that only those contractual rights which are proprietary in character are capable of being assigned. Accordingly it must first be asked of each allegedly assigned right whether it had that character. If it did not, then notwithstanding that it may have provided a benefit to the obligee (i.e. Sara Lee), it was not assignable by that party. In the case of the Sub-Licence, Underworks’ submission is that almost all of Sara Lee’s rights (we use the term here to encompass Sara Lee’s “powers and privileges”) cannot be said to be proprietary in character as his Honour so held. It apparently is conceded, as the primary judge found, that the right to be paid royalties could be assigned.
The Pacific Brands’ contention is that, personal contractual rights apart, all contractual rights are prima facie assignable. It is said that, having regard to the flexibility and versatility of the concept of choses in action, it is erroneous to determine questions of assignability of contractual rights by identifying the benefits conferred upon a party by particular clauses of a contract in isolation and labelling them as either clauses giving rise to a chose in action or not. The individual terms of a contract are interdependent and cannot be disembodied from the contract itself. The relevant enquiry, as put by the appellants, is whether the contract, considered as a whole, confers rights of action or rights enforceable by action. If it does (as all contracts do) the complete chose in action is the aggregate of legal rights, privileges, powers and immunities or the sum of the jural relations under the contract.
There is in our view a number of objections to the atomistic approach propounded by the primary judge and by Underworks. First, in the same way that new species of chose in action have over time been added to the list of choses recognised by law, the respondent’s approach seeks to have each individual contractual right or power examined as if it were a discrete, independent and severable right or power for the purpose of determining whether it too will be added to the laws list of incorporeal property, i.e. of choses. The error in this is that the relevant chose itself in a case such as the present (given what was intended to be assigned) was the benefit of the contract as such, i.e. the bundle of rights and powers created by the contract of which Sara Lee was obligee or donee. That chose (or a separate and severable right or power that was part of it, e.g. the right to royalties) was prima facie assignable in whole or possibly in part: cf Shepherd v Federal Commissioner of Taxation (1965) 113 CLR 385. There is nothing unusual in characterising the totality of a bundle of rights and powers as a chose in action as a share in a company well illustrates.
Secondly, the process of disaggregation required by the primary judge’s and Underworks’ approach, requires the individual rights and powers to be dissociated from the body of the contract from which they have their connections inter se and they draw their vitality. Some individual rights may, for assignment purposes, be dealt with separately from the others because they are sufficiently discrete and independent of those others. The right to be paid royalties may fall into this category. Nonetheless, others may not be able to be so dealt with distinctly, not because they are not part of a chose in action, but because the contract itself, on its proper construction, does not attribute an independent life and vitality to them: see Furmston (ed), above, at 6.288. They are simply inseparable parts of a composite whole. This, in our view, is particularly the case of those contractual rights which take the form of powers. Characteristically, they have regulatory functions in a contract (often to protect and preserve a party’s interest in or in consequence of a contract as was the case in the Sub-Licence in respect of many of Sara Lee’s powers, e.g. its powers of approval, audit, inspection etc.). As a rule, they cannot be dealt with separately from the interest they so serve. Nonetheless, they are prima facie assignable in their totality as part of any assignment of one party’s benefit of a contract. They are, simply, part of that chose. For this reason we would disagree with his Honour’s treatment of what he describes as the “powers and privileges” in the Sub-Licence. Individually and separately these may not have been prima facie assignable. Collectively and as part of the chose in action constituted by the assignee’s rights and powers under the contract, they were. However, this does no more than reflect that, as property, a bundle of contractual rights constituting a chose in action may be capable of fragmentation but only in ways that are consistent with the nature and structure of the contract itself: cf Gray and Gray, Elements of Land Law, 2.18 (4th ed, 2005).
Thirdly, the discriminating characteristic used by the primary judge and relied upon by Underworks to differentiate the prima facie assignable from the unassignable – the concept of “property” – is, in our view, less than helpful in this setting, the moreso because it is being invoked to differentiate what are parts of a whole. The limits to the use of “property” as an analytical tool have been well recognised in decisions of the High Court: see Yanner v Eaton (1999) 201 CLR 351 at 366 (“Yanner v Eaton”). Those limits are exaggerated by the word “property” itself. Professor Gray has rightly observed of the word “property” that is in large part “a category of illusory reference”: Gray, “Property in Thin Air” [1991] Camb LJ 252 at 305; “a conceptual mirage”: Gray and Gray, above, at 2.1.
In the context of contractual rights, the term “property” does not refer to a thing. It refers to a legal relationship with a valued resource, i.e. the benefit of a contract: cf Yanner v Eaton, at 355-356; and to a legally endorsed concentration of power over that resource: ibid, citing Gray and Gray. For our own part, given that the one party’s benefit of the contract is made up of that party’s bundle of rights under that contract (which in turn make up that party’s legally endorsed power in relation to the subject matter of the contract), we do not see any proper basis for differentiating between the various rights and powers of a party, ascribing to some the character of property while denying that character to others. The correct approach we consider to be to abjure such attempts at differentiation and to regard, as a rule, all such rights and powers as possessing and reflecting the character of the chose in action of which they are part and which is the composite of a party’s rights and powers created under the contract. This is not to say that all such rights and powers are separately, as distinct from collectively, assignable as we have earlier indicated. Nor that some or all of them may not be rendered unassignable for other reasons, for example, because of an express contractual prohibition or because for some purposes the identity of the obligee is material to the contractual relationship or to its performance by the obligee.
In consequence we consider that the proper approach to be taken is that (i) all of a party’s contractual rights, being parts of a chose in action, have a proprietary character for assignment purposes and are prima facie assignable but (ii) whether in a given case they or some of them are unassignable will depend upon whether there is a reason which nonetheless precludes assignment. Apart from prohibitions created by statute or public policy, the most common such reasons will be a contractual prohibition on assignment, the materiality of the identity of the obligee to the contractual relationship or to the obligor’s performance, or, less commonly, in the case of an assignment of a part of a composite chose, the various rights are not separable in the manner attempted. We would add that we consider that this approach not only is more likely to engender greater certainty in routine commercial dealings where assignments are the common place than that adopted by the primary judge, but also it avoids what we consider to be a process of characterisation fraught with uncertainty.
Accordingly, and putting to one side the cl 18.2 power to terminate, we consider his Honour erred insofar as he concluded that various rights and powers under this contract were not assignable because they were not proprietary in character.
(ii) Was the cl 18.2 power to terminate prime facie assignable? Was the common law power to rescind available to the appellants?
It is appropriate to deal with these particular matters separately notwithstanding that our conclusion is encompassed in what we have said above.
The primary judge, as already noted, concluded that a right to rescind or terminate a contract whether for breach or otherwise was a personal right or privilege of the person in whom it was vested; they were not species of property which, if interfered with, could be recovered by action; and they needed no curial intervention to make their exercise good or effective. His Honour analogised such rights to a landlord’s right of entry which the Supreme Court of the United States held in Inglis v The Trustees of The Sailors’ Snug Harbour in the City of New York 28 US 99 at 180 (1830) (“Inglis”) not to be a thing in action for it did not depend upon any right to sue, but could be enforced by a mere entry.
The appellants’ case proceeds in two parts. The first relates to the cl 18.2 power. What is said in relation to this is that, irrespective of whether cl 18.2 could be assigned separately, where what was intended to be assigned was the totality or “aggregate” of Sara Lee’s rights and powers (i.e. its “interest” in the Sub-Licence), the cl 18.2 power was assigned with them. Additionally, it is said, that power was not a mere “personal right or privilege”. It was an integral part of the bargain affecting the character and extent of the rights and obligations of the promisor and the promisee.
Underworks’ submissions in contrast reflect the primary judge’s holding.
We are satisfied that the cl 18.2 power was not severable or separable from the totality of Sara Lee’s rights. It applied to a breach of “any term and condition”. With Sara Lee’s assignment of those terms and conditions, the cl 18.2 power went with them to Pacific Dunlop. Whether or not the power can properly be characterised independently as a chose in action – and the decision of the House of Lords in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 (“Investors Compensation Scheme”) might be taken as suggesting it could not – it was, in our respectful view, an inseparable part of Sara Lee’s interest in the Sub-Licence and to that extent it was part of the chose in action made up of the composite of rights and powers Sara Lee enjoyed.
We reserve our view on whether such a power could be said to accompany only a partial assignment of contractual rights. That issue is not live in this appeal.
We would add that we do not consider that what we have said is inconsistent with the substance of what Lord Hoffman said in the Investors Compensation Scheme case. His Lordship there held that a right to rescind a mortgage cannot be assigned separately from the mortgaged property and is a claim that can only be made by the owner: see also Re Davies & Co; Exp Rawlings (1888) 22 QBD 193. In the present matter the cl 18.2 power was one in respect of the totality of Sara Lee’s rights and when Sara Lee assigned those rights, it in effect put the assignee in its shoes in relation to those rights and the power it had in relation to them.
The cl 18.2 power cannot properly be said not to be part of a chose in action for the reason that it is not itself a power which can only be enforced by action. While the giving of a valid written notice to terminate under the agreement may of itself carry legal consequences, and in that sense the sub-clause does not require a remedy for its enjoyment, the enjoyment of the benefit of the power commonly requires the award of curial relief precisely because one is dealing with incorporeal property. For this reason such a power is best characterised as a self-help remedy about which the law permits the parties to bargain: Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 at 848-849; but which, if necessary, will be re-enforced by appropriate curial relief. We should add we do not consider that the Inglis case relating to the landlord and tenant relation to be of assistance in this matter. The cases on re-entry and the taking of physical possession of property belong to a different field of discourse.
We are in consequence satisfied that the primary judge erred in the view he took of the prima facie assignability of the cl 18.2 power.
Secondly, the right to terminate at common law. In their amended statement claim, the appellants relied not only on termination under cl 18.2 but also on termination at law consequent upon acceptance of Underworks’ repudiation of the Sub-Licence. It, apparently, has not been contended by Underworks that the cl 18.2 remedy was the exhaustive or exclusive remedy available to the appellants.
If it were the case that all of Sara Lee’s substantive rights were assigned – i.e. the entire chose was assigned – the consequence of that would be that not only did the assignee acquire the legal right to the chose but also “all legal and other remedies for the same”: Conveyancing Act 1919 (NSW) s 12. The effect of the assignment would have been to put the assignees in the same position in relation to repudiatory conduct as Sara Lee would have been had it retained the chose. Accordingly, we consider the assignees would have had available to them by way of remedy (inter alia) the right to claim damages for non-performance of Underworks’ primary obligation and the power to elect to put an end to all primary obligations of both parties that remained unperformed. It would be anomalous to insist that, while Sara Lee had disposed of its interest in the contract, it nonetheless was the only party entitled to accept a repudiation. We can see no reason for being driven to such a conclusion.
We again consider his Honour to have been incorrect in the view he took of the power to terminate at common law. We should again add, though, that we reserve our view as to whether this power would be available to an assignee in the case of a partial assignment of rights.
(iii) Was Sara Lee’s identity material to the contract or its performance?
This is the pivotal issue in this appeal. Having held for the reasons we have so far discussed that the “powers and privileges” conferred by cll 8.1, 8.6, 8.7, 10, 12 and 13 were not assignable – and breach of these founded Pacific Brands Sports’ claim to terminate – his Honour in [19] of reasons gave an alternate reason for his conclusion:
“Even if I were wrong and the powers or privileges which I have identified, including the right of rescission, were capable in law of assignment, I would hold, on the authority of cases such as Tolhurst v The Associated Portland Cement Manufacturers (1900), Limited [1903] AC 414, 424 and Bruce v Tyley (1916) 21 CLR 277, 289, that, in this case, each power has an element of personal confidence about it (the exercise of the power is one which the parties assumed would be exercised personally by Sara Lee) so that, in the absence of Underworks’ consent, the ability to exercise that right or power could not be assigned to anyone else. Not only do the covenants that I have identified (including the right of termination) involve personal confidence, if assigned to a third party such as Pacific Dunlop or Pacific Brands their exercise could prejudice Underworks in the sense that the rights or powers might be exercised differently than would be the case if they had remained with Sara Lee, which is another reason for ruling against an assignment: Restatement, Second, Contracts § 317 Corbin on Contracts (Interim Edition) §868; Farnsworth on Contracts §11.4 (3rd ed, 2004). The reason the rights or powers may be exercised differently is obvious. An assignee, especially an assignee that is a competitor, may hold different views than Sara Lee about the essentially discretionary matters that would be taken into account in deciding both when and how the rights or powers ought be exercised.”
The appellants’ case challenges these conclusions as a matter of construction and characterisation of the Sub-Licence in its setting. And they assert there is an absence of contextual material to support the conclusions. The respondent contends to the contrary. It is contended that in view of the nature of the Sub-Licence and its terms, the identity of the sub-licensor and sub-licensee was, objectively, important to both Sara Lee and Underworks. Sara Lee, which was not exploiting the marks except in relation to one type of King Gee sock, contracted with Underworks whose principals had significant experience in the relevant product market. Significantly, it is said, Sara Lee and Underworks were not competitors. It was one thing to provide details of production facilities and other business information to Sara Lee; it was quite another thing to have to deal with a competitor like Pacific Brands in that regard. Further, under the terms of the Sub-Licence, it is said a significant measure of cooperation between the Sub-Licensor and Sub-Licensee was required, especially in relation to the giving of approvals for new products, packaging and manufacturing facilities and the remedying of any alleged breach etc, in order that the parties, in particular the Sub-Licensee, could properly benefit from the Sub-Licence and would continue to do so for the duration of the specified term. A competitor would approach such matters differently to a non-competitor. An assignment of the Sub-Licence to a competitor such as Pacific Brands would therefore have the effect of altering Underworks’ right and prejudicing it, affecting its ability to make the contract pay.
It characteristically is said that it is a question of construction whether a contract itself or particular rights or obligations, involve personal considerations such as to render the contract or those rights unassignable, or the obligations not delegable: see e.g. Tolhurst v Associated Portland Cement Manufacturers (1900) Ltd [1903] AC 414 at 416-417; National Carbonising Co Ltd v British Coal Distillation Ltd (1936) 54 RPC 41 at 54; Australis Media Holdings Pty Ltd v Telstra Corporation Ltd (1998) 43 NSWLR 104 at 118-120; see also Furmston (ed), above, 6.299, 6.301-6.324; Chitty on Contracts, above, par 19-053; cf Cheshire & Fifoot’s Law of Contract, above, [8.6]. However, given the particular purpose for which the contract and its terms are being construed, implicit in the question of construction are, ordinarily, issues of characterisation and of inference in which the significance to be attributed, variously, to identity, to the qualities or attributes one or both parties are expected to exhibit and to the character of the parties’ relationship, can loom large.
It is fair to say at the outset that the drafting of the Sub-Licence betrays oversight, a lack of prescience and mistakes in the identification of the proper party in particular clauses (as to the last see cl 3.1, 8.5).
The Sub-Licence imposed no express prohibition on assignment of rights by Sara Lee. This contrasts with the cl 14.1 prohibition binding Underworks. But neither did the Sub-Licence define Sara Lee for the purposes of the contract as “Sara Lee and its assigns”. Save in exceptional circumstances, such a definition would signify a contractual intent that Sara Lee’s benefit of the contract would be assignable: Peacocke Land Co Ltd v Hamilton Milk Producers Co Ltd [1963] NZLR 576; Devefi v Mateffy, above, at 235, 238-239. Clause 1.2 of the Sub-Licence merely stated in general terms that a reference to a party to the Sub-Licence or to “any other agreement or document includes the party’s successors and permitted substitutes or assigns”. As we will indicate in the next part of these reasons, that clause in the context of this Sub-Licence did not reveal an intent that Sara Lee could assign its rights without Underworks’ consent.
One, in consequence, is left to discern whether and to what extent Sara Lee’s rights were assignable from what the Sub-Licence objectively construed conveyed to a reasonable person. This exercise “requires consideration not only of the text of the [Sub-Licence], but also the surrounding circumstances known to [the parties], and the purpose and object of the transaction”: Pacific Carrier’s Ltd v BNP Paribas (2004) 218 CLR 451 at [22].
It is not unimportant to notice that the Sub-Licence related to the use of a trademark. Some number of its provisions, and particularly those relating to Sara Lee’s powers to control the use of the marks and to maintain its own reputation in its products and brands, reflected what was reasonably predictable given the “control” requirements of s 8 of the Trade Marks Act 1995 (Cth) defining an “authorised user” of a mark: see generally Davison, Johnston and Kennedy, Shanahan’s Australian Law of Trade Marks and Passing Off, [17.25] ff (3rd ed, 2003). While Sara Lee’s licence with Saramar is not in evidence, it is probable that some of the provisions of the Sub-Licence have their provenance, if not necessarily their language, in the requirements of that licence. Be that as it may, it is fair to say in general terms that some number of the terms and conditions of the Sub-Licence have characters one would reasonably expect of a Sub-Licence for a trade mark.
What is important for present purposes, though, is the manner in which these provisions appeared to tie Sara Lee to Underworks. Clause 4.3 required the Sub-Licensee “to exploit the Products … to the best advantage of the parties”. Clause 6.1 required the Sub-Licensor to furnish to the Sub-Licensee such assistance and advice as the Sub-Licensor deemed helpful in the Sub-Licensee’s promotion and sale of the products. If both of these provisions reveal some level of reciprocal responsibility of one party for the other, standing alone they do not suggest that what was intended was some form of cooperative endeavour or “quasi-partnership”: cf National Carbonising Co Ltd v British Coal Distillation Ltd, above; in which Sara Lee as such had tutelary responsibilities: (cl 6).
There are, though, significant indications in some number of the provisions of the Sub-Licence which suggest that the Sara Lee/Underworks relationship was contemplated to be a personal and an enduring one for the life of the Sub-Licence. Some number of sub-clauses impose obligations or create rights, which are related specifically and expressly to Sara Lee or to the Sara Lee Corporation. We refer, for example, to cl 8.7 (authorising Underworks to indicate its corporate name as manufacturer on products etc with the notation that it does so under Sub-Licence from Sara Lee); to cll 11 and 12 (in relation to Sara Lee Corporation’s Guidelines and the part they are to play in the Sub-Licence). Unless and until these provisions were varied as part of a novation, both Sara Lee and Underworks were bound by them. When these provisions are considered in the context of some other of the clauses giving the “Sub-Licensor” judgmental power over the “Sub-Licensee”, they in turn suggest an intent that that power so given was personal to Sara Lee. In other words, the standards to be adhered to, and the judgments to be made about protecting the mark through quality control (cl 8.5) and mark use (cll 8.4 and 8.1 to 8.3) and in approving manufacturing facilities (cl 10), were to be set, or made, by Sara Lee.
When one turns to the context of the Sub-Licence, the evidence is particularly sparse. It was the case that, at the time of its execution, Sara Lee was not using the Stubbies mark to produce socks and underwear nor was it so using the King Gee mark (save for work socks). Though the Sub-Licence did not prohibit Sara Lee from competing with Underworks on socks and underwear, and it could do so under other brands, the licence itself was an exclusive licence though within customer and geographic limits. While the Sub-Licence permitted Sara Lee to use the marks outside those limits, it envisaged the possibility of its obtaining product from Underworks. Beyond this and what we have already said about the significance of the subject matter of the Sub-Licence (i.e. it related to trade marks), there is little else that throws light on the construction issue although we would also note that the agreement not only imposed a general confidentiality obligation on the parties (cl 9), it also positively protected the more sensitive parts of the Sub-Licensee’s business information from disclosure to the Sub-Licensor notwithstanding the independent audit requirement imposed in association with verifying royalties payable (cl 5.5). The reasons for both such obligations are understandable. The former reflected a predictable appreciation that some level of personal trust and confidence necessarily underlay the business relations of the contracting parties. The latter, while respecting that confidence, nonetheless imposed an accountability requirement through the independent audit requirement.
Considered in its totality, we are satisfied that the Sub-Licence in its setting, while not of a type that was necessarily inherently personal in character: cf Furmston (ed), above, 6.308-6.309; was nonetheless intended to create an enduring relationship in which the identity of Sara Lee as the Sub-Licensor was material and was made so by Sara Lee in particular. While acknowledging the legitimate interest the Sub-Licensor had in exercising control over the use of the mark and hence having contractual powers to that end, we consider that there are sufficient indications in the text of the Sub-Licence itself that the particular will to which the Sub-Licensee was asked to subject itself was Sara Lee’s, and that that was a state of affairs that Underworks agreed to (especially having regard to the terms in which certain control and veto powers were cast, e.g. cll 8.4, 10 and 12) because it could not be changed without its consent: cf L/M International Construction Inc v The Circle Ltd Partnership (1995) 49 Con LR 12 at 25. As indicated above, those clauses in the agreement which referred specifically and expressly to Sara Lee or to the Sara Lee Corporation are of particular significance in this.
Accordingly we agree with his Honour’s conclusion in this particular matter.
(iv) Was Underworks’ consent required for the assignment?
Unless the contract otherwise provided, our conclusion above is decisive of this question. The appellants contend that it did. Reliance is placed upon the “Interpretation” clause’s reference to “permitted substitutes or assigns” to which we have earlier referred.
The primary judge dealt with the matter shortly. His Honour held that consent to the assignment could not be inferred from cl 1.2. A “permitted” assignee referred only to assignments that did not require the other party’s permission. An assignee could only be described as a “permitted” assignee where permission was required if that permission had been given.
We have already indicated that if the Sub-Licence had defined Sara Lee for its purposes as “Sara Lee and its assigns”, such a definition would, save in exceptional circumstances, signify a contractual intent that Sara Lee’s benefit of the contract would have been assignable: Peacocke Land Co Ltd v Hamilton Milk Producers Co Ltd, above: Devefi v Mateffy, above, at 235, 238-239: see also Denham Bros Ltd v W. Freestone Leasing Pty Ltd [2004] 1 Qd R 500 at 517-519. Clause 1.2 does not define Sara Lee in this way. Moreover it is a clause of general application, applying to references to the parties not only in the Sub-Licence, but also to references to them in “any other agreement or document”. Necessarily, the description “permitted assigns” must in this context mean if assignment is permitted on the proper construction of the agreement or document in question. It does not of itself by inference provide consent to any assignment where, as here, consent would otherwise be required. It is this which distinguishes this case from the Peacocke Land Co Ltd type of case.
Accordingly we agree with the primary judge’s conclusion on this issue.
(v) Was Underworks’ consent given to the assignment
While not pursuing their claims that the Sub-Licence was novated, or that Underworks waived the requirement of its consent or was estopped from insisting upon it, Pacific Brands challenges the primary judge’s failure to find that Underworks acquiesced or consented by conduct to the assignment. Though, it is said by Underworks that this was not raised below, Pacific Brands’ contention is that it was a lesser position encompassed by the broader case of novation and implied licence.
The primary judge addressed the issue of consent by reference to whether there had been a novation of the Sub-Licence and his comments on Underworks’ conduct necessarily must be seen in that light. His Honour accepted that there was a regular course of dealing between Underworks and Pacific Brands from the time of the assignment for nearly 2½ years observing that, at [33]:
“Underworks dealt with Pacific Brands as if each power conferred by the sub-licence upon the sub-licensor was exercisable by Pacific Brands and that the performance of each obligation imposed upon Underworks was performance due to Pacific Brands.”
During that time there were protracted negotiations for a new licence agreement between them but the facts did not establish that there had been a novation of the Sub-Licence:
“there is simply no evidence upon which to base a finding that either Underworks or Sara Lee intended (by inference) to release each other from their obligations under the sub-licence”: [43].
His Honour went on to say at [47]:
“I should say that even if I were to ignore the negotiations and rely solely on the conduct upon which the applicants rely to establish the existence of a novation, that evidence would not suffice, in my opinion. If the conduct in question is consistent with an intention not to contract, for example, if the conduct is referable to some other obligation, a contract by conduct will not arise: Horrocks v Forray [1976] 1 WLR 230, 238-239; The Aramis [1989] 1 Lloyd’s Reps 213, 224. In this case, when viewed objectively by a person in Pacific Brands’ position (as to the importance of this approach for the creation of a contract see Smith v Hughes (1871) 6 QB 597, 607), Underworks’ conduct may be explained as referable at least in part to an assignment of some of the rights under the sub-licence (for example the payment of royalties to Pacific Brands) and a belief (as asserted by Pacific Brands itself) that thereafter as a practical matter Underworks was required to deal with Pacific Brands rather than Sara Lee. All in all, I think the applicants’ claim for novation is hopeless.”
The respondent’s contention, shortly, is that if acquiescence was to serve any role in this matter, it had to be acquiescence in the transmission of the rights and obligations from Sara Lee to Pacific Dunlop and this was not the case. It is contended as well that his Honour’s comments on Underworks’ conduct and the alleged novation apply equally to the alleged acquiescence.
The appellants’ case is an untenable one. We agree that the primary judge’s characterisation of Underworks’ conduct vis-à-vis Pacific Brands for the purposes of the novation claim apply, equally, to the consent claim. It would, in our view, be quite incongruous in this setting to find that Underworks consented to Pacific Brands acquiring some of the very rights which it (Underworks) strenuously objected to its acquiring under the proposed deed of novation. The parties’ conduct must be evaluated under the shadow of the novation negotiations and, importantly, in light of the fact that Underworks was conducting a going concern at the time. So considered, we consider its dealings with Pacific Brands did not constitute a consent to the assignment, but rather was in the nature of a holding measure at a time at which it was in a position of unexpected vulnerability to a competitor, pending a satisfactory resolution of the matter.
CONCLUSIONS ON ASSIGNMENT
The appeal must be dismissed as the substantive obligations of the Sub-Licence the appellants allege Underworks breached were not assigned to them. They remained with Sara Lee with the consequence that, if they were breached, it was for Sara Lee to complain of this.
BREACH AND TERMINATION
The primary judge considered it necessary, notwithstanding his adverse finding on assignment, to deal with the issues of breach and termination. It is necessary that this Court does so as well.
For the purposes of this appeal Pacific Brands allege that Underworks was in breach of the following clauses of the Sub-Licence:
(i) cl 4.3, in that it failed to “exploit” the products the subject of the Sub-Licence;
(ii) cll 8.1 and/or 8.2 by failing to submit any or any appropriate marketing plan;
(iii) cl 12, in failing to submit reports of audit of its manufacturing facilities.
It is contended that his Honour erred in failing to find:
(a) such was the case;
(b) the Sub-Licence was lawfully terminated under cl 18.2; and/or
(c)Underworks’ anticipatory breach of its future contractual obligations amounted to a repudiation which was accepted by Pacific Brands.
There is as well a distinct ground of appeal relating to his Honour’s finding that Pacific Brands’ termination of the Sub-Licence was in breach of its implied duty of good faith, such a duty being an incident of every commercial contract unless expressly or impliedly excluded.
The Breaches Alleged
(i) Cl 4.3 and exploitation of the products
Clause 4.3 obliges the Sub-Licensee to exploit “the Products” within Australia and New Zealand to the best advantage of the parties. The “Products” are defined in cl 1.1 to mean in relation to the King Gee and Stubbies marks “men’s socks and underwear” and “children’s socks and underwear” respectively and “such other products” as shall be agreed by the parties in writing.
It was common ground at trial that Underworks did not sell socks or underwear bearing the Stubbies mark, although the primary judge found that it made reasonable but unsuccessful efforts so to do. His Honour went on to find that the subclause did not impose an obligation on Underworks to effect sales of products bearing the Stubbies marks. While the word “exploit” could convey the notion of the successful exploitation of the products bearing the mark “that is turning their use (by sale) to profit”, that was not the meaning he gave the word for the following three reasons:
“First, the original parties to the sub-licence were no doubt aware of the risk that the products might not find a market. The risk is not confined to socks and underwear. Second, the contractual obligation is to exploit the products ‘to the best advantage of the parties’. The parties (or at least one of them) might not be advantaged by exploitation (sales) which result in a loss. Third, cl 5.7 permits the sub-licensor to terminate the sub-licence if sales above a certain level (that is sales which would not produce the minimum royalty) are not achieved. This suggests that if there were no sales or no minimum sales the parties contemplated that the sub-licence could be brought to an end, but not as a result of breach”: [53].
The appellants challenge each of these reasons: the first, because the assumed awareness of the parties provides no foundation for any inference that they were unwilling to take that risk; the second, because his Honour failed to take account of the fact that failure to exploit may have made the mark vulnerable to removal from the register for non-use of the mark under s 92(4)(b) of the Trade Marks Act 1995 (Cth) (non-use of mark for 3 years preceding the removal application), and the third, because cl 5.7 is irrelevant to the proper construction of cl 4.3.
The respondent in its submissions notes that the cl 18.2 notice of termination relied upon in the Amended Statement of Claim was that of 15 August 2003 and contends that the purported termination was ineffective as the notice did not satisfy the requirements of cl 18.2. As to the alleged breach itself, it contends that, as the uncontested evidence showed it made considerable and reasonable efforts to find a market for the Stubbies products but was unsuccessful in doing so. Given the cl 4.3 obligation was not an absolute one to exploit the products, but only was one to do so to the best advantage of the parties, this did not require it to sell the products irrespective of whether there was an available market for the products or a profit to be made. The alleged risk of removal from the register under s 92 of the Act, it is said, was not a real concern as Sara Lee and Pacific Brands had the option under cl 7.2 of the Sub-Licence to cause use of the mark by obtaining Stubbies products from Underworks for cl 7.1 purposes.
On the issue of breach, we agree with the above submissions. The absolute character that the appellants’ submission requires cl 4.3 to be given is untenable given the qualified language of the sub-clause. That provision does not wholly subordinate the Sub-Licensee’s interests to those of the Sub-Licensor. We should add that we do not consider that the fact that the Sub-Licence is for the use of a trademark affects this conclusion. The parties have not agreed to “use” of the mark at all costs.
It is unnecessary to consider whether the notice of termination was defective in relation to this alleged breach.
(ii) Subclauses 8.1 and 8.2 and marketing plans
Subclauses 8.1 and 8.2 required Underworks to submit an initial marketing plan containing specified information and thereafter a similarly formatted plan annually by a specified date.
His Honour dealt with this matter shortly, noting that the 15 August 2003 notice of breach alleged mistakenly that the marketing plan had not been submitted by the specified date in 2003 for the year 2004. While there was a good deal of evidence concerning the fact that the plan did not contain the required information (which his Honour noted “may be true”), that was not the breach referred to in the notice.
The breach complained of was the non-receipt of the marketing plan by the prescribed date. It went on to note that the plan “must include all of the detailed information set out in clause 8.1”. Given the premise of the notice (i.e. non-receipt), this cannot be construed as alleging an existing breach of clause 8’s requirements as to the content of that plan.
We agree with the primary judge’s conclusion as it relates to termination under cl 18.2. We would simply add that the notice did not retrospectively change its character because subsequent communication between the parties indicated that the plan received did not meet the requirements of cll 8.1 and 8.2. The notice relied upon in the pleading for the purposes of cl 18.2 was that of 15 August 2003 alone.
The alternate claim of repudiation advanced by Pacific Brands is not so easily dealt with. At trial it would seem that Pacific Brands relied upon Underworks not providing adequate plans as one aspect of its case that Underworks had repudiated the Sub-Licence. The primary judge made no findings on the repudiation claim. Complaint is made of this in ground 13(b) and (c) of the notice of appeal. However, the difficulty with this ground of appeal is that the only submissions made on the appeal in relation to repudiation as such relate to the inadequacy of the marketing plans provided by Underworks and, in particular, of the plan for 2004. For the reasons we have already given, or will later give, the alleged breaches of cl 4.3 and cl 12 cannot be rolled into the repudiation case.
The evidence of repudiation in relation to the plan for 2004 is sparse. Though allegedly non-compliant plans had been forwarded by Underworks in previous years, no complaint had been made of this and, after the assignment to Pacific Brands, no complaint was made explicitly until after the notice of breach. In September 2002, while information was sought from Mr Todaro of Underworks relating to details that in fact fell within the cl 8 requirements, no complaint was made of the inadequacy of the plan for 2003, nor was any such issue raised with Mr Todaro at a meeting with Pacific Brands on 19 September 2002.
When the plan for 2004 was received by Ms Shwabsky of Pacific Brands around mid August 2003 an email was sent to Mr Todaro on 21 August 2003 which indicated that the plan was “very brief and does not meet the guidelines set out in the licence agreement”. It requested additional material as specified in cll 8.1 and 8.2. The sender, Ms Shwabsky, was a former Sara Lee employee and then an employee of first Pacific Dunlop and then Pacific Brands. She was responsible for the King Gee brand. In cross-examination she acknowledged that this was the first time she had sought information in this way about a marketing plan.
Mr Todaro responded on 25 August 2003 indicating: “No problem will address the relevant details. Can you send me your marketing plan so we can tie in with your programme”. On the same day Ms Shwabsky replied enclosing some papers from Pacific Brands’ plan which she said in cross-examination were relevant to Underworks’ plan. Packaging plans were apparently of immediate concern and this was highlighted in the Shwabsky response. Todaro gave a response to the delay in providing packaging details noting that “I received an email from you saying that until the contract [i.e. the Deed of Novation] was finalised nothing would be approved. I presumed this included the packaging”. He then indicated that the person who was to do the artwork for the packaging – it was to be done by an unrelated company – was on leave until 8 September 2003.
There was a breach of clause 12 as at the date of the Breach Notice.
ASSIGNMENT
The appellants contend, in effect, that by reason of the March 2001 transactions and the November 2001 transactions, clause 18.2(a) should be understood as having the effect that PB Sport & Leisure, as the assignee of the rights of Sara Lee under the Sub-Licence, may terminate the Sub-Licence, if Underworks commits a breach of any term or condition of the Sub-Licence and does not remedy the breaches as reasonably required by PB Sport & Leisure within 30 days after written notice of the breach and the required remedy has been given to it by PB Sport & Leisure. The appellants rely, in that regard, on the effect of the March transactions and the November transactions and say that the Breach Notice is written notice as required by clause 18.2(a).
The proceeding has been conducted on the basis that the outcome is dependent upon whether the purported assignments were effective to transfer the legal right to terminate. No suggestion has been made that PB Sport & Leisure had any right as equitable assignee. Nor has it been suggested that Sara Lee adopted the Breach Notice and the Termination Letter as its own, in order to effect a termination of the Sub-Licence.
GENERAL PRINCIPLES AS TO ASSIGNMENT
The word ‘contract’ is derived from the Latin ‘contrahare’, meaning to draw together. A contract gives rise to ‘obligations’. That word is derived from the Latin ‘obligare’, meaning to bind together. Those notions led Roman lawyers to say ‘nomina ossibus inhaerent’: that is to say, contractual claims cling to the bones (of the contracting parties). Accordingly, in classical Roman law, contractual obligations, being personal, could not be assigned: a contractual claim could not be separated from the person of the contracting parties and could be enforced only by a contracting party against a contracting party (see R Zimmermann, The Law of Obligations- Roman Foundations of the Civilian Tradition, Juta & Co Ltd, Cape Town, 1990). The ingenuity of Roman lawyers devised means for circumventing that inconvenient principle, but the means were often cumbersome. The two principal means were novatio, which required the cooperation of both contracting parties, and procuratio in rem suam, which involved the substitution in a court action of a representative of the contracting party seeking to enforce the contract: the representative would be the intended assignee, who would agree with the intended assignor to keep for himself the proceeds of the court action (see Gaius, The Institutes of Gaius, translated with an introduction by WM Gordon and OF Robinson, Duckworth, London, 1988 at 4.83).
By the time of Justinian, an action was allowed in the name of an assignee whenever the parties intended to transfer a claim (see Zimmermann op cit p62). Nevertheless, the Digest incorporated the classical sources dealing with novatio and procuratio in rem suam, creating considerable confusion for mediaeval jurists, since the existence of novatio and procuratio was seen to be inconsistent with the assignability of contractual rights. The confusion continued in Europe through the Middle Ages to the 19th Century (Zimmermann, op cit pp 62-66).
Under the old common law rule, contractual rights were not assignable without the consent of both contracting parties. The rule was probably derived from Bracton’s De Legibus Consuetudinibus Angliae, itself based on the Corpus Iuris Civilis, and was therefore based on the classical Roman law notion that a contractual right was a right of a personal nature. Later, the common law rules against maintenance and champerty reinforced the principle (see Chitty on Contracts, 29th edn, ed HG Beale et al, Sweet & Maxwell, London, 2004 at 19-001).
It was not until the passing in England of 36 and 37 Vic c.66 (‘the Judicature Acts’), that a general right to assign choses in action was created in England. Section 25(6) of the Judicature Acts, which was the prototype of s 12 of the Conveyancing Act 1919 (NSW), was an incident of the amalgamation of the superior courts of Common Law and Equity in England, with a view to the fallacy of the rules of Common Law and Equity, leading to the administration in the new Supreme Court of Judicature of one system of law in place of the two previously known as Common Law and Equity. The intention was that in all matters in which there was a conflict or variance between the rules of Equity and the rules of the Common Law with reference to the same matter, the rules of Equity would prevail.
The phrase ‘chose in action’, as used in s 12 of the Conveyancing Act, refers to all personal rights of property that can be claimed or enforced only by action and not by taking physical possession. It includes rights that were probably not intended to be assignable by virtue of s 25(6), such as shares in an incorporated company. The phrase, therefore, should be read down in s 12 to mean a right that the Common Law looks on as not assignable by reason of its being a chose in action, but that a court of Equity deals with as being assignable. In the result, therefore, a contractual right will be assignable under s 12 of the Conveyancing Act if the contractual right was, prior to the passing of the Judicature Acts, assignable in Equity but not at Common Law (see Torkington v Magee [1902] 2 KB 427 at 430-431).
One consequence of a chose in action being assignable is to qualify the common law doctrine of privity of contract. The common law doctrine of privity of contract means generally that a contract cannot confer rights on any person except the parties to it and preclude a person who is not a party to a contract from taking the benefit of, or being bound by, the contract (Chitty op cit at 18-003). The rules as to assignment constitute an exception to that doctrine (Chitty op cit at 18-073).
Because s 25(6) of the Judicature Acts was intended to assimilate the Common Law rules to the rules of Equity, the assignability of contractual rights in any given case is generally governed by the rules of Equity existing before the Judicature Acts. Those rules apply to statutory assignments under s 12 of the Conveyancing Act (Chitty op cit at 19-042).
Rights arising under ordinary commercial contracts are prima facie readily assignable (Chitty op cit at 19-055). However, if rights arising under a contract are declared by the contract to be incapable of assignment, a purported assignment by one contracting party will be invalid as against the other contracting party. Assignment of certain rights will also be prohibited by statute or may be void on grounds of public policy. Similarly, under the Common Law, a chose in action may not be assignable if the assignment savours of maintenance or champerty. Further, the benefit of a contract may not be assignable in a case where the personality or identity of the parties is significant, that question being determined objectively having regard to the nature of the contract and the subject matter of the rights assigned (see Chitty op cit at 19-043 to 19-054).
ASSIGNABILITY OF THE SUB-LICENCE
The Sub-Licence is not an instrument in which the drafter should feel any sense of pride. It exhibits a degree of carelessness on the part of those responsible for its preparation. It is likely that it is the result of following a precedent without real care to ensure that the instrument being prepared was appropriate for the transaction under contemplation.
The Sub-Licence is expressed to be made between two companies. Sara Lee is defined as ‘Sub-Licensor’ and Underworks is defined as ‘Sub-Licensee’. Those terms are then used throughout the Sub-Licence, although there are at least three places where the wrong term is employed.
Three separate provisions of the Sub-Licence expressly address the question of assignment. They are as follows:
·Clause 1.2 deals with ‘Interpretation’ and sub-clause 1.2(d) provides as follows:
‘(d)A reference to a party to this Agreement or any other agreement or document includes the party’s successors and permitted substitutes or assigns.’ [Emphasis added]
·Clause 2.1 is the pivotal provision of the Sub-Licence and relevantly provides as follows:
‘2.1The Sub-Licensor grants to the Sub-Licensee, with no rights to assign, (subject to Clause 14), charge or sub-license, an exclusive sub-licence to use the Licensed Marks… during the Term. …’ [Emphasis added]
·Clause 14 relevantly provides as follows:
‘14.1The Sub-Licensee must not at any time without the written consent of the Sub-Licensor (which may be withheld at the Sub-Licensor’s sole discretion) assign, sell, lease, transfer or otherwise dispose of or encumber any of its rights and obligations under this Agreement…’ [Emphasis added]
It is clear from those provisions that the parties contemplated that the Sub-Licence was assignable by Underworks, albeit only with the written consent of Sara Lee. There is no provision for assignment by Sara Lee, whether with or without the consent of Underworks. On the other hand, clause 1.2(d) clearly contemplates the possibility of assignment by each party. In the absence of anything further, therefore, one would conclude that the Sub-Licence was intended by the parties to be assignable by Sara Lee without the need for consent on the part of Underworks but that the Sub-Licence was assignable by Underworks only with the consent of Sara Lee.
The Sub-Licence relates to the use of trade marks. A trade mark is freely assignable under the Trade Marks Act. The relationship between the owner of a trade mark and a user of the trade mark and the subject matter of such an arrangement is not one that would ordinarily be regarded as personal to either party. Accordingly, one would not expect, in ordinary circumstances, to find in a licence to use a trade mark any restriction on the right of the owner of a trade mark to assign the trade mark, subject to the assignment being made subject to the rights of the licensee.
On the other hand, one would ordinarily expect that there would be some restriction imposed on assignment by a licensee, if for no other reason than the provisions of the Trade Marks Act dealing with the control by the owner of a trade mark of an authorised user of the mark. Section 8(1) of the Trade Marks Act provides that a person is an authorised user of a trade mark if the person uses the trade mark in relation to goods or services under the control of the owner of a trade mark. Under s 8(2), the use of a trade mark by an authorised user of the trade mark is an authorised use of the trade mark to the extent only that the user uses the trade mark under the control of the owner of the trade mark. Section 8(3) provides that, if the owner of a trade mark exercises quality control over goods or services dealt with or provided in the course of trade by another person and in relation to which the trade mark is used, the other person is taken, for the purposes of s 8(1), to use the trade mark in relation to the goods or services under the control of the owner. As will appear, there are provisions of the Sub-Licence that might be taken to constitute control by Sara Lee of Underworks. As I have indicated, the licence from Saramar to Sara Lee was not in evidence.
Clause 3.1 of the Sub-Licence relevantly provides as follows:
‘The Sub-Licensor (sic) hereby acknowledges that the Licensor is the owner of all right, title and interest in and to the Licensed Marks…. The Sub-Licensee further acknowledges that the Sub-Licensor is the exclusive licensee of the Licensors (sic) relative to the Products…’
It is common ground that the first reference to ‘Sub-Licensor’ is erroneous and should be a reference to ‘Sub-Licensee’.
Clauses 8, 10, 11, 12 and 13 of the Sub-Licence are directed to control. Those clauses relevantly provide as follows:
‘8.1In order for the Sub-Licensor to assess the way in which the Sub-Licensee proposes to use the Licensed Marks, the Sub-Licensee shall prepare and submit… to the Sub-Licensor for its review a marketing plan for the Product containing particulars of all labels, advertising, promotional and other related material together with schedules for proposed production and sales targets, sales release dates, methods of distribution and sale, promotional expenditure and details of any other marketing programs…
…
8.5In order to review brand positioning and ensure that the Sub-Licensor’s reputation in its products and brands is maintained, the Sub-Licensee shall at its own cost submit to the Sub-Licensor concept samples of each line of Product to be manufactured or sold and to be marketed by the Sub-Licensor… for approval.
…
8.7The Sub-Licensee shall only use the Licensed Marks on products, packaging, labels, advertising and promotional materials in the form and format approved in writing by the Sub-Licensor PROVIDED THAT the Sub-Licensee may indicate its corporate name as manufacturer of the Products with the notation that it does so under sub-licence from Sara Lee Apparel (Australasia) Pty Ltd.
…
10APPROVED MANUFACTURING FACILITIES
Licensor and Sub-Licensor are committed to having their products produced in manufacturing facilities that operate under responsible, safe and humane conditions. To that end, the Sub-Licensor agrees that the Sub-Licensee shall be entitled to manufacture the Products in only those manufacturing facilities (third-party or owned) for which Sub-Licensee has obtained Sub-Licensor’s prior written approval… Sub-Licensor hereby approves the use of the manufacturing facilities listed on Schedule 3 attached hereto… Sub-Licensee acknowledges that Sub-Licensor may require Sub-Licensee to provide, at Sub-Licensee’s expense, evidence of satisfactory working conditions at the facility, including, but not limited to, independent third-party audits by firms approved by Sub-Licensor.
…
11. GUIDELINES
The Sub-Licensee acknowledges receipt of a copy of Sara Lee Corporation’s Global Business Standards and Supplier Selection Guidelines (the “Guidelines”) and shall provide the Guidelines to any and all vendors or manufacturers appointed under this Agreement. Licensor shall provide Sub-Licensee with a sufficient number of copies of the Guidelines at no cost to Sub-Licensee… Sub-Licensee shall cause the Guidelines to be posted at all times in facilities where Products are manufactured.
…
12 AUDITS
Sub-Licensee shall… have each facility (third-party or owned) it uses to product [sic, scilicet produce] Products independently audited by a firm approved by Sub-Licensor, for compliance with these or such similar Guidelines as Sara Lee Corporation may require from time to time. Audits to ensure compliance to the Guidelines shall be conducted at least annually.
…
13 INSPECTION RIGHTS AND QUALITY CONTROL
13.1Sub-Licensor retains the right… to conduct its own or independent third-party inspection and audit of Sub-Licensee and any third-party manufacturer with [sic, scilicet which] manufactures the Products for compliance with the Guidelines or such similar guidelines as Licensor may establish or be subject to from time to time.
13.2Licensor and Sub-Licensor encourage Sub-Licensee and all of Sub-Licensee’s manufacturers and subcontractors to voluntarily participate in the Worldwide Responsible Apparel Production (“WRAP”) factory certification program. If Sub-Licensee and all facilities producing the Products become WRAP certified (and remain certified periodically), Sub-Licensee shall provide proof of such certification to Sub-Licensor as required, and shall be exempt form [sic] the provisions of clause 12 above…
13.3Sub-Licensee shall provide to Sub-Licensor at Sub-Licensor’s request for the purposes of reasonable quality control testing such of the Products as may be specified by Sub-Licensor and/or Licensor, as the case may be.
13.4Products, packaging, labels, advertising or promotional material which in the reasonable opinion of the Sub-Licensor fails to attain the requisite quality standard shall upon written notification from Sub-Licensor or Licensor be immediately withdrawn from product, corrected or destroyed.’
The term ‘Licensor’ is used in those clauses. That term is defined as meaning Saramar. However, Saramar is not a party to the Sub-Licence. There are also references to ‘Sara Lee Corporation’ and to Sara Lee Corporation’s ‘Guidelines’ (as defined). However, there is no other indication in the Sub-Licence as to the identity of Sara Lee Corporation or how Sara Lee Corporation may ‘require’ compliance with ‘such similar Guidelines’.
The references in the clauses described above to ‘Licensor’ and ‘Sara Lee Corporation’ may be significant in relation to the assignability of the Sub-Licence by Sara Lee. There is nothing in the Sub-Licence to suggest any particular connection between Sara Lee and Saramar. Thus, to the extent that rights are purportedly reserved to Saramar as ‘Licensor’, there is nothing exceptional in the provisions. That is to say, if Sara Lee assigned the benefit of its licence from Saramar, it would do so subject to the Sub-Licence but Saramar would want to ensure that Saramar, as owner of the trade mark, could continue to exercise the same degree of control.
On the other hand, having regard to the similarity of names, an inference can be drawn that there is some connection between Sara Lee and Sara Lee Corporation. However, why Sara Lee Corporation would have an interest in the manufacture of Products is not entirely clear. Neither Saramar nor Sara Lee Corporation is a party to the Sub-Licence. It would be open to an assignee from Sara Lee of the benefit of the Licence from Saramar and the benefit of the Sub-Licence to Underworks to enforce the provisions of the clauses summarised above just as well as Sara Lee could enforce them. Similarly, there is nothing in the Sub-Licence to indicate a particular significance, so far as Underworks is concerned, as to the identity of Saramar or Sara Lee Corporation in relation to the matters that are the subject of the clauses to which I have referred.
Clause 4 of the Sub-Licence deals with ‘USE OF LICENSED MARKS’. Under clause 4.1, Underworks is to use the King Gee Mark only with respect to men’s underwear and socks and the Stubbies Mark is to be used by the Sub-Licensee only with respect to children’s socks and underwear. Clause 4.2 prohibits Underworks from exporting, selling or marketing directly or indirectly beyond the Territory (as defined). Clause 4.3 then provides that Underworks must ‘exploit the Products within the Territory to the best advantage of the parties’. Clause 4.4 provides that Underworks must not be a party to any act likely to prejudice the Licensed Marks or the commercial rights to which the Licensor and the Sub-Licensor are entitled.
Clause 4.3 may have been directed toward s 92(1) of the Trade Marks Act. Under s 92(1), a person may apply for a trade mark to be removed from the Register. One of the grounds on which such an application may be made is that the trade mark has remained registered for a continuous period of three years and at no time during that period has the registered owner used the trade mark in relation to the goods to which the application relates. Once exclusive licence to use the Trade Marks in Australia had been granted, Sara Lee may not be able to avoid a possible application under s 92 if Underworks did not use the Trade Marks. Clause 4.3, therefore, has some significance in the context of the overall effect of the Sub-Licence as a licence in relation to the use of registered trade marks.
On the other hand, exploitation of the Products to the best advantage of the parties may depend upon the identity of the parties. That is to say, use of the Trade Marks that would be to the advantage of Sara Lee would not necessarily be a use that would be to the advantage of an assignee, such as PB Sport & Leisure, and vice versa. Clause 4.3, therefore, could be seen as militating against assignment by Sara Lee without the consent of Underworks.
Clause 5 deals with ‘ROYALTY PAYMENTS’. Clauses 5.1 and 5.2 deal with the calculation of royalties. Clause 5.3 provides for payment of royalties and clause 5.4 requires the Sub-Licensee to provide a written statement with each payment of royalty showing sales of Products, by type and style, as well as how the royalty was computed. Clause 5.8 requires that ‘Sub-Licensor [sic] shall provide monthly reporting to the Sub-Licensor… by customer, by brand, by category’. The first reference to ‘Sub-Licensor’, of course, is another example of careless drafting and should refer to ‘Sub-Licensee’.
Clause 5.5, however, provides for the Sub-Licensee to keep accurate and complete books and records of account concerning its manufacture, promotion, sale and distribution of the Products. The Sub-Licensee is to permit its books and records of account to be examined once per annum upon reasonable notice. Such inspections are to be made ‘by an independent accountant appointed by the Sub-Licensor’. The function of the accountant is ‘to verify records, statements and net proceeds’. That is the information that the Sub-Licensee is required to furnish in any event. Underworks suggests that such a provision is unlikely to have been intended to be exercisable by a competitor. However, the independent accountant is not required to disclose commercially confidential information to the Sub-Licensor and the Sub-Licensor would not be entitled to be given such information.
The reference in clause 8.7 to Sara Lee by name is significant. If the rights of Sara Lee under the Sub-Licence were effectively assigned, it would be reasonable to read the Sub-Licence as though the name of the assignee appeared wherever ‘Sub-Licensor’ appeared. However, it is more difficult to read the express reference to ‘Sara Lee Apparel (Australasia) Pty Ltd’ as a reference to any entity other than Sara Lee. Having regard to the carelessness in the drafting of the Sub-Licence, it may be possible to read ‘Sara Lee Apparel (Australasia) Pty Ltd’ in clause 8.7 as though it says ‘Sub-Licensor’. On the other hand, if it is not possible to read the clause in that way, the clause is a firm indication that the identity of Sara Lee was of importance to the parties, such that the Sub-Licence would not be regarded as assignable.
Clause 9 deals with ‘CONFIDENTIALITY’. Clause 9.1 relevantly provides:
‘All commercially sensitive information made available by the Sub-Licensee, the Sub-Licensor or the Licensor (the “Confidential Information”) is done so in strict confidence and shall be kept strictly confidential by the other party/parties.’
Apart from the odd syntax, it may be difficult to determine precisely how clause 9.1 would operate in the event of assignment.
Under the terms of the Sub-Licence, a significant measure of co-operation between the Sub-licensor and the Sub-Licensee would be required. Thus, giving of approvals for new products, packaging and manufacturing facilities and marketing programs require the exercise of individual discretion. Underworks says that one of the background facts that was known to the parties to the Sub-Licence was that Sara Lee and Underworks were not competitors. The provisions to which Underworks draws attention, where discretion is involved, may operate in a totally different context where Sub-Licensor and Sub-Licensee are competitors. That consideration suggests that the identity of Sara Lee was of importance.
The references to Sara Lee Corporation and to Sara Lee by name, in the manner described above, can be explained as incidents of careless drafting. Some of the provisions described above point towards assignability on the part of Sara Lee, without any need for consent on the part of Underworks. However, the extent of the discretions conferred upon Sara Lee and Sara Lee Corporation suggests that the identity of Sara Lee was significant. On balance, I consider that the Sub-Licence would not have been assignable in equity and, accordingly, was not assignable at law pursuant to s 12 of the Conveyancing Act. That would be sufficient to dispose of the appeal.
EFFECTIVENESS OF PURPORTED TERMINATION
However, further questions arise concerning the effectiveness of the purported termination of the Sub-Licence, even if there was a breach and there were effective assignments. The first is whether the Breach Notice satisfied the requirements of clause 18.2 of the Sub-Licence and, if so, whether Underworks remedied the breach. The second question, if the Breach Notice was adequate and the breach was not remedied, is whether PB Sport & Leisure was under an obligation of good faith towards Underworks in the exercise of any right to terminate and whether the purported termination was in breach of that duty.
Clause 18.1 of the Sub-Licence provides that it was to be effective from 1 January 2001 for a period of five years unless earlier terminated, as provided by clause 18. Clause 18.2 relevantly provided that Sara Lee could terminate the Sub-Licence if Underworks commits a breach of any term or condition of the Sub-Licence and does not remedy the breach as reasonably required by Sara Lee within 30 days after written notice of the breach and the required remedy has been given to Underworks by Sara Lee. Under clause 18.4, upon termination of the Sub-Licence for any reason whatsoever, Underworks was to lose all rights conferred by the Sub-Licence. Under clause 19.1(a), at the expiration of that period of five years, the Sub-Licence was to be renewed for one further term of five years, unless it had been earlier terminated pursuant to clause 18. There were other provisions of clause 18 dealing with other circumstances in which the Sub-Licence could be terminated. They are not presently relevant.
THE BREACH NOTICE
Three breaches of the Sub-Licence are presently relied on by the appellants as indicated above. An important requirement of clause 18.2 is that there be written notice given of the required remedy for an alleged breach. It is convenient to deal with that question in relation to each alleged breach separately.
Failure to Exploit the Trade Marks
The Breach Notice relevantly says as follows:
‘1.Pursuant to clause 4.2 [sic] of the Licence, Underworks is required to exploit childrens socks and underwear bearing the Stubbies trade mark within the territory of Australia and New Zealand. As far as we are aware, Underworks is not currently selling socks or underwear under the Stubbies trade mark.’
The reference to clause 4.2 of the Sub-Licence was obviously not intended. By clause 4.2, Underworks was prohibited from exporting, selling or marketing the Products beyond Australia and New Zealand. Item 1 of the Breach Notice refers expressly to a requirement for Underworks to exploit children’s socks and underwear bearing the Stubbies trade mark. The recipient of the Breach Notice could not have failed to realise that there was an error and that the intended reference was to clause 4.3 of the Sub-Licence.
The Breach Notice does not purport to give notice of ‘the required remedy’. Rather, the Breach Notice simply says that PB Sport & Leisure requires ‘the following breaches’ to be remedied within 30 days. On one approach, the only remedy for a breach consisting of failure to exploit children’s socks and underwear bearing the Stubbies Trademark is to commence exploiting. That, however, gives rise to the question of just what is required in order to exploit those Products.
Clearly enough, some lead time would be required before such Products could be available for marketing, selling and distributing within the Designated Channels as contemplated by clause 2.1. Clause 18.2(a) contemplates remedy of a breach as reasonably required by Sara Lee. That indicates that the remedy of which notice is to be given is one that could reasonably be effected within 30 days. Thus, in order to trigger the right of termination, the notice must specify a remedy that it would be reasonable to effect within 30 days.
The Breach Notice gives no particulars of the steps that PB Sport & Leisure required Underworks to take in order to ‘exploit’ the Products. Having regard to the terms of the licence granted by clause 2.1, exploitation must entail manufacturing, marketing, selling and distributing the relevant Products, namely, children’s socks and underwear. No attempt is made in the Breach Notice to specify what manufacturing, marketing, selling or distribution of such Products is required. I do not consider that the Breach Notice satisfied the requirements of Clause 18.2(a) of giving written notice of the required remedy for the breach of clause 4.3. Further, I do not consider that the breach, or the failure to comply with the Termination Letter, is evidence of an intention not to be bound by the Sub-Licence that would give rise to a common law right to rescind for repudiation.
Failure to Submit Marketing Plans
The primary judge observed that Ms Young was mistaken in her belief that Underworks had not submitted a marketing plan by 15 June 2003. His Honour observed that ‘the plan had in fact been sent to Mr Taylor who had failed to inform Ms Young of its receipt’. His Honour considered that, while there had been a good deal of evidence about the fact that that marketing plan did not contain the required information, that was not the breach referred to in the Breach Notice.
The Breach Notice relevantly said as follows:
‘2.To date the marketing plan [that] must be submitted on or before 15 June each year in accordance with clause 8.2 of the Licence has not been received. Please note that the marketing plan must include all of the detailed information set out in clause 8.1.’ [word added]
The syntax of that part of the Breach notice seems to be somewhat awry. However, its meaning is clear enough. It draws attention to the fact that the marketing plan required by clause 8.2 to be submitted by 15 June 2003 has not been received.
The Breach Notice clearly enough refers to the requirement for the submission, on or before 15 June, of a marketing plan containing all the detailed information set out in clause 8.1. The document sent to Mr Taylor patently did not contain the information referred to in clause 8.1. While it was clear that the Breach Notice required the breach of clause 18.2 to be remedied by submission of a marketing plan containing that detailed information, it made no mention of the document dated 10 June 2003.
That is to say, the Breach Notice made no attempt to identify the deficiencies in the document of 10 June 2003. That is of some significance in circumstances where a marketing plan had been accepted without complaint in previous years in the same form as that contained in the document of 10 June 2003. In order to satisfy clause 18.2, the Breach Notice was required to specific the remedy. That would require an indication of the deficiencies in the document of 10 June 2003.
For example, Ms Young’s email of 21 August 2003 drew attention to the deficiencies in the marketing plan of 10 June 2003. It may be that, had that material been included in the Breach Notice, there would have been sufficient to satisfy clause 18.2. However, that information was not contained in the Breach Notice. I do not consider that the Breach Notice satisfied the requirements of clause 18.2 in relation to the failure to provide a marketing plan.
In any event, Underworks made an attempt to remedy the breach of clause 8.2. Underworks’ email of 28 August 2003 provided a significant proportion of the detail required by clauses 8.1 and 8.3.
The appellants say that the material attached to the email of 28 August 2003, while more detailed, also does not satisfy the requirement of Clauses 8.1 and 8.3 of the Sub-Licence. They say that it provides no detail in relation to labels and packaging or promotional expenditure and contains no detailed explanation of the proposed manner of representing the King Gee trademark in any promotional and advertising program. The material can be contrasted with the promotional material sent to Underworks by Ms Young on 25 August 2003.
The material provided with the email of 28 August 2003 does not, for the reasons indicated above, satisfy the requirements of clauses 8.1 and 8.3 for a marketing plan. In any event, none of the material provided by Underworks either with the document of 10 June 2003, or with the additional material of 28 August 2003, could conceivably constitute a marketing plan in relation to the Stubbies trademark. Any marketing plan proposed in relation to Stubbies Products could have been material to the question of whether Underworks had made any effort to exploit Products under the Stubbies trademark. Accordingly, there was a failure to remedy the second breach referred to in the Breach Notice.
It was common ground that a document purporting to be a marketing plan had been received once a year, even if there was occasional confusion as to the recipient and the date of receipt. The breach was in the deficiency of detail. On no fair reading of the documents to which Underworks referred as their marketing plan, did those documents contain the detail referred to Clause 8.1 of the Sub-Licence. The Breach Notice is clear in saying that the breach complained of was not merely that a marketing plan had not been received but that a marketing plan satisfying Clauses 8.1 and 8.2 had not been received.
Underworks failed to comply with the requirement of clause 8.2. However, the Breach Notice was deficient in failing to give notice of the remedy reasonably required by PB Sport & Leisure. The Breach Notice was not adequate to trigger the contractual right of termination by reason of failure to comply with clause 8.1 of the Sub-Licence. Further, I do not consider that the breach, or the failure to comply with the Termination Letter, is evidence of an intention not to be bound by the Sub-Licence that would give rise to a common law right to rescind for repudiation.
FAILURE TO PROVIDE AUDIT REPORTS
The Breach Notice contained the following relevant provision:
‘4.Under clause 12 Underworks is required to provide Pacific brands with a copy of the audit reports, prepared by an independent audit firm, of each facility (third party or owned) used by Underworks to produce the licensed products. These have not been provided.’
Clause 12 only requires Underworks to provide a copy of ‘the Audit Report’. However, the provision of such an audit report is secondary to the principal requirement of clause 12 that each facility be independently audited for compliance with the Guidelines. The Breach Notice does not require Underworks to remedy the breach of clause 12 that appears to have occurred, namely, failure to have each facility audited at least annually. The Breach Notice is deficient in that regard. It is inadequate to trigger the contractual right to terminate. Further, I do not consider that the breach, or the failure to comply with the Termination Letter, is evidence of an intention not to be bound by the Sub-Licence that would give rise to a common law right to rescind for repudiation.
BREACH OF GOOD FAITH
The primary judge found that there was no breach of the Sub-Licence and that the right of contractual termination had not been triggered. However, his Honour concluded that a duty of good faith is an incident of every commercial contract, unless that duty is excluded either expressly or by necessary implication. His Honour considered that such a duty is not an independent term of such a contract, the breach of which would give rise to a remedy, but that it operates as a fetter upon the exercise of discretions and powers created by such a contract, including a power of termination.
The primary judge found that the alleged breaches of the Sub-Licence did not cause PB Sport & Leisure and PB Clothing any harm. His Honour considered that the reason why they moved to terminate the Sub-Licence was because Underworks refused to enter into a direct licence agreement with PB Sport & Leisure. His Honour found that Underworks was subjected to pressure to do so, and when that pressure failed to achieve its objective, PB Sport & Leisure decided ‘to get rid of Underworks at the first available opportunity’. That conclusion, however, involves real tension. It is clear that PB Sport & Leisure and PB Clothing wanted Underworks to enter into a licence in relation to the Trade Marks. It is difficult to see why a termination of the existing Sub-Licence, when Underworks was not prepared to enter into a direct licence, could be characterised in any way as motivated by bad faith.
His Honour found that PB Sport & Leisure was willing to make life as difficult as possible for Underworks in an endeavour to lead it into a breach of the Sub-Licence and was then willing to act on any breach, however trivial. His Honour characterised the conduct of PB Sport & Leisure and PB Clothing as ‘reprehensible’, finding that it was ‘motivated… by bad faith’ and that ‘it would be unjust and oppressive to Underworks’, to permit termination in the circumstances that prevailed.
Implicit in that finding is that breaches of the Sub-Licence by Underworks were in some way induced by PB Sport & Leisure. However, such a proposition is not made out by the conclusions reached above. That is to say, the breaches relied on to terminate had nothing to do with PB Sport & Leisure or PB Clothing. They resulted from defaults by Underworks.
CONCLUSION
The appeal should be dismissed. The appellants should pay the respondent’s costs of the appeal.
I certify that the preceding one hundred and nineteen (119) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett. Associate:
Dated: 23 March 2006
Counsel for the Appellant: Mr J Beach QC with Mr B Quinn Solicitor for the Appellant: Freehills Counsel for the Respondent: Mr R Garratt QC with Mr J Graham Solicitor for the Respondent: Hall & Wilcox Date of Hearing: 14, 15 & 17 November 2005 Date of Judgment: 23 March 2006
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