Paul Andrew Cronk and ORS. v The Sunnyfield Association T/As Ablite Industries
[1999] NSWSC 1038
•22 October 1999
CITATION: PAUL ANDREW CRONK and ORS. v THE SUNNYFIELD ASSOCIATION T/AS ABLITE INDUSTRIES [1999] NSWSC 1038 CURRENT JURISDICTION: EQUITY FILE NUMBER(S): 3402/98 HEARING DATE(S): 1,2,3 March, 21,22,23 April 1999
Final Written Submissions 10 May 1999JUDGMENT DATE:
22 October 1999PARTIES :
PAUL ANDREW CRONK and ORS. v THE SUNNYFIELD ASSOCIATION T/AS ABLITE INDUSTRIESJUDGMENT OF: Simos J
COUNSEL : A. Radojev (Plaintiffs/Cross-Defendants)
H.K. Insall (Defendant/Cross-Claimant)SOLICITORS: John N. Merity (Plaintiffs/Cross-Defendants)
Norton Smith & Co. (Defendant/Cross-Claimant)CATCHWORDS: CONTRACT - Contract As To Manufacture and Distribution of Product Came Into Existence - Contract Not Void for Uncertainty; TRADE PRACTICES ACT 1974 - Defendant Not Guilty of Misleading Conduct - Plaintiffs Did Not Rely Upon and Were Not Misled by Defendant; TORT - Wrongfully Inducing Breach of Contract - Plaintiffs and Third Party (Cross-Defendant) Guilty of Wrongfully Inducing Breach of Contract - Injunctions Restraining Plaintiffs and Third Party (Cross-Defendant) from Acting Pursuant To or In Furtherance of Contract Entered Into In Course of Wrongful Conduct CASES CITED: Allstate Life Insurance Co. v ANZ Banking Group Ltd. (1995) 58 FCR 26
Codelfa Construction Pty. Ltd. v State Rail Authority (1981-82) 149 CLR 337
Emory University v Biochem Pharma Inc. (1998) 157 ALR 371
Hammond v Lam Ltd. (1972) 2 NSWLR 16
Independent Oil Industries Ltd. v The Shell Co. of Australia Ltd. (1937) 37 SR(NSW) 407
Saunders v Snell (1998) 72 ALJR 1508
Uprising Dragon Ltd. v Benedict Trading & Shipping Pty. Ltd. (1987) 16 FCR 93
Vitamins Australia Ltd. v Beta-Carotene Industries Pty. Ltd. (1987) 9 IPR 41
Woolley v Dunford (1972) 3 SASR 243DECISION: Statement of Claim Dismissed - Defendant (Cross-Claimant) Entitled to Injunctions and Damages.
THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
SIMOS J
FRIDAY, 22 OCTOBER 1999
(N0. 3402198): PAUL ANDREW CRONK and ORS. v THE SUNNYFIELD
ASSOCL4TION T/AS ABLITE IND USTRIESJUDGMENT
The Proceedings
The Statement of Claim
1 HIS HONOUR: By amended statement of claim filed 24 February 1999 Paul Andrew Cronk, the first plaintiff, Jake Hugo, the second plaintiff and Hugo & Cronk Pty. Limited, the third plaintiff, claimed against the Sunnyfield Association, trading as Ablite Industries, the defendant, being an employer of intellectually disabled people in the industrial lighting industry, that the first plaintiff was at all material times the inventor of an adjustable reflector device commercially marketed by the defendant as "Adjust-A- Shade" (thereinafter referred to as "the Product"). The plaintiffs further alleged that the Product was the subject of certain patent applications, including an international patent application. It was also alleged that in about March 1994 the first plaintiff commenced discussions with the board of directors of the defendant, the subject of the discussions being the commercial development production and marketing of the Product.
2 The plaintiffs further alleged that on or about 16 May 1994 an agreement dated 16 May 1994 between the first plaintiff and the defendant was signed by the first plaintiff and by Mr. John Homan on behalf of the defendant. It was alleged that this agreement of 16 May 1994 was entered into in the context of certain representations made by Mr. Homan to the first plaintiff on 6 April 1994 as particularised.
3 The agreement of 16 May 1994 contained, inter alia, the following paragraphs:-
"It is agreed between the undersigned parties that:
1. An initial exclusive period of up to SIX months be given to ABLITE to research the market potential for the above product, after which time an agreement will be negotiated in accordance with paragraph 2 below
2. ABLITE to have first right of refusal to manufacturing and distributorship rights after the initial period, and subject to an agreement to proceed will require a formal agreement which sets out” (various matters).
4 The plaintiffs alleged in the statement of claim that no "formal agreement” as referred to, inter alia, in paragraph 2 of, inter alia, the agreement dated 16 May 1994 was ever prepared and/or executed as between the first plaintiff and the defendant, nor between the first plaintiff and Mr. Homan.
5 I interpolate to note that the defendant claimed to the contrary, namely, that such a "formal agreement", executed on 10 May 1995, was entered into by the first plaintiff and the defendant. This issue was the principal issue in dispute between the parties to the proceedings.
6 The statement of claim also alleged, in effect, that in about November 1994 the defendant sought an extension of the "initial exclusive period" of up to "SIX months" referred to, inter alia, in paragraph 1 of the agreement of 16 May 1994.
7 I note that it is not in dispute that it was, in fact, agreed that there should be such an extension of the "initial exclusive period", which ended in November 1994, for a further six months ending in May 1995.
8 The statement of claim alleged that a meeting took place between the first plaintiff and the certain officers of the defendant on 2 May 1995 when certain representations were allegedly made by those officers on behalf of the defendant to the plaintiffs.
9 The plaintiffs also alleged in the statement of claim that on 10 May 1995 a "document purporting to be an agreement” (underlining supplied) was signed by the first plaintiff and executed on behalf of the defendant under the common seal of the defendant.
10 I note that this document is the agreement relied upon by the defendant as constituting the "formal agreement” contemplated in paragraph 2 of the agreement of 16 May 1994. As stated above, the plaintiffs denied that this was so.
11 As noted in the statement of claim, this agreement of 10 May 1995 was dated on its first page 2 May 1995, whilst on its second page it recorded that "This initial agreement is made and signed on the tenth day of May 1994." It is not, however, in dispute that this agreement in that form was in fact signed by the parties on 10 May 1995, and hereafter, as appropriate, this agreement will be referred to as the agreement of 10 May 1995.
12 The statement of claim referred, in relation to the agreement of 10 May 1995, to its opening words which were as follows:-
"This Agreement covers the initial development of the product known as Adjust-A-Shade, which is covered by Patent Pending No. PM2504”.
13 These words in the agreement of 10 May 1995 were, in the course of the proceedings, claimed by the plaintiffs to support their submission that that agreement (of 10 May 1995), on its true construction, operated to extend the research and development period for the Product for a further three years, whereas the defendant submitted that, notwithstanding those words, and having regard to the balance of the agreement and to the surrounding circumstances, the agreement of 10 May 1995, on its true construction, constituted the initial grant to it of a three year manufacturing and distribution period (with an option for a further three years).
14 The statement of claim also alleged that on 10 July 1996 the first plaintiff assigned his rights to the patent applications to the third plaintiff and, further, that on 30 October 1996, the third plaintiff "acting on representations made to it by the Defendant entered into an agreement with the Defendant." The agreement of 30 October 1996 provided, in effect, inter alia, that the third plaintiff would be bound by the agreement of 10 May 1995.
15 The agreement of 30 October 1996 was claimed by the defendant to have produced, according to its express terms, the result that the third plaintiff became bound by the terms of the agreement of 10 May 1995 granting to the defendant a manufacturing and distribution period of three years (with an option for a further three years) and it does not appear that this was disputed by the defendant, in the event that the submissions of the defendant as to the true construction of the agreement of 10 May 1995 were to be upheld.
16 The statement of claim also alleged that the representation alleged to have been made to the third plaintiff by the defendant was that "there was a binding agreement as between the First Plaintiff and the Defendant (being the agreement of 10 May 1995) as to the manufacture of ‘the Product’” (underlining supplied), it being understood that it was claimed by the plaintiffs, and denied by the defendant, that this representation was untrue, it being claimed by the plaintiffs and denied by the defendant that the agreement related only to the research and development period.
17 The plaintiffs also alleged in the amended statement of claim that on 1 May 1998 the third plaintiff had assigned its rights to the patent application to the first and second plaintiffs equally, who on that date entered into a deed of partnership in respect of those patent applications. The defendant claimed that this purported assignment was ineffective to deprive it of its rights as exclusive license and generally under the agreement of 10 May 1995.
18 The statement of claim also alleged that as at that date, namely, 1 May 1998, the third plaintiff ceased to have any interest in the patent applications and/or the product and that as at 31 July 1998 it (the third plaintiff) sought to be deregistered.
19 In subsequent paragraphs of the amended statement of claim the plaintiffs alleged, in effect, that there was no relevant agreement between the parties by reason of uncertainty as to the terms of any such agreement which was accordingly void.
20 The plaintiffs also alleged that there was no binding agreement between the parties dated 16 May 1994 as such agreement was entered into, if at all. between the first plaintiff and Mr. Homan personally and not as between the first plaintiff and the defendant. It was further alleged in the alternative that if the agreement of 10 May 1994 was binding upon the parties (including the defendant) then that agreement expired on 10 May 1997, on the basis that it was claimed by the plaintiffs, although denied by the defendant, that the defendant was not entitled to any option for a further three years pursuant to the agreement of 10 May 1995.
21 The plaintiffs also alleged, in effect, that the purported exercise by the defendant of its option to renew the term of three years by way of letter dated 2 February 1998 and. in accordance with the agreement of 10 May 1994, was ineffective because the option had lapsed in or about February 1997, and that the agreement duly came to an end on 9 May 1997.
22 The amended statement of claim then claimed relief pursuant to section 7 of the Contracts Review Act 1980.
23 It was also claimed that by reason of certain representations made by officers of the defendant on behalf of the defendant that the defendant had been guilty both of unconscionable conduct within the meaning of section 51AA of the Trade Practices Act 1974 and misleading and/or deceptive conduct within the meaning of section 52 of that Act.
24 The plaintiff sought relief accordingly.
The Amended Notice of Grounds of Defence
25 By its amended notice of grounds of defence, the defendant, inter alia, alleged, in effect, that on or about 16 May 1994, the first plaintiff and the defendant executed an agreement of that date as described in the amended statement of claim, which the defendant alleged granted it a research and development period of six months in relation to the Product.
26 The defendant also alleged that on or about 25 October 1994 the first plaintiff and the defendant agreed that the initial exclusive period (for research and development) referred to in the agreement dated 16 May 1994 was to be extended for a further six months to 16 May 1995. This was not disputed by the plaintiffs.
27 The defendant also alleged that on or about 10 May 1995 a (binding) agreement was executed by the first plaintiff and the defendant, being the agreement of 10 May 1995. The defendant alleged that the reference on the second page of the agreement of 10 May 1995 to "the tenth day of May 1994" was "a clear typographical error".
28 The defendant admitted that on 30 October 1996 the third plaintiff entered into an agreement with the defendant but denied the assignment of 1 May 1998 from the third plaintiff to the first and second plaintiffs equally, and alleged that any such assignment was "in any event invalid as against the defendant".
29 In relation to certain paragraphs in the amended statement of claim the defendant denied the allegations and stated that it would "rely on the contents of the agreements executed on 16 May 1994 and 10 May 1995 for their full force and effect." In answer to a further paragraph in the amended statement of claim the defendant alleged that the reference in the agreement executed on 10 May 1995 to the agreement dated 6 April 1994 was "a clear typographical error” and should have been a reference to the agreement dated 16 May 1994.
30 The defendant also claimed that it sought to and did exercise validly its option contained in sub-paragraph (a) of the agreement of 10 May 1995 by way of letter dated 2 February 1998 from the defendant to the third plaintiff.
31 Paragraphs 17 - 26 of the defendant's amended notice of grounds of defence were in the following terms:-
“17. In answer to the whole of the Statement of Claim, the Defendant says that on 10 July 1996, the First Plaintiff assigned the benefit of his invention to Third Plaintiff, and on 30 October 1996, entered into an agreement with the Defendant which confirmed the binding nature of the 10 May 1995 Agreement on Third Plaintiff, and whereby the Third Plaintiff agreed to be bound by the terms of the 10 May 1995 Agreement.
Particulars
Assignment dated 10 July 1996 between the First Plaintiff and Third Plaintiff
Contract dated 30 October 1996 between the First and Third Plaintiffs and the Defendant.
32 All other material allegations made by the plaintiffs against the defendant were in effect, denied by the defendant.
18. Further and in the alternative, in answer to the whole of the Statement of Claim, by purporting to take assignment of the Third Plaintiffs rights by Agreement dated 1 May 1998 and by purporting to grant an exclusive licence in respect of those rights to Accent Hydroponics Pty Limited, with knowledge of the 10 May 1995 Agreement and the 30 October 1996 Agreement, the First and Second Plaintiffs have procured and are intending to procure a breach of those agreements and the Defendant is entitled to enjoin the First and Second Plaintiffs from doing so.
19. Further and in the alternative, in answer to the whole of the Statement of Claim, it was a common assumption of the parties to the 30 October 1996 Agreement or alternatively the First, Second and Third Plaintiffs by executing the 30 October 1996 Agreement represented to or contributed to an assumption on the part of the Defendant:
(a) that the Third Plaintiff was and would be for the period of the 10 May 1995 Agreement entitled to grant an exclusive licence in accordance with the 10 May 1995 Agreement;
(b) that the Third Plaintiff would not assign its rights so as to interfere with or derogate from the Defendant's right under the 10 May 1995 Agreement.
20. On the basis of the assumption and in reliance upon the representation in 19 above, the Defendant entered into and performed the 30 October 1996 Agreement.
21. In the circumstances, the Plaintiffs are estopped from denying the matters 19(a) and (b) above.
22. Further and in the alternative in answer to the whole of the Statement of Claim:
(a) any purported assignment of the Third Plaintiff’s rights by the Agreement dated 1 May 1998 was a breach of the Agreement dated 30 October 1996;
(b) the Plaintiffs entered into the Agreement dated 1 May 1998, knowing that act constituted a breach of the Agreement dated 30 October 1996;
(c) the First and Second Plaintiffs have purported to take the benefit of the assignment, knowing that it was in breach of the Agreement dated 30 October 1996;
(d) the Third Plaintiff has continued, after the purported assignment on 1 May 1998, to accept payments of royalties from the Defendant in accordance with the 10 May 1995 Agreement and 30 October 1996 Agreement.
23. In the circumstances, it is unconscionable for the Plaintiffs or any of them to maintain that the First and Second Plaintiffs can deal with the interests purportedly assigned to them on 1 May 1998 in disregard of the rights of the Defendant.
24. In the circumstances, the First and Second Plaintiffs hold any such interests as were assigned to them on 1 May 1998 on trust to deal with them in accordance with the terms of the 10 May 1995 and 30 October 1996 Agreements.
25. Further and in the alternative, by reason of the matters in paragraph 22(d) above, the Plaintiffs are estopped from denying that the Third Plaintiff is entitled to and obliged to carry out the 10 May 1995 and 30 October 1996 Agreements
26. Further and in the alternative, by reason of the matters in paragraph 22 above or alternatively paragraphs 19 and 22 above, the Plaintiffs are disentitled to seek any equitable relief in this matter.”
The Amended Cross-Claim
33 By its amended cross-claim the defendant relied on the agreement of 10 May 1995 as being to the effect that the defendant was entitled "to exclusively manufacture and distribute a product called “Adjust-A-Shade’”.
34 The defendant alleged that it was an express term of the 10 May 1995 agreement that the duration of the agreement was three years and that the defendant had an option to extend the agreement for a further three year period provided the defendant exercised that option within three months of the termination of the first three year term.
35 The defendant alleged that on or about 10 July 1996 the third plaintiff (fourth cross-defendant) was assigned the benefit of the 10 May 1995 agreement by assignment dated 10 July 1996 between the first and second plaintiffs and the third plaintiff (fourth cross-defendant).
36 The defendant alleged that by an agreement in writing dated 30 October 1996 the third plaintiff (fourth cross-defendant) agreed to be bound by the terms of the 10 May 1995 agreement, and that on or about 2 February 1998 the defendant exercised its option to extend the term of the 10 May 1995 agreement to 16 May 2001 by letter dated 2 February 1998 from the defendant to the third plaintiff (fourth cross-defendant).37 The defendant alleged that on or about 1 May 1998 the third plaintiff (fourth cross-defendant) purportedly transferred its interest in the 10 May 1995 agreement to the first and second plaintiffs individually at a time when the first and second plaintiffs well knew of the 10 May 1995 agreement and the 30 October 1996 agreement and the terms thereof.
38 The defendant further claimed that on or about 25 May 1998 Accent Hydroponics Pty. Limited (the first cross-defendant) ("Accent") entered into a contract with the first and second plaintiffs for the exclusive manufacturing and distribution of the same product covered by the 10 May 1995 agreement and thereby induced and procured a breach of the 10 May 1995 agreement by the first, second and third plaintiffs.
39 The defendant further alleged that not later than 22 September 1998 the first cross-defendant (Accent) commenced selling the product which was the same product covered by the 10 May 1995 agreement and thereby induced and procured a breach of the 10 May 1995 agreement by the first, second and third plaintiffs.
40 Further, in the alternative, the defendant claimed it was an implied term of the 30 October 1996 agreement that the third plaintiff (fourth cross-defendant) was and would remain for the whole term of the 10 May 1995 agreement able to licence exclusively to the defendant the manufacture of the "Adjust-A- Shade" and that the third plaintiff (fourth cross-defendant) would not assign such rights as it had which enabled it to comply with its obligations to the defendant under the 10 May 1995 and 30 October 1996 agreements.
41 The defendant further alleged that the third plaintiff (fourth cross-defendant) had breached the implied term referred to and had also with knowledge of the terms of the agreement of 10 May 1995 and 30 October 1996 induced and procured a breach thereof.
42 There followed certain claims that the third plaintiff (fourth cross-defendant) had been guilty of unconscionable conduct within the meaning “of the unwritten law in breach of section 51AA of the Trade Practices Act” and that the first and second plaintiffs had aided, abetted or been directly or indirectly involved in the contravention of that section, but it does not appear that these matters were pursued in final address on behalf of the defendant.
43 The defendant sought certain consequential relief.44 The plaintiffs filed a defence to the amended cross-claim denying all relevant matters of material substance and, in effect, recapitulating their case as set out in the amended statement of claim. It should be noted, however, that the first cross-defendant alleged in the defence to the amended cross-claim that it had ceased to sell any product the same and/or similar to the "Adjust-A- Shade" product, the subject of these proceedings.
The Defence to the Amended Cross-Claim
45 It is impracticable and, in my opinion, unnecessary, to endeavour to set out in this judgment the whole of what transpired between the parties in relation to the subject matter of these proceedings. There were many discussions between the parties on various subject matters relevant to the proceedings as well as correspondence and draft agreements. The broad outline of what occurred may be seen from the pleadings including in particular, but not limited to, the amended statement of claim and the amended notice of grounds of defence. More detail appears, of course, from the affidavits filed on behalf of the various parties. It is sufficient, however, in my opinion, for it to be noted that the principal dispute between the parties related to the meaning and effect of the agreement executed by the first plaintiff and by the defendant under the common seal on 10 May 1995 which execution was preceded by various conversation and various documents including draft agreements but in particular by the agreement dated 16 May 1994.
Preliminary
The Facts
46 The agreement dated 16 May 1994 was in the following terms:-
The Agreement of 16 May 1994
“16 May 1994
ADJUST-A-SHADE
This Agreement covers the initial development of the product known as ‘Adjust-A-Shade', which is covered by patent Pending No. PM2504.
It is agreed between the undersigned parties that:
1. An initial exclusive period of up to SIX months be given to ABLITE to research the market potential for the above product, after which time an agreement will be negotiated in accordance with paragraph 2 below.
2. ABLITE to have first right of refusal to manufacturing and distributorship rights after the initial period, and subject to an agreement to proceed will require a formal agreement which sets out:
(a) Exclusive manufacturing and distributorship within Australia and New Zealand for a fixed period of three years with an option of three years exercisable not less than three months prior to the end of the third year.
(b) Agreed value of royalties payable on sale of units. We agreed to $2.50/unit for small units and $3.00/unit for large units, (payable 30 days after the end of the calendar month in which the sale occurs).
(c) Agreement is subject to the securing of the Patent Rights by Mr. Paul Cronk.
(d) Mr. Paul Cronk, (Inventor), to indemnify Sunnyfield against all actions or claims relating to any infringement of Patent rights which might be brought against The Association arising directly or indirectly from the manufacture, sale, distribution, or use of the wing type reflector, (Patent Pending PM2504).”
This initial agreement is made and signed on the sixteenth day of May 1994, between Mr. Paul Cronk ... and ABLITE a division of The Sunnyfield Association …”.
47 There is no dispute, but in any event, I hold that this agreement was executed on or about 16 May 1994 by the first plaintiff personally and by Mr. John Homan on behalf of the defendant. This agreement will be given more detailed consideration later in this judgment under the heading "Construction of the Agreement of 10 May 1995" but it may be noted briefly at this point that the agreement was stated to cover "the initial development of the product known as 'Adjust-A- Shade’” and that it was provided that an "initial exclusive period" of up to six months would be given to the defendant "to research the market potential for the above product after which time an agreement will be negotiated in accordance with paragraph 2 below."
48 It will also be noted that paragraph 2 of the agreement of 16 May 1994 provided that the defendant was to have "first right of refusal to manufacturing and distributorship rights after the initial period" and that "subject to an agreement to proceed" "will require a formal agreement” setting out various matters including, inter alia, "Exclusive manufacturing and distributorship within Australia and New Zealand for a fixed period of three years with an option of three years exercisable not less than three months prior to the end of the third year."
The Agreement of 10 May 1995
49 In due course, after further discussions and correspondence and draft agreements, there followed what I have described as the agreement of 10 May 1995. This agreement is in fact, as stated above, dated on the first page 2 May 1995 whilst on page 2 it is stated, inter alia, that "This initial agreement is made and signed on the tenth day of May 1994 between Mr. Paul Cronk … and ABLITE a division of the Sunnyfield Association …”.
50 This agreement, which as stated above, will be referred to as the agreement of 10 May 1995, was in the following terms:-
"2 May 1995
ADJUST-A-SHADE
This Agreement covers the initial development of the product known as 'Adjust-A-Shade', which is covered by Patent Pending No. 64800/94.
It is agreed between the undersigned parties that following the initial exclusive period, the original agreement of 6th April 1994 be amended and extended for a further period of three years from 16th May 1995 to 16th May 1998.
(a) Exclusive manufacturing and distributorship within Australia and New Zealand for a fixed period of three years with an option of three years exercisable not less than three months prior to the end of the third year.
(b) Agreed value of royalties payable on sale of units. We agreed to $2.50/unitfor small units and S3. 00/unit for large units, (payable 30 days after the end of the calendar month in which the sale occurs).
(c) Agreement is subject to the securing of the Patent Rights by Mr. Paul Cronk.
(d) It was also agreed that for the purpose of verification of quantities sold per month, Mr. Paul Cronk would have access, under supervision, to our computer records in relation to his specific product.
(e) Mr. Paul Cronk, (Inventor), to indemnify Sunnyfield against all actions or claims relating to any infringement of Patent rights which might be brought against The Association arising directly or indirectly from the manufacture, sale, distribution, or use of the wing type reflector, (Patent Pending No. 64800/94).
This initial agreement is made and signed on the tenth day of May 1994, between Mr Paul Cronk of 1/65 Evans Street, Harbord, and ABLITE a division of The Sunnyfield Association of 185 Allambie Road, Allambie Heights 2100.”
51 This agreement of 10 May 1995 will be the subject of further consideration below but it may be noted here that it is stated, as it was in the agreement of 16 May 1994, that the agreement (of 10 May 1995) covers "the initial development of the product known as 'Adjust-A- Shade’”. In my opinion, for reasons which will appear later, these words were not an apt description of the agreement of 10 May 1995 which was, in my opinion, an agreement granting to the defendant a manufacturing and distribution period of three years with an option for a further three years. It may also be noted here that, in my opinion, again for reasons which will appear hereafter, the reference to "the original agreement of 6 April 1994" should have been a reference to "the original agreement of 16 May 1994".
52 It should also be noted that prior to the execution of the agreement of 10 May 1995 the "initial exclusive period of up to six months" given to the defendant "to research the market potential for the above product" had been extended by agreement for a further period of six months to 16 May 1995 as evidenced by the letter dated 24 October 1994 from the defendant to the first plaintiff, signed by the first plaintiff on 16 December 1994.
53 It should also be noted that as at the date of signing of the agreement of 10 May 1995 the evidence was to the effect that no further research and development period was required prior to the defendant entering upon its manufacturing and distribution period.
54 It should also be noted that paragraph (a) of the agreement of 10 May 1995 provided that the defendant should have, in addition to "Exclusive manufacturing and distributorship within Australia and New Zealand for a fixed period of three years" "an option of three years exercisable not less than three months prior to the end of the third year."55 On or about 10 July 1996 the first plaintiff assigned to the third plaintiff defendant) "the entire right, title and interest in and to, inter alia, the invention relating to the Product. This assignment was in the following terms:-
The Assignment of 10 July 1996
" ASSIGNMENT
THIS ASSIGNMENT is made this 10th day of July, One thousand nine hundred and ninety six
BETWEEN
PAUL ANDREW CRONK ...
(hereinafter referred to as 'the Assignee’) of the other part,
AND
HUGO & CRONK PTY LIMITED (ACN 073 172 853) ...
(hereinafter referred to as 'the Assignee’) of the other part.
WHEREAS
A. The Assignor is the owner of an invention entitled 'ADJUSTABLE REFLECTOR DEVICE' the subject of Australian Patent Application No. 64800/94 filed 20 June 1994 and of International Patent Application No. PCT/AU95/00303 filed on 24 May 1995.
B. The Assignor has agreed with the Assignee for the sale of the said invention, the said Applications including any national or regional phase application or patent derived from the International Application to the Assignee to have and to hold absolutely.
NOW THIS DEED WITNESSETH that in consideration. of the premises and of the payment of the sum of five dollars ($5.00) paid to the Assignor by the Assignee (the receipt whereof is hereby acknowledged) the Assignor doth hereby assign, transfer and set over unto the Assignee the entire right, title and interest in and to the said invention, the said Applications and any national or regional phase application or patent derived therefrom to have and to hold absolutely.
IN WITNESS WHEREOF these presents are executed the day and year first above written.
The Agreement of 30 October 1996
56 By an agreement in writing dated 30 October 1996 between the first plaintiff, the third plaintiff and the defendant, the third plaintiff agreed to be bound by the terms of the 10 May 1995 agreement.
57 The agreement of 30 October 1996 was in the following terms:
"AGREEMENT
THIS AGREEMENT is made this 30th day of OCTOBER, One thousand nine hundred and ninety six
BETWEEN
PAUL ANDREW CRONK ...
(hereinafter referred to as 'the Assigno’) of the one part,
AND
HUG0 & CRONK PTY LIMITED (ACN 073 172 853) ...
(hereinafter referred to as 'the Assignee’) of the other part
ABLITE INDUSTRIES, a division of THE SUNNYFIELD ASSOCIATION (ACN 000 415 127) ...58 It may be noted that, notwithstanding the assignment of 10 July 1996, and the agreement of 30 October 1996, the defendant, at the request of the first plaintiff, and with the knowledge and consent of the second and third plaintiffs, continued to pay royalties to the first plaintiff until the end of May 1998 and thereafter to the third plaintiff (and not to the first and second plaintiffs).
WHEREAS
A. Paul Andrew Cronk is the inventor of an invention entitled 'ADJUSTABLE REFLECTOR DEVICE’, the subject of Australian Patent Application No. 64800/94 filed 20 June 1994 (hereinafter referred to as 'the invention’).
B. Paul Andrew Cronk, in an agreement dated 2 May 1995, authorised Ablite Industries to exclusively manufacture and distribute the invention within Australian and New Zealand. A copy of the agreement dated 2 May 1995 is attached and marked 'Appendix A'.
C. On 24 May 1995, Paul Andrew Cronk filed a further patent application in respect of the invention and certain improvements and modifications thereto, as International Application No. PCT/AU95/00303.
D. Paul Andrew Cronk has agreed with Hugo & Cronk Pty Limited for the sale of the said invention, the said Applications including any national or regional phase application or patent derived from the International Application to Hugo & Cronk Pry Limited to have and to hold absolutely.
NOW THIS DEED WITNESSETH
1. Hugo & Cronk Pty Limited hereby accepts and confirms the Agreement dated 2 May 1995 between Paul Andrew Cronk and Ablite Industries and hereby accepts as binding on itself its successors and assigns all the conditions, restrictions and obligations set out in the Agreement as though the Agreement has been made between it and Ablite Industries.
2. Ablite Industries hereby accepts and acknowledges the assignment of the invention and the Patent applications from Paul Andrew Cronk to Hugo & Cronk Pty Limited and hereby accepts as binding upon itself its successors and assigns the conditions, restrictions and obligations set out in the Agreement as though such Agreement has been made between it and Hugo & Cronk Pty Limited.
IN WITNESS WHEREOF, this AGREEMENT is executed the day and year first above written.
Exercise by Defendant of its Option
59 On 2 February 1998 the defendant exercised its option to extend the term of the 10 May 1995 agreement to 16 May 2001 by letter dated 2 February 1998 from the defendant to the third plaintiff.
60 The letter of 2 February 1998 was in the following terms:-
"2nd February 1998
The Directors
Hugo & Cronk Pty Ltd
P. 0. Box 1161DEE WHY NSW 2099
Dear Sirs,
Re: Adjust-A-Shade Agreement
We refer to the above Agreement which was negotiated with Paul Andrew Cronk and the Ablite Division of The Sunnyfleld Association in May 1995. The Agreement was for exclusive manufacturing and distributorship within Australia and New Zealand for a period of three years from 16th May 1995 with an option of three years exercisable not less than three months prior to 16th May 1998.
On 10th July 1996, Paul Andrew Cronk assigned his rights in the Adjust-A-Shade device to Hugo & Cronk Pty Lid and that Assignment was ratified by The Sunnyfield Association in an Agreement signed by Paul Andrew Cronk, Hugo & Cronk Pty Ltd and The Sunnyfield Association.
In accordance with the terms of the original Agreement, we hereby give notice that we wish to exercise our option to renew the Agreement for a period of three years commencing 16th May 1998.
THE SUNNYFIELD ASSOCL4 TION
Yours faithfully,
John Shepherd
General Manager”
The Assignment dated 1 May 1998
61 On or about 1 May 1998 the third plaintiff assigned its interest in the "invention" the subject of the relevant patent applications to the first and second plaintiffs personally.
62 The assignment dated 1 May 1998 between the first and second plaintiffs and the third plaintiff was in the following terms:-
"ASSIGNMENT DEED
THIS ASSIGNMENT is made on the 1st day of May 1998
BETWEEN: HUGO & CRONK PTY LIMITED A.C.N. 073 172 853 ... ('the Assignor’)AND: PAUL ANDREW CRONK ... the State of New South Wales and JAKE HUGO ... (‘the Assignee’)
63 By deed of partnership of 1 May 1998 the first and second plaintiffs agreed to become partners in the business of manufacturing, marketing and distribution of the "invention" the subject of the relevant patent applications.
RECITALS
A. The Assignor is the owner of an invention entitled 'Adjustable Reflector Device’ the subject of Australian Patent Application No. 64800/94 filed 20th June, 1994 and of International Patent Application No. PCT/AU95/00303 filed on 24th May, 1995 (‘the Invention’).
B. The Assignor has agreed with the Assignee for the sale to the Assignee of the said Invention, the said Applications including any national or regional phase application or patent derived from the International Application (‘the Interest’).
IT IS AGREED as follows:
1. INTERPRETATION2. ASSIGNMENT OF INTEREST
In this Assignment, unless the context otherwise requires:
(a) headings are for convenience only and shall not affect interpretation ;
(b) words importing the singular shall include the plural and vice versa;
(c) a reference to a gender includes each other gender;
(d) a reference to a person includes a partnership and a body, whether corporate or otherwise;
(e) a reference to a Clause, Recital or Schedule is a reference to a clause, recital of or schedule to this Assignment and such form part of this Assignment;
(f) the recitals to this Assignment do not form part of the Assignment;
(g) all references to currency shall be construed as references to Australian Dollars;3. COUNTERPARTS
The Assignor hereby assigns to the Assignee the Interest in the Invention .
4. GOVERNING LA W
This Assignment may be executed in any number of counterparts and all such counterparts when taken together shall constitute the one and the same instrument.
EXECUTED as a Deed.
This Assignment shall be governed by the laws of New South Wales and the parties submit to the non-exclusive jurisdiction of the courts exercising jurisdiction there.
The Deed of Partnership of 1 May 1998
The Agreement of 25 May 1998
64 On 25 May 1998, Accent Hydroponics Pty. Limited (the first cross-defendant) entered into an agreement dated 25 May 1998 with the first and second plaintiffs for the exclusive right to manufacture, market and distribute, in effect, the product covered by the 10 May 1995 agreement for an initial term of three years and with provision for successive terms of three years. There was initially some suggestion on behalf of the plaintiffs and Accent that this agreement was not in respect of the relevant product but ultimately this was not pursued. In any event I find that the agreement of 25 May 1998 was in respect of the relevant product and in this connection I note that after receiving a letter of demand dated 13 October 1998, from the defendant, Accent ceased manufacture of the product pending the outcome of these proceedings.
65 Clause 34 of that agreement provided that the first cross-defendant would pay up to a maximum of $20,000 towards legal costs incurred in these proceedings by the first and second plaintiffs and clause 33 of the agreement provided for its termination by either party to the agreement in the event that a court of law found in favour of the defendant or if the parties compromised these proceedings on the basis that the defendant was entitled to exercise its rights during the option period of three years.
66 In October 1998 the first cross-defendant ceased to manufacture, distribute and sell the relevant product until the determination of these proceedings.67 The principal issue in the proceedings was, as stated above, as to the true construction of the agreement of 10 May 1995 between the first plaintiff, on the one hand, and the defendant, on the other hand. Both parties agreed that this agreement had to be construed in the context of the relevant surrounding circumstances, including the events which led up to it, and, in particular, in the context of the fact that the agreement of 10 May 1995 was preceded by correspondence and discussions between the parties and by certain draft agreements as well as by the agreement dated 16 May 1994 between the first plaintiff and the defendant.
Construction of the Agreement of 10 May 1995
Agreement of 16 May 1994
Submissions on Behalf of the Plaintiffs
68 It was submitted, in effect, on behalf of the plaintiffs that the agreement of 16 May 1994 was, so far as its legal operation was concerned, no more than a contract dealing with the "research and development" period in relation to the relevant product, the Adjust-A-Shade, in the sense that that agreement did no more than give the defendant the exclusive right for a period of six months to develop and "research the market potential" of the relevant product.
69 It was submitted that this appeared, inter alia, from the first two lines of the agreement of 16 May 1994 which were in the following terms:-
"This Agreement covers the initial development of the product known as `Adjust-A-Shade’, which is covered by Patent Pending No. PM2504”.
70 Emphasis was placed on the words "initial development of the product".
71 Reference was also made to paragraph 1 of the agreement of 16 May 1994 which was in the following terms:-
"It is agreed between the undersigned parties that:
1 An initial exclusive period of up to SIX months be given to ABL1TE to research the market potential for the above product, after which time an agreement will be negotiated in accordance with paragraph 2 below.”
72 In relation to this paragraph of the agreement emphasis was placed, inter alia, upon the word "initial" and upon the words "to research the market potential for the above product".
73 It was further submitted on behalf of the plaintiffs that paragraph 2 of the agreement of 16 May 1994 did not give rise to any binding contractual obligations upon either of the parties, having regard to the concluding words of paragraph 1 of the agreement, namely, "after which time ('An initial exclusive period of up to six months') an agreement will be negotiated in accordance with paragraph 2 below". It was submitted on behalf of the plaintiffs that this was no more than a statement of intention to the effect that, at the appropriate time, that is, after the "initial exclusive period of up to six months", the parties would commence negotiations for an agreement "in accordance with paragraph 2 below".74 It was submitted on behalf of the plaintiffs, in effect, that paragraph 2 was no more than a statement of intention as to the subject matters that would be dealt with in the course of such negotiations and that, as such, they had no relevant binding contractual legal effect when the agreement of 16 May 1994 was executed. This was said also to be supported by the words in paragraph 2: "ABLITE ... will require a formal agreement which sets out …”. The reference to "a formal agreement” was said to support the view that paragraph 2 was not the subject of a binding legal agreement as at the date of execution of the agreement dated 16 May 1994.
75 It was also submitted on behalf of the plaintiffs that, on the assumption that the evidence was admissible, relevant employees of the defendant, as well as the first plaintiff, understood the agreement of 16 May 1994 to be dealing with the "research and development" period, and, by implication, not to be dealing in any binding way in those parts of the agreement of 16 May 1994, namely, paragraph 2, which were not dealing with the "research and development" period, but were dealing with the subject matters for negotiation in a formal contract thereafter. In my opinion, however, direct evidence as to how the parties understood a written agreement is equivalent to direct statements of intention which are not admissible in aid of the construction of a written contract: Codeya Construction Pty. Ltd. v State Rail Authority (1981-82) 149 CLR 337 at 347-352, and I have not taken any such evidence into account.
76 Counsel for the plaintiffs also relied upon the letter dated 25 October 1994 from Mr. Homan on behalf of the defendant to the first plaintiff, and referred to the heading of the said letter which was in the following terms:-77 Counsel also referred to the body of the letter which stated that:-
"Original Agreement between The Sunnyfield Association and Mr. Paul Cronk, dated 16th May, 1994.”
78 Counsel submitted that the reference to the extension of "the expiry date on the Contract for an extra six months" indicated that the parties had regarded the "Original Agreement" as otherwise expiring on 16th November 1994. This, it was submitted, supported the view that the agreement of the 16th May 1994 was indeed intended by the parties to be no more than a six month agreement relating to "research and development" of the product, and that that agreement was not intended by paragraph 2 thereof to create further binding legal obligations upon the parties.
'It was agreed that we would extend the expiry date of the Contract for an extra six months, from 16th November 1994 to 16th May 1995.”
79 In relation to the agreement of 10 May 1995, counsel for the plaintiffs submission was that it should be construed as having effect only to extend the "research and development" period, (originally six months and later extended for a further six months: see letter dated 25 October 1994 referred to above) for a further period of three years from 16th May 1995 to 16th May 1998. Counsel submitted that this approach was supported by the first two lines of the agreement [which were identical with the first two lines of the agreement of 16th May 1994, (except for the patent pending number)] which read as follows:-
Agreement of 10 May 1995
80 Counsel for the plaintiffs further submitted that this approach was also supported by the terms of the next three lines of the agreement of 10 May 1995 which were in the following terms:-
"This Agreement covers the initial development of the product known as Adjust-A-Shade”, which is covered by Patent Pending No.64800/94.”
“It is agreed between the undersigned parties that following the initial exclusive period, the original agreement of 6th April 1994 be amended and extended for a further period of three years from 16th May 1995 to 16th May 1998.”
81 It was submitted that "the original agreement", referred to, mistakenly, as being "the original agreement of 6th April 1994", should have been referred to as "the original agreement of 16th May 1994", and that since that original agreement of 16th May 1994 was limited to dealing with the "research and development period", and since it was that agreement which was by the agreement of 10 May 1995 to be "amended and extended for a further period of three years from 16th May 1995 to 16th May 1998", the effect of the agreement of 10 May 1995 was only to extend the "research and development period" for three years.
82 It was submitted further that just as paragraph 2 of the agreement of 16 May 1994 was no more than a mere statement of the intention of the parties which did not give rise to any binding contractual legal obligation, so paragraphs (a) to (e) of the agreement of 10 May 1995 was no more than a statement of intention of the parties which did not give rise to any binding contractual legal obligations, notwithstanding that the agreement of 10 May 1995 contained, at the request of the first plaintiff, an additional paragraph being (e) relating to the first plaintiff agreeing to indemnify the defendant against certain actions and claims. Indeed, so it was submitted, this approach was supported by the fact that Mr. Homan had told the first plaintiff that he (Mr. Homan) would have the old or original agreement of 16 May 1994 amended to include paragraph (e), with the result that, just as paragraph 2 had no binding legal effect between the parties, neither did paragraphs (a) to (e) have binding legal effect on the parties.
83 Counsel for the plaintiffs also submitted that the reference in the concluding paragraph of the agreement of 10 May 1995 to "This initial agreement", as well as the opening two lines of the agreement, lent support to the view that the agreement of 10 May 1995 was limited to extending the "research and development period" for a further period of three years.
84 It will be observed that, as stated above, the submissions on behalf of the plaintiffs accept that the reference in the second paragraph of the agreement of 10 May 1995 to "the original agreement of 6th April 1994" should be a reference to the "original agreement of 16 May 1994".
85 It will also be observed that the submissions on behalf of the plaintiffs, if correct, would produce the result that the "initial" "research and development period" of six months, later extended for a further six months, was extended yet further by three years when, in my opinion, there is no evidence to support the view that at that time a further three years of "research and development" of the product was necessary. Indeed, there was evidence to the contrary, namely, that the defendant was satisfied that the research and development that it had already concluded within the initial twelve months period was sufficient for it to commence manufacture, marketing and distribution of the product, which it did, and in respect of which it paid and the first plaintiff received royalties as from on or about 10 May 1995. It should also be observed that the submissions on behalf of the plaintiffs also involve the consequence that both paragraph 2 of the agreement of 16 May 1994, as well as paragraphs (a) to (e) of the agreement of 10 May 1995, had no operative legal effect notwithstanding the absence from the agreement of 10 May 1995 of the words which appear in the agreement of 16 May 1994, namely, the words "after which time (the initial exclusive period) an agreement will be negotiated in accordance with paragraph (2) below".
Submissions on behalf of the Defendant
86 Counsel for the defendant submitted that the meaning of the agreement between the parties of 10 May 1995 was relatively clear, and in the context of its factual matrix, which factual matrix included the agreement between the parties dated 16 May 1994, was not doubtful.
87 Counsel submitted that the meaning of the agreement of 16 May 1994 was quite clear, insofar as it was clear on its true construction that by paragraph 1 thereof the first plaintiff granted to the defendant "An initial exclusive period of up to SIX months ... to research the market potential for the above product" (ADJUST-A-SHADE).
88 Further, it was submitted by counsel on behalf of the defendant that paragraph 2 of the agreement of 16 May 1994, which was referred to in paragraph 1 in terms of after which time (the initial exclusive period) an agreement will be negotiated in accordance with paragraph 2 below", should be construed preferably as revealing the intention of the parties to the effect that they were agreeing in the agreement of 16 May 1994 that after the initial exclusive period they would, as a matter of binding legal contractual obligation, and after the defendant had indicated its agreement to proceed, enter into a "formal agreement' containing the provisions set out in paragraphs (a) to (d) of paragraph 2 of that agreement. It was submitted, in effect, that this part of the agreement fell within the second class of contracts referred to in the decision in Masters v Cameron (1954) 91 CLR 353 at 360-361, comprising contracts in respect of which the parties had finally agreed on the terms thereof and intended to be immediately bound thereby but nevertheless intended that the terms would be set out in a formal document to the same effect.
89 Counsel for the defendant submitted, in the alternative, that paragraph 2 of the agreement of 16 May 1994 should be construed as not contractually legally binding upon the parties, but should be construed as evincing an intention to the effect that after the initial exclusive period, and after the defendant had agreed to proceed, the parties would negotiate "a formal agreement" dealing with the subject matters contained in paragraph 2(a) to (d) of the agreement of 16 May 1994. Counsel submitted further that the parties had in fact negotiated the "formal agreement" referred to in the agreement of 16 May 1994, that "formal agreement' being the agreement of 10 May 1995 which was binding as such between the parties.
90 Counsel for the defendant submitted in this connection that, even if the agreement of 16 May 1994 was to be construed as limited to the granting of an initial exclusive period of six months for "research and development", and even if the agreement of October 1994 was construed as limited to the extension of that initial six month period for a further six months, namely, from 16 November 1994 to 16 May 1995, the agreement of 10 May 1995 was plainly the formal agreement which had been negotiated between the parties as contemplated in paragraph 2 of the agreement of 16 May 1994, and, as such, was binding on the parties according to its terms which were not limited to the extension for a further three years of the “research and development" period of six months later extended for a further six months.
91 Counsel submitted that the evidence established that the negotiations leading up to the agreement of 10 May 1995 had been extensive, involving various meetings between the parties and draft agreements, by way of contrast to the simplicity of the events leading up to the extension in October 1994 of the initial period for research and development for a further six months, which contrast made it plain that the parties had negotiated the agreement of 10 May 1995 as the "formal agreement” referred to in the agreement of 16 May 1994. Counsel also referred to the absence from the agreement of 10 May 1995 of paragraph 1 in the agreement of 16 May 1994.
92 Counsel also referred to evidence which established that the parties were conscious that the research and development period was coming to an end as at about May 1995, and that neither of the parties contemplated or spoke about any necessity for a further period for research and development after 16 May 1995, let alone a further period of three years after that date (as would have been expected if the construction on behalf of the plaintiff were to be accepted to the effect that the agreement of 10 May 1995 did no more than extend the research and development period for a three years). Counsel referred, inter alia, to paragraph 14 of the affidavit of Mr. Homan who stated that “In or about April or May 1995, as the 12 month development period came to an end, it became apparent to me that we would be in a position to commence manufacturing, selling and marketing the Adjust-a- Shade". Counsel also referred to paragraph 17 of the affidavit of Mr. Ferguson in which Mr. Ferguson stated that “Towards the end of April or the beginning of May 1995, it became clear to me that the Adjust-a-Shade could be manufactured and marketed by Ablite." Counsel also referred to paragraph 12 of the affidavit of the first plaintiff who stated that during the meeting of 2 May 1995 Mr. Ferguson told the first plaintiff that "Sales seem to be increasing steadily" and that "There is a market and the customer feedback has been very positive" According to the first plaintiff he (the first plaintiff) also stated that he was "keen to settle on a formal agreement."
93 Counsel submitted that all this evidence was quite inconsistent with any requirement for an additional three years research and development.
94 Having regard to all these considerations counsel for the defendant submitted that the meaning of the agreement of 10 May 1995 was, in its context, relatively clear when read as a whole, and that that agreement should be construed as defining the original (first) manufacturing and distribution period (being, according to paragraph (a) of both agreements, "a fixed period of three years with an option of three years") to be from 16 May 1995 to 16 May 1998, upon the basis that there was no necessity to further extend the already once extended research and development period beyond 16 May 1995, to which date it had been extended by the letter dated 25 October 1994 to the first plaintiff from Mr. Homan on behalf of the defendant.
95 Counsel submitted that the first two lines of the agreement of 10 May 1995 could simply be disregarded upon the basis that, on the true construction of the balance of the agreement, it was plain that the description of it as contained in the first two lines as an agreement covering "the initial or development of the product" was simply wrong because, on its true construction, the agreement of 10 May 1995 was not an agreement covering "the initial development of the product". Those words were not, in any event, words of contract but merely descriptive words and as such could be ignored.
96 Counsel also referred to the second three lines of the agreement of 10 May 1995 which read as follows:-
“It is agreed between the undersigned parties that following the initial exclusive period, the original agreement of 6 April 1994 be amended and extended for a further period of three years from 16th May 1995 to 16th May 1998”.
97 Counsel submitted that in a context in which it is plain that the description of the original agreement as being "of 6th April 1994" was an error, because it should have been described as being "of 16th May 1994", and in which it was plain that the initial research and development period had come or was coming to an end at the end of twelve months, and that no further period of research and development was necessary, the reference to the original agreement of 16 May 1994 (erroneously referred to as the original agreement of 6th April 1994) being amended and extended for a further period of three years from 16th May 1995 to 16th May 1998 must be construed as a reference to an extension of the date of commencement of the manufacturing and distribution period, which in the original agreement of 16 May 1994 was contemplated to commence at the end of the initial period of six months ending 16th November 1994 and which initial period, although extended for a further six months to 16 May 1995 by the letter of 25 October 1994, was not recorded on the actual document, being the original agreement of 16 May 1994.
98 Counsel for the defendants further submitted that paragraphs (a) to (e) of the agreement of 10 May 1995 should be construed as having been intended to be binding on the parties, and to be part of the formal agreement envisaged in the agreement of 16 May 1994. In this connection counsel drew attention to the absence of any words of conditionality contained in the agreement of 10 May 1995 as compared with the presence of such words of conditionality in the agreement of 16 May 1994, being the words in paragraph 2 of that agreement, namely, "And subject to an agreement to proceed will require a formal agreement which sets out …”.
99 Counsel also submitted that paragraphs (a) to (e) in the agreement of 10 May 1995 could not be regarded as mere surplusage in a contract which dealt with the initial research and development period to which paragraphs (a) to (e) were not directly relevant.
100 Counsel also drew attention to the use in the agreement of 10 May 1995 of the word "amended" in relation to "the original agreement” (of 16 May 1994) which in its original form implied that the manufacturing and distribution period would commence from 16 November 1994 contrary to what was now being agreed in the agreement of 10 May 1995, namely, commencement of that period on 16 May 1995.
Decision as to the Construction of the Agreement of 10 May 1995
101 In my opinion the submissions in relation to the construction of the agreement between the parties of 10 May 1995 made on behalf of the defendant are generally correct and should be accepted. In my opinion, the agreement of 10 May 1995 should be read as a whole in the surrounding circumstances in which it came into existence, including but not limited to the agreement of 16 May 1994.
102 Those surrounding circumstances include the letter of 25 October 1994 to the first plaintiff from the defendant, and, most importantly, the fact that the evidence is to the effect that as at about 2 May 1995 the research and development period had come or was coming to an end, and there was no suggestion by any party to the effect that at a time a further three years research and development would be necessary before the manufacturing and distribution period of the product could begin.
103 Accordingly, in my opinion, the agreement of 10 May 1995 should be construed as providing that the initial exclusive manufacturing and distribution period granted by the first plaintiff to the defendant was the period of three years from 16 May 1995 to 16 May 1998, and that the provisions of paragraphs (a) to (e) of that agreement including the three years option period, were operative as from 10 May 1995.
104 In my opinion, when so construed in the context of all the relevant surrounding circumstances, it is plain that the description in the first two lines of the agreement of 10 May 1995 that it "covers the initial development of the product” is simply an incorrect description of that agreement which appeared in that agreement by mistake, resulting no doubt, from the use of a word processor, and that those words should for that reason be disregarded, having regard also to the fact that, in any event, they are merely words of description rather than words of contract in a contract drafted by laymen rather than lawyers.
105 In relation to the second paragraph comprising three lines of the agreement of 10 May 1995 I am, as stated above, of the opinion that they should be construed as amending the initial three year period for manufacturing and distribution contemplated by the original agreement of 16 May 1994 as commencing on 16 November 1994 so as to commence on 16 May 1995 principally because, as stated above, as at early May 1995, it appears to have been accepted on all sides that the research and development period had come to an end, and certainly no-one contemplated or suggested that a further three years research and development was required. The reference in the agreement of 10 May 1995 to amendment of the original agreement should, in my opinion, be understood and construed in all the relevant circumstances as referring to the amendment of the original agreement of 16 May 1995 which provided for an initial research and development period of up to six months expiring on 16 November 1995, which although extended by the letter dated 25 October 1994, was not actually implemented by amending the original copy of the original agreement of 16 May 1994. In other words, in my opinion, the effect of the second three line paragraph of the agreement of 10 May 1995 is to make it clear that the initial manufacturing and distribution period of three years was to commence on 16 May 1995 and not on 16 November 1994 as would have been contemplated by the terms of the agreement of 16 May 1994 had that agreement not been agreed to be amended in accordance with the letter of 25 October 1994.
106 In this connection I also note that recital B in the agreement of 30 October 1996, to which the first and third plaintiffs and the defendant are parties, is in the following terms:-
“B. Paul Andrew Cronk, in an agreement dated 2 May 1995 (but signed on 10 May 1995) authorised Ablite Industries to exclusively manufacture and distribute the invention within Australia and New Zealand...” (words in brackets and underlining supplied).
107 I am further of the opinion that paragraphs (a) to (e) of the agreement of 10 May 1995 were intended by the parties in the relevant context to be, and are, binding upon the parties as from the date of execution of that agreement, having regard principally, inter alia, to the fact that they obviously come as to paragraphs (a) to (d) from the agreement of 16 May 1994, which in paragraph 1 contemplated an agreement to be negotiated in accordance with paragraph 2 of that agreement which provided that, subject to the defendant's agreement to proceed, the defendant would require a formal agreement setting out paragraphs (a) to (d), which are the same as paragraphs (a) to (d) of the agreement of 10 May 1995.
108 It is plain, in my opinion, that, in all the circumstances, the agreement of 10 May 1995 was the formal agreement referred to in paragraph 2 of the agreement of 16 May 1994 for the reasons referred to above, but also having regard to the absence from the agreement of 2 May 1995 of what counsel for the defendant described as the words of conditionality contained in the agreement of 16 May 1994, being the words that the defendant, subject to an agreement to proceed, (would) require a formal agreement which sets out the matter contained in paragraphs (a) to (d). Paragraph (e) in the agreement of 10 May 1995 was simply inserted by agreement but at the request of the first plaintiff.
109 It also follows from the foregoing that I reject the plaintif’s submission to the effect that the agreement of 10 May 1995 is void for uncertainty.
110 I note for completeness that in support of this submission counsel for the plaintiffs relied, inter alia, upon the following passages contained in the judgment of Sugerman P in Hammond v Vam Ltd. (1972) 2 NSWLR 16 at 17ff.-111 In my opinion, however, the application of these principles to the facts of the present case, leads to the conclusion stated above, namely, that the agreement of 10 May 1995 is not void for uncertainty.
"This appeal involves a question which sometimes arises when the terms in which an instrument, or part of an instrument, are, to put it broadly, not expressed as clearly and precisely as they might be. The question which then sometimes arises is whether the difficulty thus occasioned is one which may be resolved as a matter of the construction of the instrument, or part, in its application to circumstances which arise under it, or whether the lack of certainty or precision in its terms has reached the point at which it must be said that the instrument, or part, is so lacking in certainty of meaning that it is incapable of enforcement, in which event, if the instrument takes the form of a contract (as in the present instance), it is commonly described as a 'void' contract and regarded as incapable of legal effect, a disability which, unless some measure of severance is possible, may extend to the whole instrument, even though the uncertainty exists only in part of it ...
The courts are always loath to hold a clause invalid for uncertainty if a reasonable meaning can be given to it. Their duty is to put a fair meaning upon it, unless this is utterly impossible, and not, as has been said 'to repose on the easy pillow of saying that the whole is void for uncertainty' ... 'the point is one of uncertainty of concept. If it is impossible, on construction of the condition, to reach a conclusion as to what was in the draftsman's mind, the condition is meaningless and must be read as pro non scripto'...
In relation to commercial contracts 'the problem for a court of construction must always be so to balance matters that, without violation of essential principle, the dealings of men may as far as possible be treated as effective, and that the law may not incur the reproach of being the destroyer of bargains’ ...
Finally, before coming to the facts of the present case, I should refer to what was said by Barwick CJ in Upper Hunter County District Council v Australian Chilling and Freezing Co. Ltd:-
'But a contract of which there can be more than one possible meaning or which when construed can produce in its application more than one result is not therefore void for uncertainty. As long as it is capable of a meaning, it will ultimately bear the meaning which the courts, or in an appropriate case, an arbitrator, decides is its proper construction; and the court or arbitrator will decide its application. The question becomes one of construction, of ascertaining the intention of the parties ... So long as the language employed by the parties ... is not 'so obscure and so incapable of any definite or precise meaning that the Court is unable to attribute to the parties any particular contractual intention', the contract cannot be held to be void or uncertain or meaningless. In the search for that intention, no narrow or pedantic approach is warranted, particularly in the case of commercial arrangements. Thus will uncertainty of meaning, as distinct from absence of meaning or of intention, be resolved.’”
112 Various submissions were made on behalf of the plaintiffs in relation to the claims of the plaintiffs against the defendant under the Trade Practices Act 1974 as set out in paragraphs 28-31 of the amended statement of claim which were in the following terms:-
Submissions on Behalf of the Plaintiffs
The Claims Under the Trade Practices Act 1974
“28. Further, and/or in the alternative the Plaintiffs repeat paragraphs 6 to 15 above and say that at all material times it was represented to the First Plaintiff that a formal agreement as described in paragraph 1 and paragraph 2 of the documents dated 6 April 1994 and 16 May 1995 (would be negotiated) and that such formal agreement would be the basis of the on-going commercial relationship between the First Plaintiff and the Defendant and therefore the basis of the future relationship between the First and Second Plaintiffs, the Defendant and/or alternatively the Third Plaintiff and the Defendant.”
29. The representations referred to in paragraph 28 above were made by the servants and/or agents of the Defendant and on behalf of the Defendant whilst the Defendant was engaged in trade and/or commerce …
30. The representations contained within the documents augmented and/or supplemented oral representations made by the servants and/or agents of the Defendant and were, in the context of the oral representations, unconscionable within the meaning of s.51AA of the Trade Practices Act 1974.
31. Further, the Plaintiffs repeat paragraphs 28 and 29 above and say that the conduct of the Defendant through its servants and/or agents was misleading and/or deceptive and/or likely to mislead and/or deceive and as such was in contravention of s.52 of the Trade Practices Act 1974.”
113 The submissions made on behalf of the plaintiff in relation to the alleged representations were, by reason of the terms of paragraph 28 of the amended statement of claim, necessarily predicated upon the basis that no formal agreement as described in paragraph 1 and paragraph 2 of the documents dated 6th April 1994 (16 May 1994) and 16th May 1995 (10 May 1995) had ever come into existence. As, however, I have found, as stated above, that such a formal agreement did come into existence, being the agreement of 10 May 1995, which formal agreement did and does form the basis of the on-going and future commercial relationship between the first plaintiff and the defendant (see paragraph 28 of the amended statement of claim), it follows that those submissions on behalf of the plaintiffs must be rejected.
114 It may be noted, however, that in this connection counsel for the plaintiffs submitted, inter alia, that a principal source of the alleged misleading representation to the effect that it was represented to the first plaintiff "that a formal agreement as described in paragraph 1 and paragraph 2 of the documents dated 6th April 1994 (16 May 1994) and 16th May 1995 (10 May 1995) (would be negotiated) and that such formal agreement would be the basis of the ongoing commercial relationship between the First Plaintiff and the defendant”, was the agreement of 10 May 1995 itself. This was said to be the case because, inter alia, the agreement of 10 May 1995 commenced with two lines which described the agreement as covering "the initial development of the product", whereas such words would not have been used if it were the case, that the agreement of 10 May 1995 related to the original term of three years of the manufacturing and distribution period in respect of the product, and to the three years option in respect thereof. In my opinion, however, notwithstanding the use of those words, the agreement of 10 May 1995 was not misleading having regard to the circumstances which led up to it and, in particular, the use of those words, and indeed the use of all the words of the agreement would not have misled the first defendant, having regard to his central role in those circumstances, including the circumstance that the final document of 10 May 1995 had, in the course of various discussions, gone through various drafts containing those words which had been passed between the first plaintiff and the defendant. In all the circumstances, I am, on the evidence, firmly of the opinion that the first plaintiff well knew that the parties were at this time negotiating the formal agreement referred to in the original agreement of 16 May 1994 and not just negotiating a three year extension of the research and development period. I am further of the opinion that nothing that was said in this connection by any of the officers of the defendant was misleading or likely to mislead.
115 It was further submitted that the agreement of 10 May 1995 was itself misleading according to its terms having regard also to the second paragraph thereof containing three lines in which reference is made to the "original agreement of 6th April 1994" whereas no such agreement existed, it being accepted that the only relevant “original" agreement was that of 16 May 1994. I am satisfied that in this connection also the defendant, through its officers, was not guilty of any misleading conduct and that, in any event, the first plaintiff was not misled in any material way by this consideration, nor is there any evidence that the first plaintiff believed otherwise and would not have signed the agreement had he known that the original agreement being referred to was that of 16 May 1994 rather than some earlier draft of that agreement bearing date 6 April 1994.
116 The overall thrust of the submissions made on behalf of the plaintiffs in this connection were, as I understood them, to the effect that the terms of the agreement of 10 May 1995 and the conversations surrounding it prior to its execution produced the result that the terms of the agreement of 10 May 1995 represented itself, and further that it was represented by the officers of the defendant to be, an agreement extending the research and development period for a further three years, whereas in fact it was an agreement defining the initial three year period of the manufacturing and distribution period. In my opinion, a reasonable person standing in the shoes of the first plaintiff in all the relevant circumstances would not have been misled by the terms of the agreement, nor by anything that the officers of the defendant, said about it, into believing that it was limited to dealing with the research and development period, whereas in fact it dealt with the initial manufacturing and distribution period of three years. Further, in my opinion, the defendant through its officers was not guilty of any misleading conduct in relation to anything they said about the agreement of 10 May 1995 including anything that was said concerning the three years option. I am satisfied that having regard to the discussions which preceded it, at the time of the signing by the first plaintiff of the agreement of 10 May 1995, he had an adequate understanding of what an option was.
117 In this connection and generally I prefer the evidence of the officers of the defendant as to what was said in the course of the events leading up to the execution of the agreement of 10 May 1995 to the evidence of the first plaintiff. In my opinion, all of the officers of the defendant who gave evidence were using their best endeavours to recollect what happened and to give evidence truthfully and without regard as to whether or not what they were saying in evidence was or was not helpful to the defendant's case. Moreover, their evidence was, in my opinion, in general, consistent with the surrounding circumstances and with the probabilities as to what passed between them and the first plaintiff in the various conversations. On the other hand, in my opinion, the evidence of the first plaintiff appeared to me to be given from the point of the view of a person who believed he had been treated unjustly by the officers of the defendant, principally, so it. would seem, because the agreed royalties were too low, and because they were not expressed as a percentage of the defendant's profits, and who was endeavouring to rectify the position by recalling the substance and sequence of conversations in a manner which was calculated to achieve that result. I do not find that this was done deliberately but rather that it was done subconsciously, the first plaintiff having persuaded himself that the evidence he gave was truthful because it did serve to show how in his view he had been misled and otherwise unjustly treated.
118 I do not accept, for example, that when Mr. Homan said words to the effect that he would have the "old" (original) agreement amended to include a provision to the effect that the first plaintiff could have access to the records of the defendant in relation to sales which was inserted in paragraph (d) in the final agreement of 10 May 1995, that he was intending to convey that the agreement of 10 May 1995 then being negotiated was no more than a variation or amendment of the earlier agreement of 16 May 1994 which was limited to the research and development period, nor that it was so understood by the first plaintiff. In my opinion, in the conversations with the first plaintiff to which Mr. Homan was a party, he (Mr. Homan) made it clear, expressly or by implication, that the agreement then being negotiated was the "final" or "formal" agreement contemplated by the agreement of 16 May 1,994. The same is true, in my opinion, of what was. said by other officers of the defendant including Mr. Ferguson and Mr. Shepherd.
119 Further, I do not accept the submission on behalf of the plaintiffs to the effect that I should prefer the evidence of the first plaintiff to the evidence of Mr. Homan because Mr. Homan must have been in error in relation to his evidence that he included paragraph (d) in the final agreement of 10 May 1995 without discussing the matter with either Mr. Shepherd or Mr. Ferguson, and also in relation to the fact that Mr. Homan and the first plaintiff shook hands at the conclusion of the discussion with the first plaintiff of 2 May 1995, whereas it was more probable that this would have occurred at the time of the signing of the agreement of 10 May 1995, namely, on 10 May 1995. I accept the evidence of Mr. Homan in these respects and I do not find it improbable, having regard to his evidence, that he considered that the content of paragraph (d) in the final agreement of 10 May 1995 was reasonable and not of sufficient importance to require it to be checked with Mr. Shepherd or Mr. Ferguson. I also do not find it improbable that Mr. Homan and the first plaintiff would have shaken hands at the conclusion of the discussion on 2 May 1995, by which time agreement had been reached between the parties on all the terms of the proposed formal agreement and notwithstanding that Mr. Homan in effect invited the first plaintiff to seek legal advice about it if he wished to do so.
120 Counsel for the defendant also submitted that the first plaintiff’s evidence could not be regarded as truthful having regard to his evidence in relation to the reason, or one of the reasons, why the third plaintiff decided to transfer its rights in the subject invention to the first and second plaintiffs personally. This was done at a time when the original manufacturing and distribution period of three years had expired and the third plaintiff had made it plain in correspondence that it did not propose to honour the exercise by the defendant of its three years option. Counsel for the defendant submitted that I should find that the first plaintiff was not telling the truth in relation to why it had been decided to assign the invention from the third plaintiff to the first and second plaintiffs personally and that I should infer, contrary to the first plaintiff’s evidence that it was for taxation reasons, that at least one of the reasons why it was done was to avoid the obligation upon the third plaintiff to honour the exercise by the defendant of its three year option.
121 Counsel for the defendant referred me to the evidence in cross-examination of the second plaintiff in which he admitted, in effect, that at least one reason for the assignment was an attempt to avoid the third plaintiff having to give to the defendant a further three year period of manufacturing and distribution of the product pursuant to the exercise by the defendant of its option.
122 That evidence included the following:-
Q. You went to Mr. Merity because you wanted to get out of the arrangement with Sunnyfield, did you not?
A. Yes, that is correct.
Q. And you asked Mr. Merity for advice in relation to how to get out of that arrangement?
A. I wouldn't actually say how to get out of it but I would have put it more along the lines of giving us advice on the contracts that we had with Paul and Sunnyfield, giving us advice throughout all the contracts that were signed before any advice was taken on getting out of the contract with them.
Q. Yes. And then advice was taken about how to get out of the contract, was it not?
A. Yes.
Q. And he suggested that you assign the rights to yourselves personally?
A. This is correct.
Q. And that thereafter, the company would have no rights to licence to Sunnyfield?
A. I suppose, yeah, if the intellectual property isn't in the company any more, it's a partnership, but we actually went to the partnership agreement for tax purposes.
Q. Yes; but I'm asking - you said this is what Mr. Merity said and Mr. Merity said that after the assignment Hugo & Cronk Pty. Limited would have no rights to provide in favour of Sunnyfield?
A. Yes; correct.
Q. And Mr. Merity advised you to deregister the company as soon as possible after the assignment, did he not?
A. Yes. My accountant I think advised that.”123 Counsel for the defendant submitted in effect, that the second plaintiff’s admitted reasons for the assignment must necessarily also have been also the first plaintiff’s reasons for the assignment, having regard to their close association including the fact that, apparently, they saw Mr. Merity together.
124 The evidence of the first plaintiff in this connection included the following questions and answers which highlight the inconsistency between the evidence of the first plaintiff and the evidence of the second plaintiff in relation to this matter:-
"Q. In May 1998 the company Hugo & Cronk Pty. Limited assigned or purported to assign its interest in the adjust-a-shade to yourself and Mr. Hugo personally?
A. Yes
Q. And why did you do that?
A. Under the instruction of our lawyer that we should. It was not efficient to be a company any more and we were better off being a partnership, because of tax reasons, because we were not getting much money in and, you know, our accounting and things could be bigger and more elaborate than our business dealings ...
Q. Do you honestly say that that was the reason that you assigned the rights to yourselves personally?
A. Yes, I honestly say that.
Q. And there was no other reason?
A. No.
Q. There was no other reason for assigning the rights to yourselves personally other than the fact that Mr. Merity said he read something in the paper about companies not being tax efficient?
A. That is correct, yes.
Q. You knew that the agreement with Sunnyfield was about to expire in May 1998, did you not?
A. Yes.
Q. And you knew that Sunnyfield were asserting that they had an entitlement to an option for another three years, did you not?
A. Yes.
Q. And you decided that one way of dealing with Sunnyfield's assertion of an option was to assign the interests from the company to yourselves personally, did you not?
A. No, because how would that change it? It was still with us …
Q. You understood that if you assigned the rights to yourselves personally you would be entitled to the interest and not the company?
A. I didn't see a reason - the reason why it didn't worry me, we were fully convinced there wasn't a contract and we had written a letter saying that ...
Q. You were concerned that it might be seen as improper to assign the rights to yourselves personally when you had an existing obligation to Sunnyfield?
A. I did not think we had an obligation to Sunnyfield.
Q. But you were concerned about that, were you not?
A. 1 thought about it.
Q. You thought about it because you were concerned that you might have an obligation at law to Sunnyfield?
A. I had seen contract attorneys and they said that there was no obligation .
Q. Who were these contract attorneys?
A . Alex Radojev. As far as he was concerned there was no obligation. As far as he was concerned the contract was as we read it.
Q. And in what way did he provide that advice?
A. Verbally through John Merity.
Q. And you were concerned enough to think about this issue and get advice from Mr. Radojev, were you?
A. No, we got advice from Mr. Rado/ev about the contract.
Q. And before that, 1 suggest to you, you were concerned about the issue of assigning the rights to yourselves personally?
A. No, it wasn't even our idea.
Q. Whose idea was it?
A. Well, the idea was entered, was suggested by John.
Q. And he said to you that one way of dealing with Sunnyfield's problems was to assign the rights to yourselves personally?
A. No, he didn't say that …
Q. Did Mr. Merity write to you in relation to the desirability of deregistering the company?
A. No, it was just discussed in his office between Jake, myself and John.”
(underlining supplied).
125 It is, in my opinion, inconceivable that although, in effect, at least one of the reasons why the second plaintiff wished the assignment to take place from the third plaintiff to the first and second plaintiffs personally was because he (the second defendant) wished the company to avoid its obligations to the defendant pursuant to the exercise of the option, that the first plaintiff had no such intention in mind, even as one of the reasons why he wished the third plaintiff to assign the invention. I therefore infer and find that the first plaintiff was less than frank with the court in failing to admit that at least one of his reasons for wishing the third plaintiff to assign the invention was so that the third plaintiff could avoid its obligations to the defendant in respect of the option period of three years.
126 That the first plaintiff understood the true import of the agreement of 10 May 1995 is also made clear, in my opinion, by the fact that, as stated above, he had ample opportunity to consider and did consider the terms of the proposed agreement before it was signed and himself made suggestions as to amendments, and by the fact that and he also had ample opportunity to obtain legal advice. In my opinion, the first plaintiff was well able to and did understand the true nature and effect of the agreement of 10 May 1995. Indeed, in cross-examination the first plaintiff conceded that it was necessary to get legal advice to protect his own interests and that if he failed to do so he was taking risks yet, having taken away the draft agreement (which later became the agreement of 10 May 1995) on 2 May 1995, and having found that his legal adviser was away for two weeks, the first plaintiff signed the agreement without advice and without any pressures from the defendant or otherwise as to time.
127 It is also not to be forgotten that, as stated above, the defendant, at the request of the first plaintiff, and with the knowledge and consent of the second and third plaintiffs, continued to pay royalties to the first plaintiff after the assignment of 10 July 1996 and the agreement of 30 October 1996 in relation to the defendant's manufacture and distribution of the subject product until the end of May 1998 and thereafter to the third plaintiff.
128 In all the circumstances, in my opinion, the first plaintiff cannot be heard to claim to have been misled into believing that the agreement of 10 May 1995 did no more than extend the research and development period for three years from May 1995.
129 In the light of the findings I have made it is unnecessary for me to deal with any of the other submissions made on behalf of the parties.130 The claims of unconscionability pursuant to section 5 1 AA of the Trade PracticesAct 1974 were not argued on behalf of the plaintiffs, and, if they had been, having regard to my findings, they would have been dismissed. There is, for example, no evidence that the first plaintiff was, relevantly, subject to any special disadvantage of which the defendant took advantage nor evidence of any other facts which could constitute unconscionable conduct.
Unconscionability
131 The claims under this Act were not argued on behalf of the plaintiffs. In any event the Act is not applicable: see section 6 of the Act.
Contracts Review Act 1980
Subsequent TransactionsThe Assignment dated 10 July 1996 from the First Plaintiff to the Third Plaintiff (Hugo & Cronk Pty. Limited)
The Agreement dated 30 October 1996 between the First Plaintiff, the Third Plaintiff and the Defendant
132 The terms of each of these two agreements have been quoted above in full and it was not submitted by any party that they should not operate according to their terms, namely, respectively, as an assignment by the first plaintiff of his interest in the invention the subject of the relevant patent applications to the third plaintiff, and, so far as material, an acceptance and confirmation by both the third plaintiff and the defendant of the agreement of 10 May 1995 and of the terms of that agreement as binding upon the third plaintiff and the defendant "as though such agreement has (sic) been made between" the third plaintiff and the defendant.
133 Counsel for the defendant submitted that third plaintiff affirmed and became bound by the terms of the agreement of 10 May 1995 between the first plaintiff and the defendant, on 30 October 1996, pursuant to the express terms of the agreement of that date between the first plaintiff and the defendant.
134 This is plainly right and I do not understand that proposition to have been disputed on behalf of the plaintiffs.
135 I again note, as stated above, that, notwithstanding the assignment of 10 July 1996 and the agreement of 30 October 1996, the defendant, with the knowledge and consent of the second and third plaintiffs, continued to pay royalties to the first plaintiff until the end of May 1998, after which the royalties were paid to the third plaintiff.
The Exercise on 2 February 1998 by the Defendant of Its Option
136 The terms of the letter dated 2 February 1998 from the defendant to the third plaintiff have been quoted above in full.
137 It was not in dispute and, in any event, I hold that, having regard to my findings, the exercise by the defendant of its option under the agreement of 10 May 1995 (and the agreement of 30 October 1996) by letter dated 2 February 1998 from the defendant to the third plaintiff was valid and binding upon the third plaintiff.
The Assignment dated 1 May 1998
138 The terms of this assignment of the interest of the third plaintiff in the relevant invention to the first and second plaintiffs personally have been quoted in full above.
139 It was submitted on behalf of the defendant, inter alia, that the assignment of 1 May 1998 constituted a breach by the third plaintiff of the agreement of 10 May 1995 (and the agreement of 30 October 1996) and that in that connection the first and second plaintiffs personally were guilty of the tort of wrongfully inducing the third plaintiff to breach the agreement of 10 May 1995 (and the agreement of 30 October 1996).
140 On one view, however, the entry by the third defendant into the assignment of 1 May 1998 did not constitute a breach by the third defendant of the agreement of 10 May 1995 (or the agreement of 30 October 1996) for the reason that on this view the grant to the defendant pursuant to the agreement of 10 May 1995 of the exclusive right (licence) to manufacture the relevant product the subject of the relevant patent applications constituted the grant to the defendant of a proprietary interest (see Vitamins Australia Limited v Beta-Carotene Industries Pty Limited: (1987) 9 IPR 41) which was unaffected by the assignment of 1 May 1998. The result is, on this view, that the interest in the relevant invention, the subject of the relevant patent applications, acquired by the first and second plaintiffs personally pursuant to the assignment of 1 May 1998 was subject to, and not in derogation of, the rights of the defendant as exclusive licensee pursuant to the agreement of 10 May 1995 (and the agreement of 30 October 1996).
141 Alternatively, if this were not the case, as appears to be suggested by what French J said in Uprising Dragon Ltd. v Benedict Trading & Shipping Pty. Ltd. (1987) 16 FCR 93 (and cf. the decision of Lindgren J in Emory University v Biochem Pharma Inc. (1998) 157 ALR 371), and the assignment of 1 May 1998 was effective, contrary to the view referred to above, to destroy or modify in some way the rights of the defendant as exclusive licensee pursuant to the agreement of 10 May 1995 (and the agreement of 30 October 1996), the first and second plaintiffs would, in my opinion, having knowledge of all the relevant facts, have been guilty of the tort of wrongfully inducing the third plaintiff to breach its contract with the defendant, being the agreement of 30 October 1996, it being plain that all the elements of that tort were present in the case of, inter alia, the first and second plaintiffs: see e.g. Independent Oil Industries Ltd. v The Shell Co. of Australia Ltd. (1937) 37 SR(NSW) 407 at 414-417; Allstate Life Insurance Co. v ANZ Banking Group Ltd. (1995) 58 FCR 26 at 37-45 and Saunders v Snell (1998) 72 ALJR 1508 at 1513.
142 The breach of contract by the third plaintiff induced by the first and second plaintiffs was a breach of the implied term implied in the agreement of 30 October 1996 (and the grant of 10 May 1995) to the effect that the third plaintiff would not act in the relevant circumstances in any way which would result in any derogation from the rights of the defendant under those agreements: see Codelfa Constructions Pty Ltd v State Rail Authority, supra, at 345-347. Moreover, in my opinion, the defendant would be entitled to an injunction restraining the first and second plaintiffs from acting in furtherance of that wrongful conduct: Woolley vDunford (1972) 3 SASR 243, 297, for example, by executing or acting pursuant to or in furtherance of the license agreement such as this one of 25 May 1998 between them and Accent, or by endeavouring to restrain the defendant from exercising its rights as exclusive licensee pursuant to agreement of 10 May 1995 (and the agreement of 30 October 1996. On this basis the defendant would also be liable in damages to the defendant.
The Licence Agreement of 25 May 1998 with Accent Hydroponics Pty. Limited
143 By this agreement, the terms of which have been quoted above, the first and second plaintiffs to grant an exclusive licence to manufacture the relevant product to Accent Hydroponics Pty. Limited ("Accent”). Accent admitted the signing of this agreement and the manufacture, distribution and sale of approximately 250 of the relevant products, after which, as stated earlier, it ceased manufacture pending the outcome of these proceedings.
144 On the first view referred to above, this agreement was ineffective to grant such a licence to Accent for the reason that such a licence in respect of the relevant product had already been granted to the defendant, with the result that, for the reasons referred to earlier, the interest of the first and second plaintiffs in the invention was an interest subject to the pre-existing proprietary rights of the defendant as exclusive licensee. In those circumstances any attempt by the first and second plaintiffs to grant a second exclusive licence would necessarily be legally ineffective in the sense that neither the first and second plaintiffs, nor the second alleged exclusive licensee, would be entitled to restrain the defendant from exercising its rights as (the first) exclusive licensee.
145 Alternatively, if, contrary to this view, the grant to Accent of an exclusive licence was effective to destroy or modify in some way the rights of the defendant as exclusive licensee pursuant to the agreement of 10 May 1995 (and 30 October 1996), then, in my opinion, that grant was an act done by the first and second defendants in furtherance of their wrongful conduct in inducing the third plaintiff to commit a breach of its contract with the defendant by assigning its (the third plaintiffs) interest in the relevant invention to the first and second plaintiffs, with the consequence that, in my opinion, the defendant is entitled to an injunction restraining the first and second defendants from acting pursuant to, or in furtherance of, the licence agreement of 25 May 1998 with Accent.
146 I am further of the opinion that, on this view, Accent also, which had knowledge of all the relevant facts, was, in entering into the licence agreement of 25 May 1998 with the first and second plaintiffs, guilty of the tort of wrongfully inducing the first and second defendants to commit a breach of their contracts with the defendant (being the agreements of 10 May 1995 and 30 October 1996), because the entry by the first and second plaintiffs into the licence of 25 May 1998 with Accent was, as Accent well knew, an act done by the first and second plaintiffs in furtherance of their wrongful conduct in inducing the third plaintiff to commit a breach of its agreements with the defendant.
147 In those circumstances, the defendant is, in my opinion, entitled to an injunction restraining Accent from acting pursuant to or in furtherance of the licence agreement of 25 May 1998, as well as to damages against Accent.
148 I am further of the opinion that by reason of the fact that the first plaintiff was bound by the agreement of 10 May 1995, Accent, which, on the pleadings and on the evidence, had knowledge of all the relevant facts, would, in my opinion, have been guilty of the tort of wrongfully inducing the first plaintiff' to breach his contract with the defendant, there being, in my opinion, no reason why the first plaintiff should not remain liable under the agreement of 10 May 1995, notwithstanding the agreements of 10 July 1996 and 30 October 1996. In this connection I note that clause 1 of the agreement of 30 October 1996 provides, inter alia, that "Hugo & Cronk Pty. Limited hereby accepts and confirms the agreement dated 2 May 1995 (should be 10 May 1995) between Paul Edward Cronk and Ablite Industries ..." (words in brackets supplied).
149 On this basis, also, the defendant would, in my opinion, be entitled to an injunction against Accent, restraining it from continuing to manufacture the relevant product, since continuing to manufacture in such circumstances would constitute, in effect, a continuation by Accent of its conduct in inducing the first plaintiff to breach his contract with the defendant. On this basis, Accent would also be liable in damages to the defendant.
Estoppel
150 In the event that the agreement of 25 May 1998 between the first and second plaintiffs and Accent, was, contrary to the first view expressed above, effective to destroy, or modify in some way, the rights of the defendant as exclusive licensee pursuant to the agreements of 10 May 1995 and 30 October 1996, I also find that, having regard to the fact that the defendant, as stated above, continued, at the request of the first defendant, and with the knowledge and consent of the second and third defendants, to pay royalties to the first plaintiff after the agreement of 30 October 1996 came into existence until the end of May 1998 and thereafter to the third plaintiff, and to the fact that the defendant and the first, second and third plaintiffs conducted their affairs otherwise upon the basis that the agreements of 10 May 1995 and 30 October 1996 were valid and binding according to their terms, the defendant and the first, second and third plaintiffs conducted their affairs on the basis that those agreements of 10 May 1995 and 30 October 1996 were valid and binding according to their terms.
151 In my opinion, by reason of these matters the first, second and third plaintiffs are, in the event referred to above, relevantly estopped from denying that those agreements of 10 May 1995 and 30 October 1996 remain valid and binding according to their terms by asserting, in effect, that the assignment of 1 May 1998 and the agreement of 25 May 1998 are operative to defeat the rights of the defendant pursuant to those agreements because the agreement of 10 May 1995, contrary to what I have held, operated only to extend the research and development period for the relevant product for three years or for any other reason: see Waltons Stores (Interstate) Ltd. v Maher (1987-1988) 164 CLR 387; The Commonwealth v Verwayen (1990) 170 CLR 394.
Costs
152 The defendant has submitted that if it is successful in the proceedings, as it has been, that its costs of the proceedings, including the cross-claim against Accent, should be ordered to be paid by Accent, as well as by the first, second and third plaintiffs, having regard, in particular, inter alia, to the fact that Accent agreed to pay the legal expenses of the first and second plaintiffs of, inter alia, the present proceedings up to a maximum of $20,000. I will hear argument on this question on a date to be arranged.
153 In any event, however, I intend to order that the costs of the defendant of these proceedings be paid by the first, second and third plaintiffs and that the costs of the cross-claimant (defendant) of the cross claim be paid by the first, second, third and fourth cross-defendants.154 I direct the defendant to bring in short minutes of order giving effect to these reasons for judgment.
Direction
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